DAOs — Governance & Legal Design Experimentation

In the 2020s, legal designs of DAOs are still largely relegated to experimentation. Such experimentation is natural and useful for the evolution of DAO concepts. Trial and failure of legal DAO designs create a natural filtering mechanism for successful DAO designs. Importantly, the experimentation with DAO legal designs, that is, legal designs that allow DAOs to interact with the real world in a legal construct, can go hand in hand with internal DAO governance designs.

Any experimentation with DAO legal solutions has the ultimate objective of accomplishing the highest level of decentralization. Lasting legal solutions for DAOs have to increase and maintain the internal and external decentralization accomplished in the DAO. DAOs cannot exist and persist without ever increasing degrees of decentralization. Therefore, first and foremost, DAO legal designs need to supplement the internal decentralization accomplished by the DAO.

Supplementing internal DAO decentralization is perhaps the most serious challenge for DAO legal designs. Existing legal solutions for DAOs typically require forms of legal representation in the respective jurisdiction. Jurisdictional requirements pertaining to legal representation are always a point of centralization. Tying the legal existence of a DAO to any forms of existing legal and jurisdictional frameworks typically results in the need for a representative in the chosen legal framework and jurisdiction, which in turn centralizes the DAO and can result in the long-term failure of the respective DAO concept. Representation requirements, however, are a natural DAO anchoring mechanism for a given jurisdiction that allows the respective jurisdiction to exercise jurisdiction and control over the DAO.

Surrendering jurisdiction over DAOs while giving DAOs legal status and limited liability will be the epitome and linchpin for DAO legal solutions. Surrendering control over DAOs while giving them a legal status in the given jurisdiction may be accomplished some day, if and when jurisdictions recognize the importance of DAO constructs for business relationships. However, tying the legal status recognition to forms of limited liability while surrendering jurisdiction over the DAO is perhaps less likely. Giving a DAO legal recognition and limited liability in a given jurisdiction would require the legislature to acknowledge that third parties in that jurisdiction who may interact with the limited liability DAO would only have limited recourse if things go wrong in the legal relationship. Because consumer protection is a core mandate for any legislature, it seems less likely that they will surrender control and jurisdiction over the DAO which includes no legal recourse, inability to sue in national courts etc, while also giving the DAO limited liability in that jurisdiction. Even if adequate alternative dispute resolution systems should emerge for DAO and smart contracting disputes, it remains unclear if these can suffice from a consumer protection perspective in most jurisdictions.

Combining internal DAO governance with a legal concept has several advantages. First, a DAO with a legal wrapper enables the DAO’s operations in the real world and beyond. A DAO needs a legal wrapper representing the DAO in the sense that a DAO cannot rent an office or sign a contract that can only happen on paper. [1] Second, the legal entity that represents the DAO in the real world can benefit from the DAO’s on-chain governance.[2] The on-chain governance of the DAO gives the legal entity a form of decentralized democratic legitimacy while at the same time not requiring internal democratic processes within such legal entity. The legal anchor, e.g. the legal wrapper, creates a form of needed centralization between decentralized technical functionality, legal relevance, and legal definition. Organizing based on functional technicalities runs participants into legal risks.[3] For example, a smart contract can have a basic element of an organization and hence could be qualified as a minimum simple partnership, and never be a legal entity as such.[4] In this context, the legal anchor reduces risks and increases legal certainty for the DAO and third parties that transact with the DAO because the DAO would be represented through the legal wrapper.[5] Using the legal wrapper concept, the individual DAO members would not be liable and the third party knows exactly with whom she is interacting and where liabilities arise.

Incremental improvements of DAO governance can include multiple measures. Those measures can include releasing smart contracts in stages. In earlier stages the contract is more controlled and easily updated by a set of cryptographic, multi-signature notaries.[6] In later stages, the control over the contract is released at an increasing rate. Certification processes and review processes as well as multiple security audits from respected institutions in combination with formal verification programs for smart contracts are additional possible governance improvement solutions for DAOs.[7] Design changes can include so called tripwires or arbitration and mediation under adverse conditions or designing the DAO such that it can be stopped when it may appear to become too big to fail. Barriers to DAO entry can help ensure the success of on-chain governance, such as with permissioned blockchains or community guidelines (different tiers for different contracts).[8]

1. Governance

Most cryptocurrencies would not exist if Bitcoin and Ethereum had effective incentives for future protocol development and governance built into the core protocol.[9] Common core denominators of existing problems in governance design include the corruptive effects of existing governance designs with fungible assets as well as the identity of actors in governance designs. These factors, among many others, contributed to the resulting inability to govern institutions effectively.

DAO governance structures are built on software, code and smart contracts that run on public decentralized blockchain platforms, such as Ethereum. DAOs typically do not have a physical address as they merely compute code. Because of these code-based features, DAOs are not organizations with a traditional hierarchy as known from traditional corporate structures where authority and empowerment flow downwards from investors/shareholders through a board of directors to management and eventually staff. Indeed, DAOs typically do not have directors, managers, or employees. Because a series of smart contracts grants DAO token holders voting rights, the blockchain-based smart contracts imitates the role of articles of association or bylaws and the entirety of a precedent system that would otherwise be provided by default in a jurisdiction-based legal structure. Because DAO code is typically open source, the token holders not only vote on investment and/or work proposals, but also on any change made to the code. Accepted proposals would also be backed by a software code, defining the relationship (in terms of rights, obligations, and performance metrics) between the respective DAO and the accepted and funded work proposals.

The technological infrastructure of decentralized systems enables unprecedented decentralized governance incentive designs that can create solutions that could not so far be accomplished in centralized governance structures. Unlike centralized governance incentive design, decentralized incentive alignment in a DAO have the potential to be organized in an incorruptible way with non-fungible digital assets. Efficiently designed DAO governance helps overcome collective action problems associated with lacking incentive alignment in existing agency-based governance designs.

Community audits are a key element in DAO governance. Centralized systems rarely provide for and administer community-driven audits. Community-driven audits go against the agency and monitoring principles embedded in the centralized governance. External monitoring and validation are key in centralized governance systems because the incentive design in centralized structures does not enable incorruptible internal controls. By contrast, community audits are at the core of DAO governance. The decentralized nature of DAOs enhances efficiency of coordination because the users of the system, e.g. DAO members, typically know best how to assess other users / DAO members. The decentralized DAO structure enables unprecedented information symmetry in the governance design because governance information, e.g. DAO group decision making metrics and DAO governance protocol needs, is at the edge of the decentralized system and is exchanged and evaluated directly between DAO members in a continuous and iterative stream of information that provides dynamic feedback effects.

Governance upgrades in DAOs enable a different kind of agency relationship. Because of the smart contract coordination of agency relationships, traditional control mechanisms employed by principals in agency relationships can be scaled back and partially be removed. DAO workers are engaged in a dynamic set of working relationships that continuously and dynamically self-organize around projects and outcomes, not corporate hierarchies with implicit hierarchical biases.

The DAO governance optimization makes traditional uses of fiduciary duties less relevant. The traditional regulatory infrastructure that attempts to overcome the corporate governance problems associated with the separation of ownership (shareholders) and control (management) relies heavily on fiduciary duties. Those directors and officers who violate their fiduciary obligations in centralized organizations by not acting in the best interest of the corporation can be sued. In the DAO structure such duties and litigation-based control mechanisms are less relevant. Because of the value to effort focus of workflows in the DAO structure, supervision of management and imposition of legal duties on management is less needed because there are fewer or no supervisors. Rather, token holders optimize the DAO together according to their best value propositions in accordance with their unique skillsets, backgrounds, and training.

Dynamic elements in DAO governance help avoid otherwise inevitable corruptive influences. In any open and democratic system, naturally opportunistic rational parties will attempt to circumvent and game the sets of applicable complex static rules to increase their share of power and profit within the system. Stable and presumptively optimal static and/or constitutional rules for DAO governance therefore typically enable gaming and arbitrage opportunities. To enable sufficient protection of DAO members while at the same time allowing for DAO enhancements, the static sets of rules of smart contracts in such a system will need to be rather complex. With static complex sets of DAO rules comes inevitable corruptive opportunistic gaming and arbitrage behavior. To avoid these negative effects of static complex DAO rules, effective DAO governance designs should be focused on dynamic elements. Dynamic elements here include DAO members’ ability to re-evaluate existing precedent in the system.

DAO design can enable a code-based governance infrastructure that can create dynamic governance protocol upgrades in real-time through dynamic feedback loops. The technological infrastructure underpinning DAOs enables autonomous and evolutionary incomplete smart contract upgrades. With dynamic DAO governance mechanisms, DAO token holders can vote for a change of any outdated or flawed code as the flaws materialize or in anticipation of future contingencies.

