Decentralized Autonomous Organization

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 3,979 reviews

Jump to Section

Need help with a Business Contract?

CREATE A FREE PROJECT POSTING
Post Project Now

What is a Decentralized Autonomous Organization (DAO)?

A decentralized autonomous organization (DAO) is a business organization that operates around a common objective and coordinates via smart contracts on the blockchain. Cryptocurrency holders vote on important matters related to the DAO. DAOs are also transparent, self-governing, and independent of a centralized government, lending to their decentralization.

A DAO is a new type of legal business entity becoming increasingly popular in the Ethereum blockchain ecosystem. Essentially, they represent a shift in collaboration since the company decentralized away from third-party influence.

Here is a web page that also defines decentralized autonomous organizations.

How do Decentralized Autonomous Organizations Work?

In a nutshell, DAOs are designed to hard-code specific rules into programs that will govern the company from the start. They operate on the foundation of decentralized democracy, while smart contracts aid in decision-making.

Smart Contracts

One of the most valuable ideas to understand is that smart contracts serve as the hub of all decisions in a DAO. It establishes the organization’s rules and safeguards its cryptocurrency. Once the contract is live on Ethereum, no one can alter it except by a majority vote.

Essentially, Ethereum smart contracts are tamper-proof once they are live. For example, no one can edit the code without drawing attention since all edits are publicly available and encoded on the blockchain.

Decentralized Democracy

Many see DAOs as a way to ensure democracy more rigorously. Stakeholders can vote on issues, such as adding new rules, amending existing ones, or removing a member. The DAO will simply be incapable of changing unless a sufficient number of people vote for the change.

Meet some lawyers on our platform

Todd H.

2 projects on CC
View Profile

Kelvin R.

10 projects on CC
View Profile

Justin K.

3 projects on CC
View Profile

Ryenne S.

127 projects on CC
View Profile

DAOs vs. Traditional Organizations

There are significant differences between DAOs vs. traditional organizations, including structure, transparency, voting rights, processes, and contracts. However, the decision-making process is what makes DAOs unique. DAOs utilize the principles of democracy and couple them with the fail-safes that technology provides.

Below, we’ve outlined five characteristics that make DAOs different from traditional organizations:

  • Structure. Token holders make executive decisions versus a centralized group of leaders
  • Transparency. DAO code is open source, making it accessible to anyone who wants to search the history of blockchain transactions
  • Rights. Anyone with internet access can own or purchase DAO tokens, granting them voting rights
  • Processes. Investors can change DAO rules democratically by voting on new proposals
  • Contracting. A DAO could automatically hire vendors and place orders upon the conclusion of a vote

DAOs are not suitable for every project or business. For example, MIT believes that a DAO may not yield returns since some voting rounds may not have the company’s best interests at heart. Another issue is that there could be programming bugs and errors that a human would otherwise notice in a traditional organization.

Examples of DAOs

DAO tokens are a critical component of the design and are required when establishing a DAO ecosystem. Today, several of the largest DAO tokens and organizations operate in the blockchain space.

Here are five examples of DAOs and their backgrounds:

Example 1. Aave

Aave tokens are used in the third-largest decentralized application in the world and the second-largest lending protocol on Ethereum. It enables lending and borrowing through the Aave platform.

Example 2. The DAO

“The DAO” was launched in 2016 and failed within months. However, it remains the most prominent example of what blockchain technology envisions.

The original plan was for investors in The DAO to receive tokens proportional to their ether token investment. Investors could use those tokens to vote on which projects to fund. Unfortunately, an exploit in the code allowed hackers to steal the organization’s funds.

Ethereum reversed the transaction history to return funds to their owners, a contentious decision since the hacker was operating within the bounds of the program.

Example 3. Dash

Founded in May 2015, Dash is the PayPal of the cryptocurrency world, enabling users to store money, receive payments, and shop instantly for less than a cent per transaction. It is as user-friendly as PayPal and is a rapidly growing payment platform.

