DAOs without established legal entities are too early to be practical

Transcript

lawyer this is not legal advice but I have about four years of experience and governance design being involved in multiple entities like worker owned cooperative nearly establishing the Swiss Association for a citizen led space program called space T central and that also involved writing a governance paper for how it would work and at the moment I'm a CEO for a company called arc and we're an American LLC potentially creating a c-corp or something like that next so that's just a little bit of background so gonna go through this sentence a little bit and then we'll break it down further so dows

a dhow it's a decentralized autonomous organization it's an organization that operates based on rules which are encoded on a blockchain that's the basic level essentially of what a dhow is okay established legal entities so the primary driver for establishing a legal entity is limiting your liability that's why they came up in the past because people didn't want their their assets to be at risk and the dow 101 if you're in the dow space right now you know that if you don't have a legal entity your dow can be considered a general partnership

that was that started to be revealed with the SE C's Dow report okay so they're too early to be practical what does practical mean let's just look at the dictionary definition number two likely to succeed or be effective in real circumstances so it's like allocating assets using blockchain technology at the risk of my personal assets being seized if something goes wrong unless you know you're all your assets are also on the blockchain

somewhere but it's like is that is that actually practical it's like why what's what's the purpose of having like a single Dao and it's just like granting money to that person and that person like it's like where what's the purpose so it's like is it likely to succeed or be effective in real circumstances it's like so dowas are not practical today um they're fun experiments and maybe sometimes not so fun too but you know surely there must be some practical use cases today so let's see maybe a bake

sale lemonade stand a Burning Man camp an anonymous dal you know if you're an anonymous dal it can be practical because your assets can't be seized but someone might say okay what about Moloch Dow because Moloch doubt doesn't have an entity I'm part of Moloch Dow but it's not anonymous it's very clear who a lot of the members are right now for-profit organizations are being granted grants from Moloch Dow and it works fine for this happy path of governance but like what happens if something goes wrong and also it's like this whole like like Moloch Dow won't be

practical until the etherium foundation puts all of its money into it and that's why it's just an experiment right now it's like you know there's some decisions going on and Moloch doubt where it takes like two months to decide not that many people are participating and it's like okay is it actually effective so so I think Moloch Dow is like one example of this this meme that's been spreading for a type of Dow but in in reality it's one organization that's just granting money to other organizations and it's like what what's like what was like the spirit of the Dow is it just supposed to be like this one entity I'm just like giving these other entities money I'll talk more about like the spirit of the Dow later but

but I guess it's like well what about Dow dispute systems like this is like with dispute systems you know you're fine like it's gonna help solve these these problems with you know like legal issues you might have across cows but it's like okay well the dispute systems that are being designed today they're based on essentially like money and slashing and and losing money if you aren't like aligned with the majority decision and you might say like the security of these dispute systems is similar to like a blockchain it's like if if the value of your dispute system is only like a million dollars like staked like how is that actually secure how do you know that it's not gonna be

civil attacked with with people that have a lot of money that are claiming like you know these jurors see it's for even if it makes it to the very like tail end of the dispute it's like if you're trying to create like these dau systems to like replace things it's not just about like million dollar disputes it's gonna be about you know disputes that are much more than that so it's like okay like today I would prefer lawyers to handle my disputes so it's like why why doubt anyway like I've been in the Dow space Dow space for a few years first getting into getting into it for the purpose of creating something like a decent rise space program because a

decentralized space program is something that you can't just do with like one organization it has to do with you know connecting a lot of different organizations and aligning it around a common mission so so to to me like a Dow was a network of multiple people or organizations like collaborating and cooperating in a more open way to more efficiently execute on a common goal so if you're not being more efficient with these like concert with these smart contracts and it's like what's what's the purpose of having it Dow because it's just easier to put your money in and put your money out is that like the problem with coordination

so yeah it's like the purpose is to become more efficient by using blockchain technology it's all about like efficiency open access right so that's why it's like super it doubts like I think it's hard to call something a dau unless you're you're in this like mindset of a Supra dau like a Supra organization like like Federation's like coalition's couldn't conglomerate smoke multi stakeholder organizations I think that it's hard to to like go back to the purpose of it if you're not designing a system that can make these connections because that's the problem with like institutions today is it's like it's