Unlike centralized legal structures that rely on ex-ante majoritarian rules that are presumed to be stable and optimal, DAOs can generate majoritarian rules ex-post without the need for ex-ante majoritarian rules that function as default rules.[10] Presumptively stable ex-ante majoritarian rules are flawed because they are inevitably suboptimal in an ever-changing environment that evolves from the environment that precipitated the promulgation of the ex-ante majoritarian rule. Ex-post code-based majoritarian rules are superior to ex-ante majoritarian rules because they are based on more accurate real-time information from the edge and decentralized feedback effects. Ex-post code-based majoritarian rules are not subject to the same information asymmetries as stable and presumptively optimal ex-ante rules. As such, DAOs enable a code-based governance infrastructure that can create dynamic governance protocol upgrades in real-time through dynamic feedback loops.

On-chain governance is a necessity for most public blockchains. Because all existing blockchains need to calibrate soft forks for protocol upgrades, most public blockchain communities have considered on-chain governance proposal in some form. Those proposals included Bitcoin Improvement Proposals,[11] Ethereum Improvement Proposals,[12] Ethereum General Assembly,[13] mailing lists,[14] and suggestion pages on GitHub trees.[15] Certain protocols have expanded their on-chain governance considerations. These include, but are not limited to: Tendermint,[16] PolkaDot,[17] DAOstack,[18] Tezos,[19] Dash,[20] Bitshares, Lisk, MemoryCoin, Aragon,[21] Cardano,[22] Maker,[23] and NuShares.[24] The blockchain community continues to debate the preferable modus operandi for protocol changes.[25]

Despite the ever-widening need for on-chain governance solutions, arguments against on-chain governance remain strong. In an off-chain governance model, miners provide checks and balances on power over protocol changes. On-chain governance arguably removes such checks and balances. An on-chain governance model also arguably would take the participation of governance away from miners and subsequently users. Because on-chain governance enables automatic protocol upgrades and is not dependent on manual interference by miners, miners are no longer required to make a conscious choice to participate in their chosen chain.[26] Moreover, an off-chain governance system that finds an equilibrium between several competing factors could be a better alternative for protocol governance than an on-chain governance mechanism.[27]

In the early 2020s, on-chain voting mechanisms were still largely in their infancy. Most on-chain voting mechanisms and governance designs mostly resembled a plutocracy. Suboptimal voting outcomes in existing decentralized protocols were associated with the then popular one-token-one-vote voting mechanisms. A one-token-one-vote design allocates more power to token holders who have a significant share of the total supply of a given token. Majority token holders have more power than the rest of the token holders combined. These structures reintroduce many of the downsides and suboptimal incentive allocations of one-share-one vote designs in legacy systems of the early 21st century.

More mature voting alternatives are slowly emerging. Such alternative DAO voting designs can ameliorate the traditional voting power corruption of one-token-one-vote. Alternative voting methods include quadratic voting,[28] futarchy,[29] liquid democracy,[30] and reputation-based voting as an instantiation of non-fungible voting.[31] These emerging more mature voting ecosystems enable on-chain protocol governance with an incentive design that more optimally balances risk and rewards of voting.

On-chain governance models can further be optimized with reputation-based staking as voting mechanisms.[32] Reputation-based voting revolves around voting by way of staking a non-fungible asset, aka staking non-fungible reputation tokens in a given DAO, towards a certain outcome. The corruptive elements of fungible assets/tokens are removed because third parties are less likely able to take over a non-fungible asset, such as reputation, that is organically grown and maintained through actual expertise in a given DAO subject matter. Even if third parties should be able to take over or purchase non-fungible reputation, they are less likely able to maintain the reputation score and the associated revenue stream of fungible assets over time.

2. Legal Designs

The legal setup for a DAO is determined by several core considerations that pertain to the type of DAO interaction that is to be governed. The purpose of the DAO often drives DAO governance. For instance, different governance designs may apply to DAOs that focus on investment purposes versus DAOs that focus on membership rights, voting mechanisms, or DAOs that are allocating certain assets to a certain purpose. The degree of DAO governance and its implementation on-chain, governed by smart contracts, or off-chain is perhaps one of the first considerations. DAO governance functions, such as voting rights and dividend distributions, can be implemented on-chain and synchronized off-chain. A minimum written proof of existence, such as Articles of Association, can be the only off-chain link, but may be required to connect on-chain governance with the off-chain necessities. Another core consideration pertains to DAO project-specific governance or governance of the whole network. Communication methods for DAO members are often determined based on whether the governance is permissionless and community-based, or via a permissioned-community with one coordinator.

Limited liability DAOs have become a trend in DAO legal design. Limited liability DAOs incorporate as LLCs in order to optimize their smart contract and DeFi applications, while maintaining traditional controls over business risks and membership.[33] The first limited liability DAO experiment organized in New York was OpenEsquire, a hybrid organization combining the liability-limiting public legal fictions (LLC-DAO) with the private ordering benefits of Ethereum.[34] Open, ESQ LLC provides pragmatic Solidity solutions for legal engineering of DAOs.[35]

In 2018, Vermont added a Blockchain-based Limited Liability Companies provision to the Corporations Title of their state statutes.[36] In June 2019, dOrg, the second limited liability DAO, was launched under this law, organized in Vermont.[37] dOrg first deployed the DAO to the blockchain then formed a blockchain-based limited liability company (BBLLC).[38]

OpenLaw publishes legal templates to help DAOs limit their liability by creating a “corporate veil” for the DAO. An LLC Operating Agreement is available for consumers on the OpenLaw website.[39] OpenLaw implements a Ricardian contract system[40] to bridge traditional legal regimes with the Ethereum world by permitting users to create binding legal agreements and tie them to the execution of a smart contract.[41] Moreover, OpenLaw offers a legal wrapper library to generate digital tokens to reflect group membership and network utility.[42] OpenLaw offers interactive forms to easily deploy limited liability DAOs based on OpenEsquire and dOrg legal forms.[43] OpenLaw is contemplating collaborative service offerings, research publications, and best-practice summaries to aid more effective use of the Library.[44] OpenLaw also offers templates for DAO business transactions including consulting, NDAs, memos of understandings, and code deference.[45] OpenLaw also offers Token Forge forms enabling users to contribute to research.[46]

OpenLaw created an OpenLaw DAO[47] which was a DAO set up as a traditional legal entity using binding legal agreements to effectuate asset transfer and other functions. OpenLaw’s new vertical DAO contains an easy to use set of features to rapidly build and deploy limited liability DAOs. For example, OpenLaw published a video, walking users through the creation of a DAO organized as a Limited Cooperative Association in Colorado.[48] In June 2019, OpenLaw created an OpenLaw DAO[49] which was a DAO set up as a traditional legal entity using binding legal agreements to effectuate asset transfer and other functions.

In September 2019, OpenLaw announced the launch of the LAO. The LAO will be set up as a limited liability entity organized in Delaware,[50] conforming with U.S. SEC regulations.[51] The LAO is innovative because it will be engaged in for-profit endeavors in ways that limit the legal risk of members and aims to comply with US Law, modifying established organizational documents to accommodate smart contract-based corporate governance mechanisms, while working within the current confines of the law.[52] Smart contracts will handle mechanics related to voting, funding, and allocation of collected funds.[53] The OpenLaw protocol will generate entity formation documents and member subscription agreements.[54]

The LAO is anchored by ten founding members, and other interested parties can purchase interests potentially through a public sale.[55] OpenLaw serves as an administrator of the LAO but will exercise no control unless directed by members.[56]

The LAO provides a legal structure to enable members to give grants, invest in blockchain-based projects in exchange for tokenized stock or utility tokens.[57] Projects or Ethereum-based projects can also receive funding within days of submission.[58] That structure is called a “legal wrapper,” which is created by structuring the DAO as a LLC to make the entity responsible for contracts, taxes, and violations of the law, but not the individuals acting on behalf of that entity.[59]

The goal of the LAO will be to limit participant liability, provide clarity on what law applies, and provide tax benefits (flow-through/single taxation).[60] Members purchase interests, proceeds of which pool and are allocated by members to startups and other projects in need of financing, using a voting mechanism similar to MolochDAO’s.[61] Rage-quitting features are also in place.[62] The LAO designed a “Minimum Viable Venture Moloch” borrowing from “the original Moloch design that emphasizes simple Solidity scripts for voting and other member transactions, largely relying on off-chain coordination to scale membership and deliver funding to promising Ethereum ventures[,]” “further imbu[ing] LAO actions with legal effect through OpenLaw smart agreements and establish[ing] a proxy entity.”[63]

A benefit beyond those offered by Moloch, LAO membership is further incentivized because members continue to generate profits from the portfolio holdings of the LAO. LAO members can continuously claim their fair share of profits provided by tokens received from projects receiving investments from the LAO.[64] A LAO can also receive funding much quicker than a traditional LLC and can meet virtually.[65]

The LAO will at first only be available to a limited number of accredited investors, which requires participants to disclose their identities, pay taxes, and often hire legal counsel, as they would in joining a traditional business organization.[66] An accredited investor is a set definition by the SEC.[67] The LAO is exploring on-chain verification of accredited status for the LAO using third-party oracle services to streamline the onboarding process, such as ChainLink.[68]

Using an existing Swiss legal construct, the DAA takes the Swiss civil law Association and adds a decentralized smart contract layer to replace the centralized governance process.[69] The DAA approach is a third generation DAO approach in the sense that an existing legal construct, such as the Swiss Association, is combined with a DAO.

