A recent paper by DAOBox introduces a framework for employing legal wrappers within DAO ecosystems. Legal wrappers consist of a collection of legal documents that establish guidelines for a DAO's operations and interactions with the legal system.
DAOs, organizations governed by smart contracts on a blockchain as opposed to traditional hierarchies, facilitate more efficient, transparent, and democratic modes of collective decision-making and action. However, they also encounter legal obstacles such as regulatory uncertainty, liability risks, tax compliance, and contractual enforceability.
The paper posits that legal wrappers can mitigate these issues by offering a layer of legal protection and compliance for DAOs and their members. Furthermore, legal wrappers enable DAOs to engage with other parties, including banks, service providers, employees, and regulators.
Outlined in the paper are four types of legal wrappers for DAOs:
- Corporate wrappers
- Nonprofit wrappers
- Cooperative wrappers
- Trust wrappers
Each wrapper type presents its own advantages and disadvantages, contingent upon the DAO's purpose and scope.
Additionally, the paper supplies a step-by-step guide for selecting and implementing a legal wrapper for a DAO, which encompasses:
- Defining the DAO's mission and vision
- Assessing the DAO's legal needs and risks
- Choosing the appropriate wrapper type
- Drafting legal documents
- Registering the wrapper entity
- Integrating the wrapper with the DAO's smart contracts
- Maintaining the wrapper's compliance
A comment from Pavel Batishchev, Co-founder at DAObox:
In conclusion, the paper asserts that legal wrappers serve as a powerful tool for enabling DAOs to function in the real world while safeguarding their members from potential legal complications. However, it acknowledges that legal wrappers are not a universal solution, and each DAO must thoughtfully assess its individual needs and objectives before selecting a wrapper.
The framework contributes to the area of DAO governance and regulation. It provides a detailed exploration of different legal wrapper types that can be employed for DAOs, as well as a guide for choosing and implementing them.
The framework recognizes that legal wrappers are not a universal solution, but rather a tool that can help DAOs reach their goals and protect members from potential legal issues. It also identifies the benefits and challenges of legal wrappers.
Some benefits of employing legal wrappers include:
- Enabling DAOs to interact legally with other parties, such as banks, service providers, employees, and regulators
- Protecting DAO members from personal or joint liability in the event of a lawsuit or other legal issues
- Assisting DAOs in tax payment and adherence to other regulatory requirements, which may otherwise be challenging or ambiguous for decentralized organizations
- Providing legal protection and compliance for DAOs and their digital assets, which could otherwise be susceptible to attacks or disputes
Some challenges associated with using legal wrappers involve:
- Introducing a degree of centralization and bureaucracy to DAOs, which may contradict their principles of decentralization and autonomy
- Creating conflicts or inconsistencies between the legal wrapper and the DAO's smart contracts, necessitating careful integration and maintenance
- Varying widely across jurisdictions and legal systems, potentially limiting the global reach and interoperability of DAOs
- Incurring complexity and expense in setup and operation, possibly requiring professional assistance and resources
In summary, the framework for employing legal wrappers in DAO ecosystems can serve as a resource for DAO founders and contributors aiming to operate in the real world and safeguard their interests.
However, it isn't a panacea, and each DAO must thoughtfully assess its own needs and goals before opting for a wrapper.
In conclusion a comment from DAO Times founder, Makoto Takahiro:
Legal wrappers should not replace sound governance and community building but instead complement them.
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