Example 4. Maker

Maker is a cryptocurrency incorporated into MakerDAO, DeFi’s largest lending platform. It empowers users to vote based on MakerDAO’s parameters, including business logic and risk management systems.

Example 5. Uniswap

The Uniswap token and the Uniswap Decentralized Exchange (DEX) are extremely popular. Users who own the UNI token can vote on new proposals. However, Uniswap retains a powerful developer voice in decision-making, making it less decentralized than others.

How To Create a Decentralized Autonomous Organization

The formation of a DAO is not unlike a traditional organization. A legally compliant DAO operates as a registered limited liability company (LLC), which limits an investor’s financial and legal liability to the DAO LLC. Forming a DAO LLC entails a few additional steps that other LLCs do not, including establishing rules before writing the code and funding the startup.

Here are 4 steps to creating a decentralized autonomous organization:

Step 1. Form a DAO LLC

Wyoming is the only state that recognizes DAO LLCs specifically. You can form a Wyoming DAO LLC or form a traditional LLC in another state. Still, you will not be able to conduct business in Wyoming. Founders can register an LLC by filing their Articles of Organization with the secretary of state’s office.

Step 2. Create Smart Contracts

Developers must create the DAO’s smart contract rules and functionality. They can only modify the regulations established by these contracts after launch via the governance system. This means that the DAO’s code must be tested and any potential bugs or security issues addressed before system deployment.

Step 3. Obtain DAO Funding

After the smart contracts are created, the DAO must determine a method of funding and governance. Typically, tokens are sold to raise funds; these tokens confer voting rights on holders. A popular fundraising vehicle for DAOs is a simple agreement for future tokens, or SAFTS, which promise early investors discounts in future financing rounds.

Step 4. Deploy the DAO

Upon configuration, the DAO must be deployed to the blockchain. From this point forward, stakeholders make decisions about the organization’s future. The founders of the organization no longer hold sole influence over the project.

DAOs and Real Estate

DAOs also solve several critical issues associated with real estate investments. Investment properties are costly, creating barriers to entry for many people. Friends, family members, and acquaintances have been pooling their money together, ruining relationships when someone doesn’t meet their end of the agreement.

A DAO solves this problem by implementing the following protocols for real estate instead:

  • Protocol 1. Investors send their share of funds to a smart contract wallet
  • Protocol 2. All investors are signers
  • Protocol 3. Utilize strict quorum rules
  • Protocol 4. Use tokens to confer voting rights and ownership percentages
  • Protocol 5. Set up an LLC

The legal framework for DAOs is still in its infancy, though this is beginning to change. As such, questions will continue to arise around accountability should a breach or negligence claim arise. But, again, technology lawyers can guide you through the formation and governance process.

Post a project in ContractsCounsel’s marketplace to get flat fee bids from lawyers for your legal project. All lawyers are vetted by our team and peer-reviewed by our customers for you to explore before hiring.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Lawyers

Joseph L. on ContractsCounsel
View Joseph
5.0 (13)
Member Since:
July 26, 2021

Joseph L.

Attorney
Free Consultation
Get Free Proposal
CT
40 Yrs Experience
Licensed in CT
Southwestern University School of Law

Mr. LaRocco's focus is business law, corporate structuring, and contracts. He has a depth of experience working with entrepreneurs and startups, including some small public companies. As a result of his business background, he has not only acted as general counsel to companies, but has also been on the board of directors of several and been a business advisor and strategist. Some clients and projects I have recently done work for include a hospitality consulting company, a web development/marketing agency, a modular home company, an e-commerce consumer goods company, an online ordering app for restaurants, a music file-sharing company, a company that licenses its photos and graphic images, a video editing company, several SaaS companies, a merchant processing/services company, a financial services software company that earned a licensing and marketing contract with Thomson Reuters, and a real estate software company.

Harry S. on ContractsCounsel
View Harry
5.0 (1)
Member Since:
July 27, 2021

Harry S.