A Swiss Association consists of a community of members where each member has one vote that is not capital-driven but a voting-driven, membership-driven legal entity.[70] It is a legal entity, itself liable for its own actions, with a corporate veil that protects individual members from liability.[71] One membership layer and legal entity layer limiting risks for members.[72]A Swiss Association is formed by a group of individuals expressing their intention to incorporate such legal entity.[73] No legal act in front of a notary or formal registration is needed to establish a Swiss Association.[74] To start a Swiss Association, individuals come together as a group, draft the statutes of association, define purpose and how the purpose will be financed, identify membership fee.[75]

At the General Assembly, members can propose and vote for one Swiss delegate who anchors the DAA to the real-world by filing tax returns, litigating trademark issues, etc.[76] All other interactions and transactions between members and legal entity are smart-contract based, completed by a smart-contract system in order for all governance transactions to be decentralized.[77]

The DAA integrates interactions between the members and the legal entity into smart contracts.[78] An individual member can provide funding through membership fees, donations via smart contract;[79] propose and vote on projects to be supported, change of articles of association, agenda items for General Assembly.[80] The DAA has over a dozen smart contracts interact with one another.[81] Smart contracts manage membership and use of funds;[82] a “mothership” runs treasury, proposal management, and membership functions.[83] The DAA smart contract does not have a token, is membership registry only, looks like a traditional association model with one-member one vote.[84]

Although the DAA is created based on the Swiss Association legal anchor, using a legal concept similar to the Swiss Association from other jurisdictions to create a, for example, US DAA, would be possible.[85] Members of the DAA can be all over the world, but because the Association is a legal entity, it must have a “seed” in Switzerland, run in Switzerland.[86] Individuals wishing to launch a DAA have low legal costs[87] but high technical costs.[88]

A fully legally-compliant organization living entirely on the blockchain is possible, but complicated.[89] In a technical setting, everything must be defined, because resolving a code issue is not as simply resolved as in a legal dispute.[90] For example, coders had to consider whether the General Assembly could be scheduled on-chain 200 years in the future.[91] Another example is that when the delegate, analogous to a president, of the DAO steps down with no new delegate in place, the wallet must be blocked so the DAA cannot actively engage in business activities, e.g. disburse funds.[92] Therefore, only the most basic common denominator enabling the operation of a fully functional Swiss Association, runs entirely on-chain.[93]

Another take on the DAA is the HOPR Association. HOPR is the first Swiss Association-based model to implement the on-chain interactions smart contracts, taking “baby steps” towards a full on-chain DAO.[94] HOPR is an operative association governed by a token.[95] HOPR is building a privacy infrastructure that can be used for blockchains, MedTech applications, among others.[96]

HOPR implements a new set of smart contracts behind a new construct, Decentralized Community Enabling Governance, developed by ValidityLabs.[97] This framework is called DecenGov.[98] DecenGov utilizes multiple iterations to eventually achieve full on-chain interaction.[99] The first iteration is a “vanilla” Swiss Association, with all off-chain interactions, that is governed on-chain by a token.[100] The second iteration is quadratic voting.[101] The third iteration is to move back on chain, step-by-step.[102]

The HOPR model has a utility token, which gives those who engage with that token a stake in having a voting right.[103] This kind of token is not a security but rather a true governance token. Therefore, legal and compliance hurdles, such as the original DAO had to engage with, are less likely.[104] The token address is comparable to a membership certificate, which, as such, is not transferrable.[105] This feature is missing from traditional ICO entities where the decentralized network disconnected from the legal entity that is opaque and ripe for disruption.[106] This was the case with Ethereum and has generated criticism where a grant proposal mechanism has not been open or participatory.[107] The HOPR structure combines the governance at the legal entity level, allowing the entity itself to be governed in an open, participatory fashion.[108] Another approach is to combine a foundation that has assets with an association of nodes, members, and introduce governance on that level and influence decisions on the foundation level.[109]

Moloch DAO is perhaps the most prominent DAO in the early 2020s. MolochDAO was formed to fund and develop public infrastructure related to Ethereum 2.0. [110] This objective can be accomplished by incentivizing coordination between Eth 2.0 projects and major ecosystem stakeholders.[111] The code is open source, enabling members to create their own guilds, and the goal of MolochDAO is to create a hypercompetitive market for Moloch DAOs.[112] MolochDAO (the original Moloch) has been described as a grant-giving initiative for ETH 2.0, scalability and adoption.[113] MolochDAO is simple, entirely on-chain without a legal wrapper.[114] The term “moloch” is a reference to an article about collective action problems.[115] MolochDAO defines public infrastructure, or the blockchain commons, as “technology where the total benefit generated by the technology to the community is greater than the individualized benefit to any particular entity.”[116]

The initial MolochDAO v1 guild was created on February 14, 2019 when Ameen Soleimani utilized his one vote and manually added a set of initial founders to the guild by issuing shares for a fixed entry tribute.[117] This process is called “summoning”” and the first individual and their member address in the constructor is called a “summoner.”[118] MolochDAO has three contracts: Moloch.sol, GuildBank.sol, and Pool.sol.[119]

Moloch is intended to be forked, upgraded and iterated on rapidly, with new on-chain and off-chain mechanisms, driven by guild size.[120] Beginning in June 2019 with MetaCartel DAO, 119 DAOs have cloned MolochDAO.[121] Participants can clone MolochDAO using the rage-quit mechanism.[122] That is, if participants do not agree with the result of a vote, they can exit with their funds by “rage-quitting” the guild within a grace period of seven days after voting on a proposal completes but before members’ ownership is affected by the proposal.[123] When guild size is small, members retain voting power and can keep the organization’s philosophy aligned on a specific goal.[124] On the other hand, as guild pool value increases, the cost to each individual member per proposal decreases.[125]

The core mechanism of MolochDAO restructures incentives by pooling user funds and locking them up in a Guild Bank contract. This process gives contributors voting rights over how those funds should be spent, proportional to their contribution relative to the total pool.[126] To ensure votes cannot be bought and sold on the open market, shares are inalienable.[127] Members can liquidate their votes.[128]

In order to maximize security, the absolute minimum set of functionality is on-chain.[129] MolochDAO also implements iterative development methodology.[130] When participants deem an upgrade necessary, they can deploy a new DAO smart contract and exit Moloch, coordinating off-chain, rather than upgrading on-chain.[131] A dilution bound stops a large set of colluding actors from forcing a minority of guild members to experience massive dilution in a single hit by all rage-quitting at the same time — the maximum dilution a member can suffer is specified in the contract with a default of three.[132]

In order to join the guild, individuals submit a membership proposal, which requests a certain number of Shares in return for a tribute in wETH, which is a way to wrap Ether as an ERC-20 token.[133] However, only existing members can submit a membership proposal, and only up to five proposals may be submitted per day.[134] Existing members vote on new entrants in a similar fashion to funding proposals, as well as whether to grant the requested number of Shares.[135] No quorum requirement exists — votes are won by simple majority.[136] The voting period of each proposal is seven days, and there is a maximum of thirty five proposals being voted on at any given time, each staggered by 4.8 hours.[137] A seven-day grace period exists for membership proposal votes.[138] If the membership proposal is accepted, the tribute tokens are deposited into the Guild Bank and new shares are minted and issued.[139] Membership proposals require a 10 ETH deposit, 9.9 ETH is returned regardless of outcome, and 0.1 ETH is reserved.[140]

MolochDAO v2 contract standard was released in August 2019[141] and was designed through a collaborative effort between MetaCartel, The LAO, and Moloch.[142] The MetaCartel Venture DAO[143] is expected to be the first deployment of Moloch v2.[144] v2 — LAO will use a multi-signature-controlled admin role to complete authorized transactions on Moloch DAO and manage off-chain operational tasks.[145] Molochv2 will also add a more capital-driven membership onboarding process.[146]