hard to start it's hard to have like contracts between multiple entities it's like is it very easy to sign a legal agreement and put your corporation on it put the other corporation on it like send it money and have more rights for if something goes wrong so I think that the internet is a good example of a multi-stakeholder model so so you got Internet governance and the multi-stakeholder model employees it's a reflection of the open and inclusive nature of the global Internet and it's been an integral reason behind it's amazing growth and success so it's included multiple stakeholders like governments businesses civil society technical community and academic

institutions and like it's it's around sharing knowledge experience competences and best practices so whenever I see a diagram like this about the internet like that's what I think when I think of dows I'm like oh wow you know you got plague users you know all these different organizations like these standards that are forming you know it's like they're not using blockchain technology to collaborate they're not they're not dealing that much with capital allocation and I think that's that's kind of like the difference in this in this more box chain world is we're adding you know capital allocation to this system of multiple stakeholders interacting and we're saying that if you

actually add that to the system well maybe we can like accomplish accomplish them goals faster like like solve some challenges okay so so I'm gonna talk more about like told towards an initial like social purpose Dao so here's some statistics about like foundation so there are about two hundred and sixty thousand foundations globally about half of them have no paid staff and they have like small budgets under a million and 58 percent of foundations do not collaborate with other foundations I mean you might even

say something like that for like the blockchain ecosystem it's like we've birth so many foundations and I think you know there have been attempts to connect them to collaborate like the ECF or maybe like Moloch Dow things like that but I think it's like it's still kind of going through these these same problems where even with smart contracts it's not it's not becoming much more efficient yet so so yeah it's like philanthropy um faces this problem of collaboration and I think would be interesting to think more for how how can we solve things more it's like what's missing so I'm going to talk about like a potential structure of like a suit brought Dow and it's not it's

nothing that is just gonna end up being like four nodes but it can start to be the beginning I'm talking about entities that are American because I'm American but it can be applied for you know globally so you can start off with something like a Delaware C Corp and a worker owned cooperative this is not very common either but the worker owned cooperative it can develop open source software make sure it's really not evil and it has equity in the C Corp and it also receives revenue share from a c-corp so in some ways the C Corp is not like a traditional Silicon Valley type C Corp where you're waiting 20 years until you become profitable it has like it

wants to just be more realistic than that but the primary goal is to to make money assumption and it has various products that uses open-source software developed by the co-operative might think of us today like something like Google you know these cloud providers that are using all this open-source software but this open-source software is not always necessarily developed by like a co-op it's like those are also other for-profit companies but they do have a lot of different contributors to it where and there's also not not this flow of capital back from how how the company is utilizing the open source software it's like that for it to actually a trickle back down to the producers of

the technology and I think this is where something might you know start to change in the future so you have that and so it's like people are are participating in this ecosystem because it's like it's like you might you might form a Delaware C Corp and you have a mission as a business and and you do want to actually like you don't want to just make all this money and like that's that's all you do is life you you have probably some some common like common goal maybe it's like climate change you know you're you're Tesla and you're really interested in climate change it's like okay well there are a lot of other nonprofits that are also interested in

that and you know you have a specific like your hundred dollars or your yeah hundred dollars cost like seventy-five dollars if you're flowing it down to a non-profit so it's like there might be some cases for why you would want to send money to a non-profit to have a greater impact so and the other thing about nonprofits as far as like a 501 C 3 or being an American nonprofit is access to vast amounts of philanthropic capital which is way more than venture capital but that was also why I put the Delaware c-corporation of the largest VC markets but yeah so in the philanthropic industry in general is about 1.5

trillion globally and about 500 billion four hundred to five hundred billion and America okay so now how do we connect these all like something like a Swiss Association why Switzerland because you know they have token laws that are very familiar and understandable Swiss associations are easy to spin up and what is Swiss Association like what you didn't do is you can create a General Assembly and the General Assembly can have like members from all of these other nodes that participate in the ecosystem so in some sense you can give you can decide

