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By Arjun Mahadevan
Published on 12 Sep 2022 Updated on 17 Jan 2023 8 min read Updated on 17 Jan 2023
Are you tired of running a company the traditional way? Do you want to create a business that doesn’t follow the usual hierarchy that you see in most companies? If you answered yes to both questions, you should consider starting a business as a DAO.
This manner of running a company is slowly capturing the business community’s attention. This is because of the radical and non-centralized way of its operations. If you want to learn more about running a business as a DAO and whether or not it’s a good fit for your business idea, then read on.
DAO: An Overview
Before you can begin to understand what’s involved in creating a business as a DAO, you should first understand what the acronym stands for. DAO is short for Decentralized Autonomous Organization. As the name implies, it’s pretty much like blockchain technology – it’s decentralized, practically runs itself, and not one entity or person controls it.
To further understand this concept, let’s break down the acronym a little bit more. The term Decentralized, as mentioned earlier, means that this type of organization doesn’t have one head honcho or controlling authority. Autonomous is having the control or the freedom to manage itself. Organization is easy enough to understand, but just for the sake of completing this definition, it is a group of people that have come together for a specific purpose.
DAOs come in many different forms, but they all have one thing in common: they’re all internet-based communities that share one bank account. Someone even jokingly said it’s a group chat with a bank account.
This “bank account” is used to run a business or fund a cause. How a DAO operates depends on the code put in place by the same people who put together the DAO. This code, which executes all the rules and regulations that the company or organization wants to implement, runs the entire operation.
Now, not all people who put together a DAO are entrepreneurs, but they essentially become one when they become part-owners of a DAO.
How Does the DAO Work as a Business?
When you become a member of a DAO, you enter into an agreement with others via smart contracts. Smart contracts are essentially programs with a self-executing code in the blockchain that contains the terms of the agreement among all parties involved.
Smart contracts make DAOs decentralized and autonomous since anyone in the DAO can make proposals and vote for them. Additionally, members can make decisions for the DAO without actually knowing anyone.
There is also no bureaucracy in a standard DAO business structure, so everyone has voting rights and a voice for the decisions made for the organization or company. This business model doesn’t have a CEO or a board of directors, which means there is no central authority making the decisions for the business. Instead, all of its members vote on any moves that the company has to make.
As mentioned earlier, code runs the entire thing. The code sets rules in place at the start of the creation of the DAO. Shareholders of the DAO can propose changes to this code and vote on such changes. But no change in rules or code will occur without a majority of shareholders agreeing to it.
Every token holder in a DAO can vote since each token is equivalent to a single vote. If you hold more tokens than anyone else in a DAO and want to vote a specific way, you can easily sway the decision to your advantage. Since token holders are anonymous, no one will know if your votes influenced any change during these instances.
A DAO has quite a number of characteristics that make it a good business model. Here are notable ones:
- Built on a shared objective – the people who invest in it share a common goal
- Safe place to store and invest funds – Multi-signature wallet requires that more than one person sign in to send transactions
- Transparency – because it has smart contracts, you can see the rules and articles of organization right-off-the-bat
- Very participatory – you’re not excluded from what goes on inside the DAO. This goes hand-in-hand with the transparency of the system. You can also propose changes that members of the DAO can vote on if they see any merit.
How to Do Business as a DAO
Now, one question people may ask when considering starting a business as a DAO or contemplating investing in one is if it actually works as a business model. If you’re to base it on successful DAOs that have been operating as businesses, such as the MetaCartel Venture, then the answer to this question is yes.
Here are a few other questions that the DAO-curious asks:
How does a DAO make money? – A DAO makes money the same way a bank makes money on the deposits they hold for people. The business earns dividends from investments it makes on behalf of the token owners, also known as the DAO investors. These dividends can come from the buying and selling of any acquired digital asset (or NFTs) and from the appreciation in the price of the DAO tokens and digital currency that investors hold.
Why should you create a DAO? – Creating a DAO is highly advantageous for several reasons. For starters, not one person is fully in charge, and the members of the DAO are technically on even footing from the get-go. Creating a DAO also addresses the principal-agent problem, which is a conflict of priorities between an investor and agent.
In a standard business structure, the CEO (or the agent in this analogy) can do as they please, regardless of what the stakeholders want or think. In a DAO structure, all shareholders know what to expect before joining the DAO. Any decisions made in the future have to be deliberated on by the collective.
Of course, before you create a DAO anywhere, you should first find out if laws of specific jurisdiction govern the creation of such an entity. You should find out if you need to register your DAO LLC and what requirements are needed to do such a thing. You also need to ensure that the smart contracts you create for the DAO have all the rules and regulations your organization needs.