Maker DAO is clearly the leading DAO project by market capitalization and overall use in the early 2020s. MakerDAO uses token mechanisms to create new organizational structures that allow its members to achieve a common goal.[147] The Maker system creates a decentralized, open scientific risk management community, which was initially[148] guided by the Maker Foundation, but eventually led by risk teams formally elected by MKR (the Maker DAO governance token) vote, and contributions of independent volunteer risk researchers.[149]

The Maker Protocol allows users to generate Dai by leveraging collateral assets approved by “Maker Governance,” the community-organized and operated process of managing the protocol.[150] Token holders have the right to vote on critical changes to the network chain, which ultimately determines the success of the network.[151] These votes on MakerDAO include some of the highest stake votes in the digital asset industry.[152]

Eventually, Maker token holders will manage the risk function of the system through the two-part voting mechanism.[153] Proactive governance includes debate, resolution, and automated implementation.[154] Reactive governance contains procedural intervention.[155] Risk teams will contribute “risk constructs” — assessments and risk parameters for the system.[156] The governance debate will be about choosing risk teams based on their proposed risk constructs, and risk teams will be elected through a vote.[157]

The self-sustaining MakerDAO has technical, human, and procedural elements to enable the community to maintain a fully decentralized Maker Protocol and be completely responsible for every aspect of the MakerDAO.[158] Some community members will form a decentralized workforce, Elected Paid Contributors (EPC), elected by Maker governance.[159] A subset of the EPCs will manage critical processes.[160] Community members can define key issues and suggest system modifications through Maker Improvement Proposals (MIPs).[161] All token holders will have an active stake in the ecosystem, can pool their voting power through Vote Delegates.[162]

The Dai stablecoin is collateralized, which asks users to put trust in token value on-chain rather than off-chain.[163] Dai is supplied to the blockchain through a lending system, Maker’s smart contract Collateralized Debt Position, which provides loans and attempts to mitigate risk.[164] In case the system debt exceeds the surplus, the tokens are the recapitalization resource of the protocol.[165] Dai is a collateral-backed cryptocurrency soft-pegged to the US Dollar and resistant to hyperinflation due to low volatility.[166] Maker released a new multi collateral Dai (MCD), which brought with it some new features but did not change Maker governance.[167]

Anyone, not only token holders, can submit proposals for a vote by deploying a proposal contract.[168] A proposal contract — a smart contract with one or more valid governance actions programmed into it — can be deployed by any Ethereum address, and once executed, immediately applies its changes to the internal governance variables of the protocol.[169] Once a proposal contract is deployed, token holders cast approval votes for the proposal they want to elect as the Active Proposal.[170] The Ethereum address with the highest number of approval votes is elected as the Active Proposal, which is then empowered to gain administrative access to the internal governance variables of the protocol and then modify them.[171] The contract can only be executed once and cannot be reused after execution.[172]

The MakerDAO governance system[173] is scientific and evolved.[174] It requires first governance poling/proposal polling/governance vote and only thereafter executive voting.[175] The governance system is designed to be flexible and upgradeable.[176] The governance token of the protocol, MKR, allows token holders to vote on changes to the protocol.[177] Voting power is proportional to the outstanding supply of tokens.[178] First, proposal polling establishes a rough consensus of community sentiment before any executive votes are cast.[179] Next, executive voting is held, for example on a vote to ratify risk parameters for a newly accepted collateral type.[180] A governance security module is in place that gives token holders the opportunity to protect the system against a malicious governance proposal by creating a delay of up to 24 hours before the protocol modification takes effect, and permitting members to trigger a shutdown, if necessary.[181]

In late March 2020, Maker formally transferred token control to the community.[182] The first governance cycle[183] took place in May 2020[184] on Maker’s first thirteen MIPs[185] introduced in April 2020 on preferred mechanisms for improving governance and protocol.[186] After several years of proposal and governance iterations, this framework is to lead to fully autonomous community governance of the Maker Protocol, followed by dissolution of the Maker Foundation.[187] The second governance cycle began June 1, 2020.[188]

The DevDAO’s approach combines technological, governance, and legal solutions in an effort to accomplish a higher degree of decentralization in the architecture.

The DevDAO internal governance design and its external legal design supplement each other on many levels and create synergies. For many attempts to create legal solutions, if the internal voting mechanism of a DAO is more centralized and afflicted with existing legacy voting issues, a higher degree of decentralization in the external legal design will typically be cancelled out in the long run. If the degrees of internal and external governance decentralization cancel each other out, the respective DAO is less likely to succeed in its decentralization attempt, which in turn makes it more likely for the DAO to fail. By contrast, the DevDAO’s synergy between internal DAO governance and external legal DAO designs can accomplish higher levels of decentralization. Because the internal governance of the DevDAO is decentralized and effective through reputation staking, it is more likely to create internal governance solutions that translates well into real-word legal solutions.

The DevDAO governance design helps to facilitate a more equal distribution of power. Language, religion, race, physical presence, group identifiers, culture, etc., influence centralized power distribution. Similarly, commonly used identifiers in centralized governance such as social media profiles and credit scores, among others, are essential for access to the central system and to resources. Such relatively superficial identifiers play less of a role in the DevDAO voting designs. The more equal distribution of power in the DevDAO governance design allows the inclusion of constituents who otherwise have no agency in centralized systems.

- Legal Structure

Key for the legal solution offered by the DevDAO is its duality of internal and external governance design that helps optimize the decentralized nature of the DevDAO. The internal and external governance coordination is facilitated by the duality of entities and their respective governance. For the internal governance, the DevDAO uses a system of reputation token staking that facilitates unprecedented incentivization of the DevDAO community and governance improvements in orders of magnitude. For the external legal relationships and governance, the DevDAO is represented in real-world legal contexts by the Emerging Technology Association (ETA) under Swiss law.

The objective of the ETA is to establish a decentralized and democratic association with flat hierarchies. The ETA accomplishes this objective by supporting open source and transparent research and development of emerging technologies and frameworks for community building and governance by way of receiving grants from unaffiliated entities and issuing grants to a broad array of experts, developers, and scientists around the globe.

Key for the success of the duality of internal and external governance of the DevDAO is the broad deference the ETA gives to the voting outcomes that originate in the DevDAO. This deference is accomplished through delegation of voting power and outcomes from the DevDAO to a member of the ETA, called the Delegate Association Member (DAM). Under the ETA articles, the DAM merely executes the upvotes on a given issue coming out of the DevDAO. The majority of the voting rights can also convene an extraordinary Association Assembly at any time. To create maximum deference to the votes within the DevDAO, under the ETA articles, the ETA Board has only those competencies that actually require the action of an individual, natural person. Such duties include representation of the DevDAO and the ETA and the duty to keep records, among others. In other words, the ETA Board merely executes the decisions of the DevDAO. In the ETA assembly, the DAM always has more votes, representing the upvotes on a given decision coming out of the DevDAO, than the ETA board because only five initial board members have voting rights. Through the votes executed in the DevDAO and represented in the ETA assembly, the DevDAO determines the support of developers and scientists and the funding allocation for projects the DevDAO sponsors.

Figure 1: Legal Structure of DevDAO and Emerging Technology Association (Swiss Law)

Figure 1 illustrates that the ETA is subject to the governance and voting outcomes of all the DAOs that operate within the ETA’s legal framework. The DevDAO is the first and primary DAO in the ETA infrastructure. Like the DevDAO, all DAOs in the ETA exercise their voting power through the ETA’s DAM under the ETA Articles. The DevDAO established the minimum viable protocol requirements (“MVPR”) which apply to any and all DAOs that operate under the Association’s legal framework. The MVPR establish a system of reputation staking for the internal governance of the DevDAO. After adopting the MVPR (adopting entirely or hard forking the MVPR code), each DAO in the ETA structure votes independently through a DAM in the ETA who represents the total upvotes from each DAO in the ETA general assembly.

This combination of factors in the DevDAO enables higher levels of decentralization. Because the internal governance of the DevDAO is decentralized and effective through reputation staking, it can create internal governance solutions that translate well into real-word legal solutions that are instantiated via the ETA and vice versa. Because the internal reputation staking voting mechanism of the DevDAO is more decentralized it creates decentralization synergies with the external legal design in the ETA. Unlike other DAO legal proposals, the degrees of internal and external governance decentralization in the DevDAO and the ETA do not cancel each other out but rather synergize and enhance each other. While the ETA is still a form of centralization of the DevDAO, the DevDAO has the potential to remove the ETA structure incrementally. The DevDAO may, for instance, replace the DAM in the ETA, a core point of centralization, with a smart contract. The automation of the DAM is a key objective of the DevDAO to continually enhance its decentralization.