how many members this association should have and what percentage it should be from each of the entities involved you might say oh it's like one one member each or like five members each you try to maintain a balance so so as as this Dow you can set those set those rules for how how membership to the Association is managed and that membership to this association is essentially something that you would use a token for it's like a non-transferable membership type thing so so it's like this is a proposal for how you can build this dowel where you're trying to actually like connect entities and and connect them in a way where you're being

like efficient with how when capital is flowing through the system then I think eventually you can start to get to this vision of Dow where the Dow is not like that was not the Association in the middle but the Dow is like what's on the outside of everything it's it's like it's not a legal entity it's it's wrapping a bunch of entities together and then then you might have ones inside there that don't have legal entities that don't have that much risk that can interact with the system but that's that's what I think like whenever I think of Dow is I don't think that I think it's about like one of the nodes

like just allocating capital with smart contracts I think it's like this greater thing that can be enabled by by smart contracts and maybe you know we'll have starships one day and I'll be so happy and that's that oh yeah you have sometimes for a short Q&A yeah I like your can I sit I despise a microphone questions pretty far to be done I will do it the classic way so for the Swiss

Association you generally need a Swiss resident right do you guys have a worker around do you have a workaround solution for that oh I mean that that was like a hypothetical doubt once you have all those four entities hopefully you know some Swiss people or you have like money to find find a really good one but that's like a hypothetical type system and it's like once you get to the the space agency levels you know there's like good universities there that are about aerospace or you can find a good board member it's probably a professor or something so you recommend just getting your community big enough before you start the legal entity I mean I think at the

earliest stages when you don't have capital it's like I think it's fine to not have a legal entity but it's like once you have capital you can start to decide where it makes sense establish lambda G it's like your first entity might not even be a Swiss Association but it's like I proposed the Association there as an entity to bring together other other entities not this is the the one entity that you're gonna need if that makes sense Thanks um I don't know much about the legal part but I've heard of open law

like a legal wrapper for LLC's in the US is there something similar for like Swiss like yeah I mean open law is just like it's like a con man you just write words and you say under what jurisdiction it's it's applied under I think that the lawyers writing the open law contracts they're all American but you can you know just maybe open walk and hire like a Swiss lawyer and they just write up these templates but you know it's just it's just templates and I think the the thing about open law right now has to do with privacy and I think the way that they approach privacy is like I don't know like private instances of blockchains or some I don't know but I think that's that's the main problem

is I think when you're in these earlier stages of dows you probably want still you probably still need some form of privacy when it comes to contracts unless you're super open and transparent and you're fine with all your contracts being in the public which I think you know people should be so if I want to start Swiss Foundation doubt tomorrow how do I proceed yeah I feel like a lot of foundations and the blockchain ecosystem they're not very private I mean they're not very public with their contracts but sorry what was your question if I want to start a dhow tomorrow and give it a legal entity in Switzerland how do I do it I mean a fastest way is you find you can hire

someone to be on the board there so if you hire a law firm they usually have like people that can hold one of the board seats because you need a Swiss person but otherwise then you just find make sure you have the majority rule so you have like one Swiss person to other people and then you just sign an articles of association you put your name on it you don't have to tell anyone but but your lawyer and the other member of the board where you find a Swiss person okay but you know you don't need it if you're not dealing with money so no I got it I mean of course if I'm not dealing with money you know of course but yeah I totally agree with you I'm

just saying as soon as you have money you should stop talking to lawyers or just like Yolo yeah I just think it should be super easy to link like kind of governance contracts that you have in code to like into like legal language and yeah I was just curious if there's something super-easy for that in Switzerland or like to make it Switzerland and what's the advantage for example to have it in Switzerland and not an LLC like I mean I think it matters what like what is the purpose of the organization it's like do you want

it to make profit and distribute valley value to like shareholders I know associations are more flexible and foundations because it doesn't have to really be a non-profit but like I said I'm not I'm not a lawyer and I've only explored associations for the context of space T Central which is a non-profit and even you know being a nonprofit in Switzerland you still you know you can't always got 0% like tax ruling but you can get a little bit less than the like corporate level for whatever canton you're in okay thanks I am a lawyer but I try not to do any law