Director
Free Consultation
Get Free Proposal
London
9 Yrs Experience
Licensed in NY
BPP

Stirk Law is a law firm based in London that advises on dispute resolution, commercial and corporate arrangements, employment and private wealth. We are experts in our areas and experienced in advising on complex and high value matters in the UK and internationally. We have extensive onshore and offshore experience across a variety of areas such as the administration of trusts together with complex fraud and trust disputes. Our expertise includes the conduct of significant and high-value cases valued at up to in excess of £1 billion over a combined 40 years of legal practice in England, Jersey and Guernsey. As well as having a large international network, we work closely with a corporate investigations and risk advisory business based in London and Vienna. Together we can deliver a holistic service for cases involving fraud, dissipation of assets or other illegal activity.

Talin H. on ContractsCounsel
View Talin
5.0 (1)
Member Since:
July 29, 2021

Talin H.

Owner
Free Consultation
Get Free Proposal
Chicago
14 Yrs Experience
Licensed in IL
DePaul College of Law

Talin has over a decade of focused experience in business and international law. She is fiercely dedicated to her clients, thorough, detail-oriented, and gets the job done.

Craig M. on ContractsCounsel
View Craig
5.0 (3)
Member Since:
August 2, 2021

Craig M.

Attorney
Free Consultation
Get Free Proposal
Maine
7 Yrs Experience
Licensed in ME
New York Law School

I have been practicing law for more than 4 years at a small firm in York County, Maine. I recently decided to hang my shingle, Dirigo Law LLC. My practice focuses mostly on Real Estate / Corporate transactions, Wills, Trusts, and Probate matters.

Melissa G. on ContractsCounsel
View Melissa
5.0 (1)
Member Since:
August 5, 2021

Melissa G.

Owner/Managing Member
Free Consultation
Get Free Proposal
Chicago
19 Yrs Experience
Licensed in DC, IL, OH
University of Michigan

Melissa Green recently opened her own law firm which focuses on providing general counsel subscription services (think of it as your attorney "on-call"), business formation services, and contract services (including review and mark-up, custom contracts, templates, and negotiation assistance). Prior to opening her own firm, Melissa joined the American Medical Association (AMA) as an Assistant General Counsel in November 2019. In her role at the AMA, Melissa supported the CPT and Masterfile licensing programs, in addition to supporting the legal needs of the Professional Satisfaction and Practice Sustainability business unit. Prior to arriving at the AMA, Melissa was the Chief Legal Counsel and Privacy Officer at The Chartis Group, a healthcare advisory services and analytics company, headquartered in Chicago, where she was responsible for commercial transactions for Chartis and its wholly owned SaaS company, and also served as the organization’s privacy officer responsible for HIPAA compliance. Melissa started her legal career in Cincinnati, Ohio at the law firm of Frost Brown Todd where she served as an associate in the Corporate department doing healthcare transactions, securities, and general corporate work. In 2007, Melissa transitioned into her first in-house counsel role at GE Aviation. During her time at GE, she had many roles including supporting new engine sales transactions for the Europe/Middle East/Africa region, its Electric Power business located in Dayton, its Engine Services business (supporting the CF34 and CF6 engine lines), and compliance. Upon leaving GE, Melissa had a brief stint at MedStar in Virginia before accepting a full-time position at the University of Maryland Medical System in Baltimore, Maryland in July 2013. Originally from East Lansing, Michigan, Melissa received her bachelor’s graduate from Michigan State University’s – James Madison College and is a graduate of the University of Michigan Law School.

Yaser M. on ContractsCounsel
View Yaser
Member Since:
July 21, 2021

Yaser M.

Self Employed
Free Consultation
Get Free Proposal
Houston
13 Yrs Experience
Licensed in TX
University of London

I have practiced law in foreign jurisdiction for more than 11 years and more than one year in Texas. I am Texas licensed attorney. Practice areas include Corporate: incorporation of business entities, drafting of operating agreements, by-laws, and business contracts; Commercial: business disputes, demand letters, cease and desist lettera, dealing with insurance companies, negotiations, settlements of disputes, commercial real estate, and business litigation Litigation: business disputes, personal injury, civil rights, cross-border matters, maritime matters, drafting of litigation pleadings, motion practice, legal research, white-collar defense.