- Benefits of DevDAO’s Reputation-Based Internal Governance

The use of reputation staking and voting metrics in the DevDAO’s internal governance design has key advantages over other decentralized voting mechanisms. The DevDAO’s use of reputation voting has two key advantages over other decentralized one-token-one-vote voting mechanisms: 1) it is non-fungible which avoids corruptive elements, and 2) it optimally aligns incentives for DevDAO members individually and at the same time aligns their incentives for the totality of the DevDAO as an institution. Because reputation is non-fungible, and ideally anonymous, it is much harder for DevDAO members and external participants to try to game the system to improve their own utility exclusively while hurting the common good of the DAO.

The DevDAO’ non-fungible and fungible token governance design enables the incentivization of DevDAO members with indirect economic gain. In the DevDAO’s bifurcated design with two disparate types of tokens, e.g. reputation tokens and reputation salary tokens, 1. the non-fungible reputation tokens give DevDAO members voting rights, and 2. fungible reputation salary tokens allow DevDAO members to earn a fungible salary in proportion to their non-fungible reputation tokens. DevDAO members increase their non-fungible tokens by making valuable contributions to the DAO and participating consistently in DevDAO voting pools. DevDAO members get paid with a fungible stable token denominated in US Dollars that is pegged to a pool of fungible tokens. The salary payments in fungible stable tokens are in proportion to DevDAO members’ respective non-fungible reputation token scores. The indirect economic effects remove corruptive elements and make the governance design more attack resistant and stable in the long run.

Reputation as a valuation metric allows DevDAO members to improve their own utility while at the same time improving the DevDAO in the long term. Because reputation is used as a metric for indirect economic benefits, e.g. a salary in fungible tokens that is paid in proportion of the non-fungible reputation token score, DevDAO reputation token holders are incentivized to increase their own reputation/utility by engaging in valuable conduct for the DAO. The more the aggregated individual reputation of all DevDAO members increases the more the overall DevDAO value increases and the more the DevDAO creates value enhancing outcomes for its members.

Reputation-staking as a basis for the DevDAO governance improves incentive alignment. Reputation-staking as a basis for DevDAO governance enables the correlation between individual and institutional value enhancement. DevDAO members rationally stake their own reputation tokens based on the outcomes they believe will increase their overall reputation/utility. If they did not, they would irrationally sacrifice a future income stream in fungible tokens. Through reputation-staking, the DevDAO members are incentivized to provide long-term positive contributions because the DevDAO member reputation is transparent and reviewable by the DevDAO and the public in a slow and stable review process that reaches far into the future. Valuable individual behavior/work that leads to individualized reputation staking and individual reputation enhancement also enhances the DevDAO as an institution because the individual and institutional value enhancement are correlated.

The correlation between individual DevDAO value enhancement and DevDAO institutional value enhancement can be illustrated as follows. Take for example, a DevDAO member who stakes that a given smart contract template is optimal for XYZ outcome/application. Once the template is affirmed by the DevDAO members as optimal at that point in time, it becomes a valuable precedent for the DevDAO members and external DAOs. Hence, the staking of an individual and the ex-ante work that leads to staking increases sustainable value for all DevDAO members. The DevDAO members and other DAOs will rationally increasingly use the precedent until a better precedent emerges. That precedent thus increases the individual DAO member’s reputation and the DAO overall.

The reputation-based governance design in the DevDAO changes the dynamic of a zero-sum game to a positive-sum game. Prior DAO governance designs were mostly zero-sum games as they used mostly fungible rewards and incentive designs. Accordingly, in prior DAO designs, DAO members pursued as large of a portion of the rewards as possible for themselves. By contrast, the reputation-based DevDAO governance design creates a positive-sum game because DevDAO members have incentives to create lasting non-fungible value for the DevDAO by developing a long-term non-fungible record of productive cooperation that in effect improves the DevDAO. Moreover, individual DevDAO member reputation can change dynamically if the DevDAO member actions depreciate in value. The DevDAO member reputation is inflationary in the DevDAO design. As such, non-use, e.g. non-staking of reputation tokens or non-voting, would lead to value depreciation, which incentivizes action and thus value enhancement. Liveness faults become less likely. Its ability to address liveness faults in its incentive design is a key distinguishing feature of the DevDAO.

The DevDAO’s decentralized on-chain precedent system enables dynamic and evolutionary reputation-based governance. Most prior attempts at DAO governance design had no dynamic and evolutionary elements. By contrast, the DevDAO’s decentralized on-chain precedent system enables feedback effects between DevDAO members, the public record of work/posts on the blockchain, and the public users. The DevDAO’s decentralized precedent system makes the continuous upgrading of real-time data possible. As a post/template on the blockchain gets increasingly referenced by the DevDAO members and other users, it increases the respective DevDAO member’s non-fungible reputation weight and associated fungible token salary. Conversely, if a DevDAO member’s post/template on the blockchain dissipates over time, a new post/template emerges naturally. If the new post/template gets more often referenced by the DevDAO members and other users, it becomes over time the new prevailing precedent. The old precedent dissipates over time with non-use. This precedent replacement mechanism in the DevDAO design is dynamic and evolutionary. It has the promise to create eternal solutions for DAO governance and dynamic evolutionary protocol upgrades.

To create the proper incentive design in its reputation staking engine, the DevDAO incorporates several game theoretical insights:

- The DevDAO disincentivize betrayal and defection by charging an admission fee to become a DevDAO member. Given the sunk cost of joining the DevDAO, it is more expensive for prospective members to cheat because it would be expensive to rejoin even if members could be anonymous. The DevDAO also blacklists member accounts to incentivize cooperation. KYC protocols further expand those incentives to cooperate.

- To ensure continuous cooperation of DevDAO members, the promise of future profits in the DevDAO reputation token outweigh their present value. The DevDAO reputation token has a more stable and predictable value as the ETA onboards additional grants and the DevDAO network grows globally. Reputation tokens in the DevDAO system are correlated with expected future salary tokens in the ETA.

- In the DevDAO design the loss of opportunity from slashing DevDAO member reputation grows as the size of the network increases. In other words, the larger the DevDAO network the more competition for reputation tokens to receive fungible token salaries. Further, given the incomplete information due to increasing anonymity, the value of the information from reputation tokens increases. When potential business partners have less knowledge of DevDAO members’ identity, the knowledge from the number of reputation tokens a DevDAO member holds becomes more important. Moreover, the lack of personal knowledge encourages the DevDAO members to devote more effort to fairly policing reputation tokens. Meritocracy is encouraged.

The DevDAO reputation staking design also enhances policing and compliance. The value of DevDAO member reputation is directly related to how well punishment can be distributed in response to cheating. The more transparent the system, the more accurate and efficient policing can be. Members of a traditional business police cheaters by withholding their business. But to make the threat credible, members need to police the other members and punish them if they did business with cheaters. To make the threats credible in a traditional business setting one would need to monitor those who, in turn, did not monitor those who, in turn, did not monitor. This is an expensive proposition. By contrast, in the DevDAO, algorithms can be written which exclude DevDAO members who cheat from having access to their market. Punishment for cheating becomes automated and therefore credible. Free riding in policing can at least partially be eliminated by automation. Algorithms can be written proactively to only supply contracts to those who have sufficient reputation. If a DevDAO member’s reputation is slashed, such member will not be chosen by the algorithm.

The DevDAO’s reputation-based governance design enables a much more equal distribution of power. Language, religion, race, physical presence, group identifiers, culture, etc., influence centralized power distribution. Similarly, commonly used identifiers in centralized governance such as social media profiles and credit scores, among others, are essential for access to the central system and to resources. Such relatively superficial identifiers play less of a role in the DevDAO voting designs. The more equal distribution of power in the DevDAO governance design allows the inclusion of constituents who otherwise have no agency in centralized systems.

- Attack Resistance

The DevDAO design addresses sock-puppet accounts and Sybil attacks. It is reasonable to assume that DevDAO members can join from any jurisdiction and cannot be tracked or punished for any bad behavior by appealing to outside authorities. In that case, the only punishment available is to take away DevDAO members’ potential future reputation token salaries in the DevDAO. DevDAO Members are all anonymous and DevDAO members might try to game the system by creating multiple accounts, e.g. sock-puppet accounts. The only way to discourage such malicious actors from joining is to charge money during the member onboarding process.

Moreover, sock-puppet attacks are also avoided via the DevDAO’s periodic reputation-weighted salary that distributes all fees the DevDAO earns through the ETA to all members. Individuals who bring successful ideas to the DevDAO or perform tasks that bring fees to the ETA will be rewarded with reputation tokens, not the salary tokens. DevDAO members who own more reputation tokens share in a larger percentage of the salary pool. This solves the sock-puppet attack because if a DevDAO member creates 10 accounts with 1 reputation token each, it is the same as 1 account with 10 reputation tokens.