yeah but another another thing this is what bashes done is used to New Zealand trust sorry you say that a trust in New Zealand which sounds a little bit like an association so it doesn't need to be registered at all mm-hmm and there and I've also got a LLC and sort of it so it's overarching one so that's another possibility path but the trouble of trust so theory I mean you can make them transparent if you want and it's a probably a good idea because you want you want the people's names out there you don't want it to be done in secret because it's done in secret that's not it just doesn't work probably yeah yeah I think the it'd be interesting to eventually make a playbook for Erlich you know like a like

somewhere where people can learn how to connect different entities and how it can be easier to set up and so I think that that would be like something good for the blockchain ecosystem so people understand and hopefully there are lawyers that can stamp things too with their seal of approval hello so just commenting on how to think about an association Swiss Association this is something that I'm currently looking into and the approach we are looking into is having an association

with no members besides the committee and then the committee only acts on behalf of claims that the dawa meets so i think i think that the members should be able to vote who's on the committee and if you don't have a General Assembly of members then the the board will always remain in power so I think that if you're having it down there are token holders and they should be members because they should decide if the board is acting properly and that's the other thing looks like the system that I proposed is there should be like no conflicts of interests with the board of directors across the nodes like that needs to be very clean otherwise it just starts to get very messy well the idea is simply using it as a legal interface

rather than being the aggregation of different stakeholders it's only having people that will act on behalf of these other group of people that are making claims and then this committee would be elected by the claims that the DA meets and these young code in the in the statutes yeah I mean I think it's like or if the assets if the associations like the manager or the fiduciary of all the assets then why should they listen to people who are not part of the General Assembly to do things with the assets it's just like they really have no they have no they can just use their power and not listen

to anyone so I think we have to build systems where you can't assume that that the committee is always going to be aligned with the interests of the community well then let's not get into the rabbit hole but just sharing hi just adding two different solutions like to share interesting thing from Poland actually next year beginning of next year there is new legislation running in Poland that introduces new kind of company which has in the latest legislation stated the - ah hold the

registry can be put on blockchain like literally so basically what it what it means that the shareholder like it will be native security tokens and the decisions like it will be a Dao like made into the legislation so tokens hold coders will will be the shell holders because changes in the registry are legally binding yeah yeah I mean I think that you know you also have that Wyoming like it's still like okay there's there's the more basic level of a Dow which is like one organization being on the blockchain but I think like the spirit of the Dow is more more than that so I mean I mean there are all of these new

laws coming out with cap tables and I mean keep your share register online but in in reality at least in common law countries you can already do that today there's no problem as long as there's a contract with some kind of signed document by the people who have right to do this because right now I mean the the secret is most share registries are done like in Excel right now right so if you can do in Excel you can also do it on a blockchain right there's there's no magic you don't necessarily need a law to do this as assets is written in some kind of document yeah it's more about I guess it it builds more like trust among among the members because it's not just

one person that owns a spreadsheet so I think that's the the interesting part someplace yeah so civil law countries it's a little bit more buried like common-law countries pretty much are pretty pretty flexible the other the other thing to understand about all of these things is that they're basically you know essentially contracts if you treat them as contracts if you have some kind of like written contract and there are some kind of responsible people that are can be tied to that contract that in many cases that sues most of the legal requirements and I believe at least in the US for example the tax authorities again this is different than say whatever then I see a

sec and although those people want at least the tax authorities you can go in and say do you want to be taxed as a partnership as a company as a trust do they care what the structure is no you can actually come with a e corp in the US and go in and say I want to file this as a as a legal I mean as a partnership everyone - in the old days of crypto trusts were used a lot for all kinds of different things and trusts our great trust can be used to map all kinds of things within within smart contracts but trust our documents trusts have to be written they can be published they don't have to be but they can be published but typically you need some kind of responsible party that you can go sue

right and that's an important part of it and of course that's something most of us in the crypto space don't necessarily want but you you need it so yeah it's good to have that protection all right good okay thank you thank you very much [Applause]