Stanley K. on ContractsCounsel
View Stanley
Member Since:
July 29, 2021

Stanley K.

Corporate Attorney
Free Consultation
Get Free Proposal
Waltham, MA
29 Yrs Experience
Licensed in CA, MA, TX
University of Texas School of Law

Stan provides legal services to small to medium-sized clients in the New England region, and throughout the U.S. and abroad. His clients are involved in a variety of business sectors, including software development, e-commerce, investment management and advising, health care, manufacturing, biotechnology, telecommunications, retailing, and consulting and other services. Stan focuses on the unique needs of each of his clients, and seeks to establish long term relationships with them by providing timely, highly professional services and practical business judgment. Each client's objectives, business and management styles are carefully considered to help him provide more focused and relevant services. Stan also acts as an outsourced general counsel for some of his clients for the general management of their legal function, including the establishment of budgets, creation of internal compliance procedures, and the oversight of litigation or other outside legal services.

Sam W. on ContractsCounsel
View Sam
Member Since:
July 30, 2021

Sam W.

Entertainment attorney
Free Consultation
Get Free Proposal
Los Angeles
9 Yrs Experience
Licensed in CA
Columbus School of Law, The Catholic University of America

Entertainment attorney and film producer. Counsel clients on all matter of entertainment-related contracts, including talent representation, crew deals, financing agreements, and production legal. Former litigation attorney and owner of a documentary and scripted film and television production company. Well versed in small business foundation and general business contracts.

Robert D. on ContractsCounsel
View Robert
Member Since:
August 3, 2021

Robert D.

Solo Practitioner
Free Consultation
Get Free Proposal
Cincinnati, OH
29 Yrs Experience
Licensed in DC, NY
University North Carolina Chapel Hill School of Law

Robert is a skilled corporate lawyer, licensed to practice law in NY and DC. He has over 25 years of experience, with a focus on Venture Capital, Private Equity, M&A, General Business Law and Company Formation. Robert brings business side experience to every legal transactions. This allows him to shape a client's legal needs around its business goals to drive success in an effective and efficient manner.

Tim M. on ContractsCounsel
View Tim
Member Since:
August 3, 2021

Tim M.

Managing Partner
Free Consultation
Get Free Proposal
Cambridge, MA
25 Yrs Experience
Licensed in MA, NY
Boston College Law School

Tim has 20 years of experience representing a wide variety of emerging and established companies in the technology, software, bitcoin and professional services industries. He works directly with his clients’ executives and boards of directors on corporate, intellectual property, and securities law issues. Recently, Tim has advised clients on Series A and Series B financings, corporate structuring, complex video licensing agreements, and structuring new hedge funds. Tim previously served as Forrester Research, Inc.’s General Counsel and Secretary where he was chief legal officer, led the company’s legal group, and managed the company’s legal and regulatory affairs. Tim played an integral role in the company’s initial public offering in 1997 and coordinated its secondary offering in 2000. He directed the legal process in the company’s acquisitions of Giga Information Group, Inc., Fletcher Research and Forit GmbH and oversaw over $125million in transactions. He also managed the company’s intellectual property assets. Tim is admitted to practice in Massachusetts and New York. Tim holds a Juris Doctor degree from the Boston College Law School and a Bachelor of Arts degree from Trinity College

Spencer W. on ContractsCounsel
View Spencer
Member Since:
August 4, 2021

Spencer W.

Partner
Free Consultation
Get Free Proposal
New York
12 Yrs Experience
Licensed in NY
Columbia Law School

I’m a New York based attorney with substantial experience in media and art law, corporate structuring and commercial contracts. For the past several years, I have been advising startups and new business on their legal needs, with a special focus on tech and entertainment.

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call