The DevDAO design addresses DoS attacks. Denial of Service (DoS) attacks happen when anonymous adversaries flood a given network with automated requests for superfluous tasks. Such incoming superfluous tasks prevent the network from engaging in productive work. To restrict a significant number of bad actors from entering the DevDAO system and ensure resistance to basic DoS attacks, the DevDAO charges a nominal fee during the onboarding process. This fee merely needs to be high enough so that the effort to police the bad actors is profitable, but not so high that it prevents people of good will from joining the DevDAO. The precise number for the onboarding fee depends on the market environment. Automation should make this feasible.

- Level of Decentralization

The level of decentralization in a DAO design is an indicator for longevity of the respective DAO. The level of decentralization and the associated attack resistance and incorruptibility of DAO governance designs are among the core factors that influence DAO design adoption, its precedence, and longevity. In other words, the more decentralized a given DAO design, the more likely that design will in the long run be adopted by other DAOs. However, not all future DAO designs will comply with the ideal typical DAO parameters. Ideal typical DAO design parameters will naturally filter out at the edges. In other words, because the optimal DAO design parameters change constantly, if and when formerly ideal typical designs fail, new and optimized designs will replace them.

The level of decentralization in the DevDAO design reached unprecedented levels through its applicable design parameters:

- merit identifiers, e.g. DevDAO members merit, knowledge, and influence is measured through their respective DevDAO non-fungible reputation token ownership;

- non-fungibility of DevDAO reputation tokens; e.g. merit of a DevDAO member is expressed by a non-fungible reputation token that cannot be bought or sold;

- full transparency, e.g. all DevDAO decisions are fully transparent and accessible by the public and the DevDAO members themselves;

- indirect economic incentives, e.g. DevDAO members are getting paid with stable fungible tokens in proportion to their non-fungible reputation tokens;

- decisions in the DevDAO are made with a voting design that revolves around staking of non-fungible reputation tokens; and

- DevDAO’s fungible salary tokens are designed as stable and $USD denominated cryptocurrencies that maintain their value at around $1US. The incoming token grants from a diverse set of grantors are part of the pool of digital assets that constitute the basket of digital assets against which the DevDAO’s stable and $USD denominated cryptocurrency is pegged.

- anonymity of DevDAO members, e.g. after an initial setup and development period with less anonymity, DevDAO merit identifiers revolve around reputation scores and members of the DevDAO community can predominantly be identified by their respective reputation score in the DevDAO structure.

II. Conclusion

The decentralized autonomous corporation was first introduced briefly in a 2013 blog post. The 2014 Ethereum launch revolutionarily connected issuers to users through smart contracts upon which DAOs function today. The 2016 DAO demonstrated the possibility of using decentralized organizations to pool a large amount of assets between a large number of people. Since then, developers and thinkers have attempted to solve not only the technical flaws of the original DAO had, but also the need to synchronize the legal aspect of a DAO with its technical aspects.

This article introduced the reader to the benefits of operating a DAO, its legal limitations, and actual projects undertaking efforts to operate a DAO on-chain with a corresponding off-chain legally-recognized entity. DAOs solve the principal-agent problem that traditional organizations face by reducing misconduct and error, realigning participant incentives, and ultimately shifting economic and power dynamics.

Without a legal wrapper, DAOs face potential regulatory enforcement actions and civil liability, not only at the organization level but against individual participants. Issues of public policy, market, economic, and technical limitations also can arise. In order to create legal certainty, DAOs are evolving using a legal wrapper of the U.S. limited liability corporation concept and the Swiss civil law Association. The current third generation of DAOs take a legal entity that exists off-chain and adds a DAO concept, on-chain governance, to that existing construct. Future DAO generations will further improve the duality of internal governance and external legal design. Perhaps it will be possible to free DAO concepts of legal constraints in the more distant future.

[1] MME Switzerland Token Summit, supra note 17, at 25:10–25:46.

[2] MME Switzerland Token Summit, supra note 17, at 25:10–25:46.

[3] MME Switzerland Token Summit, supra note 17, at 16:15–16:30.

[4] MME Switzerland Token Summit, supra note 17, at 53:01–53:24.

[5] MME Switzerland Token Summit, supra note 17, at 16:30–16:55.

[6] Kyle Torpey, They Might Be Smart, But These Contracts Need to Be More Secure, American Banker Vol. 181 Iss. 140 Jul. 22, 2016 (discussing RSK Labs).

[7] Torpey, supra note 40.

[8] Torpey, supra note 40.

[9] Naval Ravikant (@Naval), Twitter (Apr. 13, 2018, 9:55 PM), https://twitter.com/naval/status/985018594252742656.

[10] Contra see supra Part II.

[11] Bitcoin Improvement Proposals, Wikipedia (last visited Aug. 19, 2019) https://en.bitcoin.it/wiki/Bitcoin_Improvement_Proposals.

[12] Adam Reese, Ethereum Dev Yoichi Hirai Steps Away From Role As EIP Editor, Raises Questions About Process, ETHNews: Ecosystem (Feb. 15, 2018), https://www.ethnews.com/ethereum-dev-yoichi-hirai-steps-away-from-role-as-eip-editor-raises-questions-ab (for a good argument from the former EIP editor that the EIP system is dangerous, who has since retired based on his serious concerns).

[13] Gavofyork, Yellow Paper Committee, GitHub (Apr. 10, 2016), https://github.com/gavofyork/curly-engine.

[14] Lists.ozlabs.org, https://lists.ozlabs.org/pipermail/bitcoin-dev-moderation/ (last visited Aug. 19, 2019).

[15] E.g., Aragon Network, supra note 43.

[16] Ethan Buchman, Tendermint: Byzantine Fault Tolerance in the Age of Blockchains (June 2016) (unpublished A.A.S. thesis, University of Guelph), https://atrium.lib.uoguelph.ca/xmlui/bitstream/handle/10214/9769/Buchman_Ethan_201606_MAsc.pdf?sequence=7&isAllowed=y.

[17] Rachel Rose O’Leary, Polkadot’s Plan for Governing a Blockchain of Blockchains, CoinDesk (Mar. 22, 2018, 1:10 UTC), https://www.coindesk.com/polkadots-radical-plan-governing-blockchain-blockchains/ (“the internal token of the Polkadot network, allows its holders to vote directly on a piece of code, which will then automatically upgrade across the network.”).

[18] DAOstack, An Operating System for Collective Intelligence, (White Paper V1.1, April 22, 2018), https://daostack.io/wp/DAOstack-White-Paper-en.pdf.

[19] Tezos, Tezos-Papers, GitHub (Oct. 25, 2016), https://github.com/tezos/tezos-papers.

[20]Joel Valenzuela, Dash Surges to Record High, Claims $0.5 Mln Monthly Development Budget, CoinTelegraph (Mar. 13, 2017), https://cointelegraph.com/news/dash-surges-to-record-high-claims-05-mln-monthly-development-budget. Decentralized Governance by Blockchain includes a system where “masternodes” have voting power and control of a development budget that takes 10% of the mined profit, which they claim amounted to more than $500,00 US per month in March 2017. However, masternodes can have incentives that are not always aligned with other users so that such on-chain governance may skew the development of the platform in unhealthy ways.

[21] Luis Cuende & Jorge Izquierdo, Aragon Network: A Decentralized Infrastructure for Value Exchange, White Paper (April 20, 2017), https://www.chainwhy.com/upload/default/20180705/49f3850f2702ec6be0f57780b22feab2.pdf.

[22] Cardano, https://www.cardano.org/en/academic-papers/ (last visited Aug. 19, 2019).

[23] MakerDAO, https://makerdao.com/ (last visited Aug. 19, 2019).

[24] NuBits, https://nubits.com/nushares (last visited Aug. 19, 2019).

[25] E.g., see this discussion: Buck Perley, Crypto-Governance and the Dangers of Faction, Medium (Oct. 27, 2017), https://medium.com/@BuckPerley/crypto-governance-f1318affbbe0; Fred Ehrsam, Blockchain Governance: Programming Our Future, Medium (Nov. 27, 2017), https://medium.com/@FEhrsam/blockchain-governance-programming-our-future-c3bfe30f2d74; Vlad Zamfir, Against On-chain Governance, Medium (Dec. 1, 2017), https://medium.com/@Vlad_Zamfir/against-on-chain-governance-a4ceacd040ca; Vitalik Buterin, Notes on Blockchain Governance, Vitalik.ca (Dec. 17, 2017), https://vitalik.ca/general/2017/12/17/voting.html.

[26] In off-chain governance models node operators have to update their client manually for a protocol upgrade to align with the new chain.

