Crypto industry insiders estimate that the funds managed by Decentralized Autonomous Organisations (DAOs) now exceed $1 billion—up from about $10 million a year ago.
In 10 or 20 years from now, we’ll see “Silicon Valley in the cloud,” powered by DAOs, rather than corporations, Aaron Wright, co-founder of the OpenLaw digital contract platform, argued at Decrypt's 2021 Ethereal Virtual Summit last week.
"DAOs will probably be viewed as the organizational entity for the Internet age,” Wright said. “I really do think that this is the future.”
Historically, in the crypto industry, DAOs have been used by groups big and small to manage protocol development, fund investments, or fulfill various other missions. But recently interest in these organizations that use automated decision-making processes and Ethereum smart contracts (instead of traditional hierarchical forms of governance) has soared. It’s been sparked by the growth in Decentralized Finance (DeFi,) the popularity of NFTs and a new law passed by the state of Wyoming providing DAOs with a legal identity.
The Dawn of the DAOs
In another Ethereal Summit panel, Olaf Carlson-Wee, CEO and founder of San Francisco-based venture capital firm Polychain Capital, also had a positive prognosis on the new technology. He said that DAOs are the future of venture capital. “I’m really excited about DAOs,” said Carlson-Wee. “The ability for global capital coordination and allocation based on just anonymous people from around the Internet is absolutely fascinating to me. A lot of people don’t realize the sheer magnitude.”
AND IT’S OFFICIAL!! 🤠#Wyoming will recognize #DAOs as a new type of LLC, effective July 1! Thank you legislators & @GovernorGordon for building on Wyoming’s history of inventing the LLC, which all other states followed roughly a decade later. We’re doing it again! A thread👇. 1/ pic.twitter.com/4x7VpcPTkk
— Caitlin Long 🔑 (@CaitlinLong_) April 21, 2021
Many in the industry now anticipate that a new Wyoming law, which recognizes DAOs as a new type of limited liability company, will give these evolutionary organizational structures some much-needed credibility.
Last year, Wyoming also became the first state in the U.S. to issue a charter for crypto banks and has already issued licenses to two: Kraken and Avanti. Avanti founder Caitlin Long worked closely with legislators to get the Wyoming legislation passed and, speaking on the same panel as Wright, she explained that some compromises had been made to ensure that Wyoming’s new legislation was “backward-compatible with the existing legal system,”
She said that the Wyoming law requires the name of an agent who represents the DAO, in order to set it up, and the fact that people need to be named has caused some to question whether the legislation is strictly in keeping with the anonymous ethos that has come to characterize many DAOs.
She also highlighted a lesser-known aspect of the legislation: “Unlike other types of business entities that limit liability—like corporations or LLCs—the Wyoming Secretary of State, in the event of fraud, can yank the limited liability away from a DAO.”
She explained that only in this way can the state ensure that DAOs can be policed and that these compromises were necessary because, up to now, DAOs exist only “in an ambiguous legal sense.” In absence of legislation, they could be deemed to be general partnerships, which would compromise their status. “Because there’s more money on the line, you really do want that clarification,” she said. “What the Wyoming law does is it makes DAOs a legal entity.”
Long pointed out that there was much that still remained to be decided—such as how DAOs would deal with banks.
But the legal breakthrough will unleash even more experimentation, and the technology is rapidly moving beyond the days when DAOs were put together with “band-aids and bubble gum,” said Wright.
Wright himself is behind a new type of DAO, the LAO (Limited Liability Autonomous Organization), a limited liability entity organized in Delaware, which uses smart contracts to handle voting, funding and the allocation of funds.
He’s convinced that tech advancements and new, “super-interesting use cases” such as creator DAOs and protocol DAOs—which can coordinate the development and funding of projects, will help the fledgling industry prosper dramatically this year.
Also on the panel, NFT collective BeetsDAO’s co-founder Jordan Garbis, praised DAOs for the strength of their network effect. His 58-person collective brought together rap legend Snoop Dogg and Nyan Cat meme creator Chris Torres for an NFT drop that pulled in $242,000 last month.
🐕@SnoopDogg X @NyanCat 🐈⬛
Powered by @BeetsDAO
Edition: 1/1https://t.co/N0ZaRw4kuV pic.twitter.com/kaaFk43Z38
— ☆Chris☆ (@PRguitarman) April 17, 2021
“The dream is to unleash the power of NFTs and create networks of communities that actually drive the value of artists,” he said. “We have almost anyone we can reach at any one time.”
Funding, creativity and now some legal certainty could well ensure that 2022 will see the dawn of the DAOs.