Web3 Expert Interpretation: The Essence of DAO Organizations, Creation Process, and Current Legal Regulations

As the concept of DAO, full of future potential, creates waves of innovation in the Web3 space, this organization form based on blockchain technology not only reshapes the traditional organizational model but also incubates a number of star projects. From project parties to investors, and then to ordinary participants, there is great attention on DAO. However, the definition of DAO varies greatly depending on different contexts, making it difficult to grasp accurately.

This article will delve into the following issues from a professional perspective:

• The essence, advantages, and limitations of DAO organizations
• The specific process of creating a DAO organization
• The current legal regulation status of DAOs in various countries
• Can DAO serve as the issuer of tokens for RWA projects?

1. The Nature, Advantages, and Limitations of DAO Organizations

DAO, or Decentralized Autonomous Organization, has two core features: "decentralization" and "autonomy".

1. Decentralized organizational structure

The DAO does not have a centralized decision-making body like traditional companies, but is managed collectively by all members. This is specifically reflected in:

• There is no board of directors or centralized management; decision-making power is decentralized among all members.
• Not serving specific stakeholders, members share profits through token appreciation and other means.
• Operating rules are written into smart contracts, automatically executed to avoid human intervention.
• The contract is open source and transparent, abandoning the "black box" decision-making model.

This architecture has the following advantages compared to traditional companies:

• Avoid management's moral hazard, preventing personal interests from overriding organizational interests
• Code-based operational rules + profit-sharing mechanism, fundamentally addressing the agency problem.

2. Member-driven governance model

DAO achieves autonomy through internal voting:

• Token holders can propose and vote
• The voting process is executed automatically by a smart contract.
• Different DAOs adopt different voting rules, such as one coin one vote, quadratic voting, etc.
• Representative voting can be used to improve efficiency.

This model has the following advantages compared to traditional corporate governance:

• Eliminate hierarchical barriers and promote equal communication
• Decision-making reflects the opinions of the majority of members, avoiding a "dictatorship of one".
• Voting results are automatically executed, solving implementation difficulties.

The DAO organization realizes the ideal of "humans as an end rather than a means" to a certain extent through a decentralized structure and member autonomy.

limitations

• Smart contract vulnerabilities may lead to security risks
• Decision-making efficiency is relatively low
• The legal regulatory framework is not yet完善, and there are compliance risks.

2. The Process of Creating a DAO Organization

Generally includes the following steps:

1. Establish the purpose and operating rules
2. Write the rules into the smart contract
3. Test Audit Contract
4. Fundraising ( is usually done by issuing governance tokens ).
5. Deploy the contract on-chain

Please note that this is only the on-chain creation process and does not constitute registration in the legal sense.

III. The Legal Regulation Status of DAOs in Various Countries

1. UAE

At the end of 2024, the "DAO Association Regulations" will be released, clarifying that DAOs have independent legal person status and adopt the form of a limited liability company. The main provisions are:

• DAO needs to be deployed on a permissionless distributed ledger.
• The code must be open source
• Supervised by registrars and third-party auditors

2. United States

Wyoming passed a bill in 2021 allowing DAOs to register as limited liability companies.

Tennessee's 2022 revised code allows LLCs to register as a "decentralized organization."

4. Can DAO serve as the issuer of tokens for RWA projects?

• A DAO registered as a legal entity can issue tokens if it meets compliance requirements.
• DAOs existing only on the chain cannot issue tokens directly and need to undergo legal packaging.

Overall, DAOs are relatively mature on-chain, but further integration with the real world requires improvement of relevant regulations. Project teams must also pay more attention to compliance requirements.