Will DAOs replace company boards?

Are DAOs the future of governance?

Copper

Blockchain and crypto has brought some pretty wild concepts into the mainstream, but none more so than the idea of a decentralised autonomous organisation. 

Instead of a collection of fallible humans carrying out all the normal processes of a business, with a board of directors at the top setting the rules and delegating to employees to carry them out, you have a string of smart contracts setting the terms and running through the functions. If this, then that. Everything is encoded. 

How the DAO changes everything

America’s first legal DAO was created on 5 July 2021, forever changing the way the law interacts with decentralised autonomous organisations.

Mark Gordon, Wyoming’s state governor, signed Bill 38 into law in April 2021.

It gives DAOs the same legal rights as limited liability companies. For LLCs, the way that most American businesses are set up, in the event of making a loss, going bankrupt or facing legal bills, members’ liability to cover those losses is limited. 

American CryptoFed DAO, an EOS developer building a fee-free trading platform, is the first recipient of this new legal standard for ownerless businesses.

The DAO’s current leader is Marianne Orr, ex-Mayor of the city of Cheyenne in Wyoming. As Decrypt reported, she said that: “in time, her role as CEO would become obsolete, as decisions would be made based on votes by the DAO’s governance token holders.” 

A lesson from DeFi

In an 8 June 2021 keynote address, the Commodity Futures Trading Commission chief Dan Berkowitz said DeFi markets are “a bad idea”, that US federal law “does not contain any exception” for decentralised finance, that DeFi probably violates the Commodity Exchange Act, and that since DeFi platforms like Uniswap and Compound are not licensed or registered with the CFTC, he could “not see how they are legal”.

The crypto press roasted Berkowitz for these comments, which were perceived as way behind the times. See for reference Cointelegraph’s piece: “After Googling it, CFTC says DeFi is a bad idea”. 

The issue is that customers do not have any sort of legal relationship with DeFi platforms like Uniswap or Aave. A user’s crypto wallet interacts with the protocol, a set of smart contracts controlling a liquidity pool, and value in the form of Bitcoin, or Ethereum, or DAI or any other kind of crypto is transferred from one place to another. Token holders set the rules by voting on how high or low fees should be, and how much interest should be charged and paid to users. 

Regulators have a tough enough job to do already, policing the market, highlighting and stamping out fraud and criminality. But in DAOs, DeFi and much of crypto, they are having to apply hundreds of years of laws and statutes that are entirely based on the concept of natural persons — people like you and I, with names, addresses, and birth certificates — to raw code. 

So, to the question: could DAOs replace company boards? Do away with the need for a CEO, a CFO, a chairperson and a hierarchical, top-down corporation? Remove the human element and in its place put a series of smart contracts instead? 

It has already happened. Wyoming has taught us that it can be done. Expect many more businesses to be formed this way in future. 

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