What are some examples of successful DAOs? – There are a lot of DAOs that have succeeded in generating dividends for their investors. Examples include DASH, PartyDAO, Seed Club, SharkDAO, and PleasrDAO, to name a few. The list of DAOs you can invest in is pretty long and there are many different kinds for you to choose from, so you will need to do a bit of research before investing in one.
DAO LLC Legislation
While a DAO is essentially an online entity, the governor of Wyoming, Mark Gordon, signed a bill that allows the state to recognize DAOs as Limited Liability Companies or LLCs. This groundbreaking legislation took effect in July of 2021 and is the first of its kind. As radical as this move may sound, not that many people know the implications of such a move.
What does the DAO LLC Legislation of Wyoming mean for DAOs created in the state? Is this beneficial or detrimental to such entities? What does a DAO get when incorporated as an LLC in Wyoming? Here are the answers to these questions and a few more interesting facts:
- This legislation is put in place to help DAOs become more competitive in the global business stage. It also allows DAOs to hire employees and scale their operations legally in the state. More importantly, though, the biggest reason this is good news for DAOs being created in Wyoming is that it affords them the same legal protections that an LLC (limited liability company) enjoys.
- For a DAO to be registered as an LLC, it must include certain terms in its name. These include terms like DAO LLC, LAO, and simply DAO.
- DAOs incorporated as LLCs in Wyoming can be managed by their stakeholders or an algorithm.
- Since most DAOs have stakeholders worldwide, this legislation requires the DAO to have a presence in Wyoming via a registered agent.
What Are DAO Crypto Tokens?
Now that you know what a DAO is, what benefits can you get from starting a business as a DAO? Why is incorporating a DAO as an LLC in Wyoming beneficial?
Tackling the topic of DAO crypto tokens will answer these questions. What are these tokens used by DAOs for investing, and what do you get when you have these? Are these just like other cryptocurrencies, like Bitcoin and Ethereum, or are these tokens different?
In a nutshell, DAO tokens are cryptocurrencies that you use to help a DAO grow. These tokens are tied to specific projects or are used to invest in certain assets that can help build the DAO’s future. These are sometimes called governance tokens since holders of these tokens have a right to govern the DAO as they see fit.
DAO tokens are part of the complex blockchain technology, much like the smart contracts you enter when joining a DAO. In fact, the first-ever DAO was on the Ethereum blockchain known as the infamous The DAO.
DAO crypto tokens are not only used by stakeholders to own a share of the DAO, but it’s also a kind-of covenant that allows them to vote on decisions being made for the DAO. In essence, it gives them the right to decide how the community or the company grows. As mentioned above, each token gives you one vote, so the more tokens you have, the more votes you also have.
Want to Start a Business in Wyoming? Let doola Be Your Help Today!
Now that you know the nitty-gritty of the DAO, smart contracts, and what a DAO LLC is, are you still inclined to invest in one? If your interest in a decentralized autonomous organization has grown due to the information you found here and want to know more, you can find blogs, tips, and more info by visiting doola.
Aside from providing more information about DAOs, the Wyoming legislation on any DAO LLC, and how to keep your company compliant with government rules, doola also helps you with accounting and paperwork concerns. You don’t have to worry about the lack of legal protections, how to enter contracts legally, or missing any of your business requirements for your DAO LLC since doola can help you get all these done.
To find out more about DAO LLC rules and get the help you need, visit doola2dev.wpengine.com or email your queries to hello@doola.com. You can also check out their FAQs for more information on any of your DAO concerns.
FAQs on Starting a Business as a DAO
How do DAO founders make money?
DAO founders, like investors, make money through the dividends earned from the investments that the DAO collective makes. They can also make money from the success of the project tied with certain DAO tokens. These investments can include NFTs and other digital assets.. The investments will depend on the kind of DAO that the founders create. DAOs don’t make money like traditional commercial arrangements, but they do make money nonetheless.
How can I invest in DAO?
To invest in a DAO, you first need to choose which DAO to invest in. There are a lot of options for you to choose from and most if not all of these don’t follow traditional commercial arrangements. Your choices include popular DAOs, like DASH, Uniswap, and Maker. To invest, you first need to have an e-wallet where you can make a fiat deposit. You can also do a bank transfer on sites that allow such transactions. Once you’ve finished the first step, you can then purchase the DAO crypto tokens that you want to invest in.
How much does it cost to set up a DAO?
The initial filing fee you need to shell out in order to set up a DAO, particularly in Wyoming, is $100. Annual reports will cost you a minimum of $60 every year after that. These reports can cost more than $60 though since the amount is calculated according to the assets that you have in Wyoming.