[27] Buterin, supra note 150 (arguing factors to be considered for an off-chain governance system include: consensus among development team, initial roadmap, coin holder voting, user voting with some kind of Sybil resistant polling system, and established norms).

[28] Steven Lalley & Eric Glen Weyl, Quadratic Voting: How Mechanism Design Can Radicalize Democracy, (Dec. 24, 2017), https://ssrn.com/abstract=2003531; Kristopher Jones, Blockchain In or As Governance? Evolutions in Experimentation, Social Impacts, and Prefigurative Practice in the Blockchain and DAO Space, 24 Information Polity 469, 474 (2019) (citing D. Allen, C. Berg, A. Lane, and J. Potts, The Economics of Crypto-Democracy, LinkDem@IJCAI 63–73 (2017)).

[29] Robin Hanson, Futarchy: Vote Values, But Bet Beliefs, Geo. Mason U., http://mason.gmu.edu/~rhanson/futarchy.html (last visited Aug. 19, 2019).

[30] Delegative Democracy, Wikipedia, https://en.wikipedia.org/wiki/Delegative_democracy (last visited Aug. 19, 2019).

[31] Craig Calcaterra, Wulf A. Kaal, and Andrei, Vlad, Blockchain Infrastructure for Measuring Domain Specific Reputation in Autonomous Decentralized and Anonymous Systems (February 18, 2018). U of St. Thomas (Minnesota) Legal Studies Research Paper №18–11, Available at SSRN: https://ssrn.com/abstract=3125822 or http://dx.doi.org/10.2139/ssrn.3125822

[32] Id.

[33] Van Valkenburgh, supra note 108.

[34] Van Valkenburgh, supra note 108.

[35] OpenEsq, Github, https://github.com/open-esq (last visited July 10, 2020). For a tutorial of how to create a DAO using the OpenLaw LLC-DAO Operating Agreement written by two US-licensed attorneys, see, Ross Campbell, E-Commerce with Legal and Blockchain Security, Medium Good Audience (Jan. 26, 2019) (using OpenLaw, https://lib.openlaw.io/web/default/template/New%20York%20LLC%20Articles%20of%20Organization).

[36] 11 V.S.A. § 4173; see e.g. Stan Higgins, Vermont Governor Signs Bill Clearing Way for Blockchain Companies, CoinDesk (May 31, 2018), https://www.coindesk.com/vermontdao-state-governor-signs-bill-clearing-way-blockchain-companies.

[37] Van Valkenburgh, supra note 108 (citing https://twitter.com/dOrg_tech)

[38] dOrg Launches First Limited Liability DAO, Gravel & Shea (Jun. 2019), https://www.gravelshea.com/2019/06/dorg-launches-first-limited-liability-dao/.

[39] See, e.g., Limited Liability Company Operating Agreement Open, Esq LLC, https://lib.openlaw.io/web/default/template/LLC-DAO%20Operating%20Agreement.

[40] Ian Grigg, The Ricardian Contract, IanG.org (2004), https://iang.org/papers/ricardian_contract.html

[41] Van Valkenburgh, supra note 108.

[42] Van Valkenburgh, supra note 108.

[43] Van Valkenburgh, supra note 108.

[44] Van Valkenburgh, supra note 108.

[45] Van Valkenburgh, supra note 108.

[46] Van Valkenburgh, supra note 108.

[47] DAO, OpenLaw (2019) https://dao.openlaw.io/ (last accessed Jun. 22, 2020).

[48] Van Valkenburgh, supra note 108.

[49] Van Valkenburgh, supra note 108.

[50] The LAO, supra note 33.

[51] Christine Kim, New Interest in DAOs Prompts Old Question: Are They Legal?, CoinDesk.com (Sep. 29, 2019), https://www.coindesk.com/new-interest-in-daos-prompts-old-question-are-they-legal.

[52] The LAO, Unpacking the LAO, Medium (Sep. 23, 2019). https://medium.com/openlawofficial/unpacking-the-lao-e463f7357b4b.

[53] The LAO, supra, note 33.

[54] The LAO, supra, note 33.

[55] The LAO, supra, note 33.

[56] The LAO, supra, note 33.

[57] The LAO, supra, note 33.

[58] The LAO, supra, note 33.

[59] Kim, supra note 176.

[60] The LAO, supra, note 33.

[61] The LAO, supra, note 33.

[62] The LAO, supra, note 33.

[63] OpenLawTeam, The LAO, GitHub (Dec. 11, 2019), https://github.com/openlawteam/TheLAO

[64] The LAO, supra, note 33.

[65] Kim, supra note 176.

[66] Kim, supra note 176.

[67] 17 C.F.R. § 230.501(a) (2017).

[68] The LAO, supra, note 33.

[69] See also Validitylabs, Daa, Github (2020), https://github.com/validitylabs/daa/tree/web.

[70] MME Switzerland Token Summit, supra note 17, at 9:30–9:55 (Thomas Linder swiss assn. slide).

[71] MME Switzerland Token Summit, supra note 17, at 9:55–10:10 (Thomas Linder Swiss assn. slide).

[72] MME Switzerland Token Summit, supra note 17, at 10:10–10:35 (Thomas Linder).

[73] MME Switzerland Token Summit, supra note 17, at 14:30–14:45 (Thomas Linder).

[74] MME Switzerland Token Summit, supra note 17, at 14:20–14:45 (Thomas Linder).

[75] MME Switzerland Token Summit, supra note 17, at 13:27–14:45 (Thomas Linder).

[76] MME Switzerland Token Summit, supra note 17, at 11:40–12:20 (Thomas Linder).

[77] MME Switzerland Token Summit, supra note 17, at 12:20–12:53 (Thomas Linder).

[78] MME Switzerland Token Summit, supra note 17, at 10:35–10:55 (Thomas Linder).

[79] MME Switzerland Token Summit, supra note 17, at 10:55–11:25 (Thomas Linder).

[80] MME Switzerland Token Summit, supra note 17, at 11:25–11:45 (Thomas Linder).

[81] MME Switzerland Token Summit, supra note 17, at 29:00–29:10.

[82] MME Switzerland Token Summit, supra note 17, at 28:15–28:40

[83] MME Switzerland Token Summit, supra note 17, at 29:10–29:30.

[84] MME Switzerland Token Summit, supra note 17, at 44:11–44:44.

[85] MME Switzerland Token Summit, supra note 17, at 35:30–36:22.

[86] MME Switzerland Token Summit, supra note 17, at 36:22–37:05.

[87] MME Switzerland Token Summit, supra note 17, at 51:00–51:23.

[88] MME Switzerland Token Summit, supra note 17, at 50:34–51:00.

[89] MME Switzerland Token Summit, supra note 17, at 30:21–40.

[90] MME Switzerland Token Summit, supra note 17, at 27:40–28:15

[91] MME Switzerland Token Summit, supra note 17, at 27:10–27:40.

[92] MME Switzerland Token Summit, supra note 17, at 29:40–30:21.

[93] MME Switzerland Token Summit, supra note 17, at 26:00–26:30.

[94] MME Switzerland Token Summit, supra note 17, at 34:30–35:23.

[95] MME Switzerland Token Summit, supra note 17, at 33:10–33:50.

[96] MME Switzerland Token Summit, supra note 17, at 30:39–30:54.

[97] MME Switzerland Token Summit, supra note 17, at 20:05–20:21, 31:25–32:00, 34:30–35:23.

[98] MME Switzerland Token Summit, supra note 17, at 31:25–32:00.

[99] MME Switzerland Token Summit, supra note 17, at 31:25–33:50.

[100] MME Switzerland Token Summit, supra note 17, at 31:25–32:00.

[101] MME Switzerland Token Summit, supra note 17, at 32:00–32:10. (32:10–33:10 description of quadratic voting, reference also to Buterik blog on same)

[102] MME Switzerland Token Summit, supra note 17, at 33:10–33:50.

[103] MME Switzerland Token Summit, supra note 17, at 44:40–45:07

[104] MME Switzerland Token Summit, supra note 17, at 47:00–47:17.

[105] MME Switzerland Token Summit, supra note 17, at 47:17–47:49.

[106] MME Switzerland Token Summit, supra note 17, at 45:10–45:45.

[107] MME Switzerland Token Summit, supra note 17, at 45:50–46:22

[108] MME Switzerland Token Summit, supra note 17, at 45:45–46:22.

[109] MME Switzerland Token Summit, supra note 17, at 46:22–47:00

[110] Matt Slipper & Dan Tsui, The State of Ethereum 2.0; Ethereum 2.0 (2019), https://docs.google.com/document/d/1PS0k9MaKPdPwEw3Uh9rq7USjq7LcSpT6ICQUXRij4YE/edit, https://consensys.net/knowledge-base/ethereum-2/; Download the Ethereum 2.0 Staking Ecosystem Report, https://consensys.net/insights/eth-2-staking-ecosystem-report.

