The Nature, Creation Process, and Legal Framework of DAO Organizations

As the futuristic concept of DAO stirs up an innovation wave in the Web3 field, this blockchain-based organizational form not only reshapes traditional organizational models but also incubates star projects like Compound and MakerDAO that change the industry rules. From project parties to investors and ordinary users, there is high attention on DAO. However, when we try to clearly define DAO, it always presents a variable appearance in different contexts.

This article will conduct an in-depth discussion on DAO from the following aspects:

• The essence, advantages, and limitations of DAO
• The creation process of a DAO
• The current legal regulation status of DAOs in various countries
• Can DAO serve as the issuer of RWA projects?

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

DAO stands for Decentralized Autonomous Organization (. An organization characterized by "decentralization" and "autonomy" can theoretically be considered a DAO. We can understand the core characteristics of DAO from two perspectives: organizational structure and governance model.

) 1. "Decentralized" organizational structure

Unlike the centralized management of traditional companies, a DAO does not have decision-making bodies such as a board of directors; instead, it is managed collectively by all members. A DAO achieves a decentralized structure through smart contracts:

• Operating rules are written into smart contracts and executed automatically.
• The contract is open source, and the rules are transparent.
• Abandon the "black box" decision-making of centralized management

This architecture avoids the moral hazard issues found in traditional companies, ensuring that the interests of decision-makers align with the overall interests of the organization.

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) 2. "Member Autonomy" governance model

DAO achieves autonomy through internal voting:

• Members holding governance tokens can propose and vote.
• Voting is automatically executed through smart contracts.
• Different DAOs use different methods for calculating voting power.
• Representative voting can be used to improve efficiency.

Compared to traditional hierarchical systems, the DAO's autonomous model has the following advantages:

• Eliminate level barriers and promote equal communication
• The decision reflects the views of the majority of members.
• Avoid the negative impact of "one-man dictatorship"
• Smart contracts are executed automatically, solving the implementation difficulties.

From a higher perspective, DAO returns to individual needs, subverting the traditional paradigm of "organization versus individual," reflecting humanistic thought.

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) the limitations of DAO

1. Open-source smart contracts increase security risks, such as "The DAO" hack incident.

2. The efficiency of voting decisions is relatively low.

3. Most countries lack a comprehensive regulatory framework, which poses legal risks.

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2. The Basic Process of Creating a DAO

1. Establish the purpose and operational rules

2. Write the rules into the smart contract

3. Conduct strict testing and auditing of the contract

4. Raise funds through methods such as issuing tokens.

5. Deploy the contract on-chain to formally establish the DAO.

Note: The "creation" here does not refer to the establishment of a DAO under a legal framework.

![Web3 Lawyer's Latest Interpretation: What Exactly is a DAO Organization? How to Create a DAO Organization? Can it Serve as the Issuer of RWA Tokens?])https://img-cdn.gateio.im/webp-social/moments-ab91ee4d40a12008541c2b13391e55f2.webp(

3. The Current Legal Regulation of DAOs in Various Countries

) 1. UAE

The "DAO Association Regulations" released by RKA DAO provides a clear legal framework for DAOs:

• The DAO has independent legal status.
• Propose clear technical requirements for DAO
• Detailed regulations on internal governance and external supervision

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) 2. America

Wyoming passes the "DAO Organization Supplement Act":

• DAO can be registered as a limited liability company
• Specified the special nature of the DAO
• Provide regulations on establishment, operation, dissolution, etc.

The Tennessee Code has been amended to allow LLCs to register as "decentralized organizations".

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

• Registered as a legal entity DAO: As long as compliance requirements are met, it can theoretically issue tokens.

• DAO that exists only on the chain: needs legal packaging, achieved by establishing off-chain entities to issue tokens.

![Web3 Lawyer's Latest Interpretation: What Exactly is a DAO Organization? How to Create a DAO Organization? Can it Serve as a RWA Token Issuer?])https://img-cdn.gateio.im/webp-social/moments-d0c49a74a30ea35220f5a63e7f4d03b5.webp(

Conclusion

The DAO, as a new form of organization, has become relatively mature on the blockchain, but to further connect with the real world, relevant regulations still need to be improved. DAO project parties also need to pay more attention to compliance requirements.

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