[111] MolochDAO, infra note 244, at 1–2.

[112] MolochDAO, infra note 244, at 6.

[113] Ven Gist, Moloch Primer for Humans, Medium (Oct. 2, 2019) https://medium.com/odyssy/moloch-primer-for-humans-9e6a4f258f78.

[114] MME Switzerland Token Summit, supra note 17, at 33:53–34:15.

[115] MolochDAO, supra note 244, at 1–2.

[116] MolochDAO, supra note 244, at 2.

[117] MolochDAO, supra note 244, at 10; Gist, supra note 238.

[118] MolochDAO, supra note 244, at 10; Gist, supra note 238.

[119] MolochDAO, MolochDAO 101 — Welcome to Moloch (Aug. 2019), https://molochdao.discourse.group/t/molochdao-101-welcome-to-moloch/24

[120] MolochDAO, supra note 244, at 6.

[121] Daohaus, https://daohaus.club/; see also Cooper Turley, Moloch — 2019 Year in Review, Medium (Jan. 1, 2020), https://medium.com/@molochdao/moloch-2019-year-in-review-eb6f53dc035.

[122] MolochDAO, supra note 244, at 5–6.

[123] MolochDAO, supra note 244, at 5, 9.

[124] MolochDAO, supra note 244, at 6.

[125] MolochDAO, supra note 244, at 6.

[126] MolochDAO, supra note 244, at 3.

[127] MolochDAO, supra note 244, at 7.

[128] MolochDAO, supra note 244, at 3.

[129] MolochDAO, supra note 244, at 6.

[130] MolochDAO, supra note 244, at 7.

[131] MolochDAO, supra note 244, at 7.

[132] MolochDAO, supra note 244, at 9–10.

[133] MolochDAO, supra note 244, at 7; Gist, supra note 238.

[134] MolochDAO, supra note 244, at 8.

[135] MolochDAO, supra note 244, at 4, 7.

[136] MolochDAO, supra note 244, at 9.

[137] MolochDAO, supra note 244, at 8–9.

[138] MolochDAO, supra note 244, at 9.

[139] MolochDAO, supra note 244, at 7.

[140] MolochDAO, supra note 244, at 8.

[141] Moloch (@MolochDAO), Twitter (Aug 28, 2019), https://twitter.com/MolochDAO/status/1166693888008081410?s=20.

[142] Moloch v2, https://github.com/MolochVentures/moloch; The LAO, supra note 54.

[143] Metacartel Ventures (@VENTURE_DAO), Twitter (Sept. 2019), https://twitter.com/venture_dao; Metacartel, MCV, Github (2020), https://github.com/metacartel/MCV/blob/master/MCV-Whitepaper.md.

[144] Moloch v2, supra note 267.

[145] The LAO, supra note 267.

[146] The LAO, supra note 267.

[147] Nick Tomaino, Lessons from MakerDAO, Medium (Feb. 19, 2018), https://thecontrol.co/lessons-from-makerdao-a42081116e9a.

[148] See MakerDAO, supra note 50 (discussion of The First Risk Construct).

[149] MakerDAO, supra note 50; See also MakerDAO Governance Risk Framework (Part 2), MakerDAO (July 30, 2018), https://blog.makerdao.com/makerdao-governance-risk-framework-part-2/, at “Maker token holder (MTH) and Maker internal risk team (MRT) duties”.

[150] MakerDAO, Maker Whitepaper, supra note 49.

[151] Tomaino, supra note 272.

[152] Ben DiFrancesco, FakerDAO: An Exploration of MakerDAO’s Governance Incentives, ScopeLift: High Caliber Crypto (Mar. 9, 2020), https://www.scopelift.co/blog/fakerdao.

[153] MakerDAO, Governance Risk Framework Part 1, supra note 50.

[154] MakerDAO, Governance Risk Framework Part 1, supra note 50.

[155] MakerDAO, Governance Risk Framework Part 1, supra note 50.

[156] MakerDAO, Governance Risk Framework Part 1, supra note 50.

[157] MakerDAO, Governance Risk Framework Part 1, supra note 50.

[158] MakerDAO, What Will Maker Governance Look Like After Complete Decentralization?, MakerDAO: Blog (Apr. 3, 2020) https://blog.makerdao.com/what-will-maker-governance-look-like-after-complete-decentralization/.

[159] MakerDAO, supra note 283.

[160] MakerDAO, supra note 283.

[161] MakerDAO, supra note 283.

[162] MakerDAO, supra note 283.

[163] MakerDAO, supra note 50.

[164] MakerDAO, supra note 50.

[165] MakerDAO, Maker Whitepaper, supra note 49, at 14.

[166] MakerDAO, Maker Whitepaper, supra note 49.

[167] See MakerDAO, Currency Re-imagined for the World: Multi-Collateral Dai is Live!, MakerDAO: Blog (Nov. 18, 2019), https://blog.makerdao.com/multi-collateral-dai-is-live/.

[168] MakerDAO, Maker Whitepaper, supra note 49 at 13.

[169] MakerDAO, Maker Whitepaper, supra note 49, at 13.

[170] MakerDAO, Maker Whitepaper, supra note 49, at 13–14.

[171] MakerDAO, Maker Whitepaper, supra note 49, at 14.

[172] MakerDAO, Maker Whitepaper, supra note 49, at 13.

[173] See See MakerDAO, Awesome-Makerdao, Github (2020), https://github.com/makerdao/awesome-makerdao/blob/master/README.md#governance-and-risk;

MakerDAO, MakerDAO Governance Risk Framework (Part 3), (Dec. 11, 2018), https://blog.makerdao.com/makerdao-governance-risk-framework-part-3, (for more information on MakerDAO governance.)

[174] MakerDAO, supra note 50; see also Maker Foundation, Scientific Governance and Risk, YouTube (Jun. 25, 2020), https://www.youtube.com/playlist?list=PLLzkWCj8ywWNq5-90-Id6VPSsrk4OWVan.

[175] MakerDAO, Maker Whitepaper, supra note 49, at 2, 5, 13; see also MakerDAO, supra note 50.

[176] For a full list of token holder responsibilities and modifications token holders can vote on, see MakerDAO, Maker Whitepaper, supra note 49, at 14.

[177] MakerDAO, Maker Whitepaper, supra note 49, at 13. See also MakerDAO, What is MKR?, Medium (Sep. 10, 2015), https://medium.com/@MakerDAO/what-is-mkr-e6915d5ca1b3.

[178] Maker Foundation, Maker Protocol 101 Slide Deck, (Dec. 9, 2019), https://drive.google.com/file/d/1bEOlNk2xUXgwy0I_UlB_8tPPZ8mH1gy9/view slide 36. For more on Maker governance, see https://docs.makerdao.com/smart-contract-modules/governance-module.

[179] MakerDAO, Maker Whitepaper, supra note 49, at 13.

[180] MakerDAO, Maker Whitepaper, supra note 49, at 13.

[181] MakerDAO, Maker Whitepaper, supra note 49, at 13.

[182] MakerDAO, The Transfer of MKR Token Control to Governance: The Final Step, MakerDAO: Blog (Mar. 25, 2020) https://blog.makerdao.com/the-transfer-of-mkr-token-control-to-governance-the-final-step/; see also Charles St.Louis, Announcement: Kickstarting the Self-Sustaining MakerDAO Initiative, MakerDAO: Blog (Apr. 1, 2020) https://forum.makerdao.com/t/announcement-kickstarting-the-self-sustaining-makerdao-initiative/1864 (“Announcement (Apr. 1, 2020)”).

[183] See MakerDAO, MIP3: Governance Cycle, Github (May 2, 2020), https://github.com/makerdao/mips/blob/master/MIP3/mip3.md#mip3c2-governance-cycle-breakdown.

[184] MakerDAO, Maker Governance Review: May 2020, MakerDAO: Blog (Jun. 3, 2020), https://blog.makerdao.com/maker-governance-review-may-2020/.

[185] Charles St. Louis, The Release of the 13 Initial Maker Improvement Proposals (MIPs), MakerDao Forum, (Apr. 6, 2020), https://forum.makerdao.com/t/the-release-of-the-13-initial-maker-improvement-proposals-mips/1915; see also MakerDAO, The First 13 Maker Improvement Proposals (MIPs) To Further Decentralization of MakerDAO, MakerDAO: Blog (Apr. 6, 2020), https://blog.makerdao.com/the-first-13-maker-improvement-proposals-to-further-decentralization-of-makerdao/.

[186] St. Louis, supra note 307.

[187] St. Louis, supra note 307.

[188] MakerDAO, supra note 309.

Professor, Emerging Technology Strategist