What I have been thinking about: DAOs

Hello my friends and my fellow harmonauts!

So, I have been thinking about DAOs a lot recently. We have set up a Validator DAO. We have set up a Community DAO. We have revised the process multiple times to see if we can get closer to matching our process with the work that the general community wants to do anyways. Obviously - Li has already put out a great document that pulls together where our head is at regarding the process, but I wanted to dig into a little bit of the principles regarding how we think DAOs should be formed and operated.

Forgive me if these thoughts are a little disjointed. Also - don’t take any of this as legal advice. It would be stupid to get legal advice from an internet forum.

Who knows what
One of the primary ways that people can take advantage of you is if they know something that you don’t. This “informational asymmetry” is one of the core reasons behind why the SEC was set up in 1933.

For our DAOs to truly be decentralized - all information needs to be public where anyone who is interested can view it. It would be great if there was a single location (like say… talk.harmony.one) where people could go to find out anything they want to know about anything any of the DAOs were doing – but that may still be in the future.

What is hard about that is that the space gets crowded. We have posts on products and operations and technology and and and… At the end of the day, what we are most interested in can be lost in a sea of noise.

But - with a little bit of luck and tooling - maybe we can solve that informational overload problem. After all - DAOs should be populated by the people who have a material interest in the thing the DAO is governing. Not every person should be part of every DAO. I have no interest in Vegan Evangelism so I shouldn’t join a DAO dedicated to that. But I do love superheroes - so maybe there is a DAO I can join on that. And - here is the important part - when I join HeroDAO, I should be able to know everything about the HeroDAO that any other person knows. There should be no informational asymmetry.

Member-Managed
There is a core difference between a corporation and a book club. In a corporation, if I own stock, I have pooled my resources with a whole lot of other people dedicated to a common enterprise. While I have dedicated my resources, I have little to no control over who manages the corporate, who has what job, what tasks are to be completed and when.

However, in a book club - I am fully involved. I show up, recommend books to read, read the books the whole group has selected. Bring my famous 7-layer bean dip and fully participate. We all agree on who’s house to meet at, who is responsible for drinks and clean up - we all divvy up the responsibilities.

A corporation is manager-managed. A book club is member-managed. DAOs should be more book club and less corporations.

The Default Rules
This one I have been thinking about a lot. See, the law in the United States is that, if you and a few buddies come together for a common enterprise, and do nothing else, you are, by default, a “general partnership”. That means that if your little club sells a balloon animal that explodes and kills everyone at the birthday party, and you get sued, and you loose - the losses are on you and your partners.

What will normally happen is that the mom at the birthday party will sue the richest person in the partnership (the guy w/ the deepest pockets) and try to collect the entire amount from him. Then, once a court has ruled in favor of the mom and the rich guy pays out the $1.2M settlement for birthday damages - the rich guy will sue all of his other partners to recoup his losses.

In these situations the court can reach not only the bank account of the partnership that made the balloon animals - but also to the Rich Guy’s bank account, and his personal residence, and his car, etc. And when Rich Guy sues his partners - he can also go after their personal bank accounts and homes. It’s not a pretty picture.

This is why corporations and - more importantly - limited liability corporations- exist. They put a shield between your personal assets and the liability your common enterprise may create. Now, up to a few weeks ago, taking a DAO and turning it into an DAO LLC required some…legal gymnastics (it has been done…but it’s not straightforward nor, ahem, cheap). However, in Wyoming people can now set up a DAO LLC. This is still brand new and details are still being worked out - but it is indeed rather promising.

Benefits of Working With the System
Anyone who has been around the crypto-sphere for any amount of time knows that we don’t like the system. We don’t like the Man. We don’t like some external body telling us what we can and can’t do with our money, our art, and our right to assemble.

But - there are benefits to working within the system. There was a time that I was interviewing someone to come work with me at a different blockchain. He had the skills, he had the temperament, he would have been a great addition to the team. I wanted to offer him the job. I proposed it to my board that he be hired. One member of the board shot it down. “He has a family”, he said. “He has a home, a mortgage and a family. He’s not our type of person. I won’t authorize this job offer.”

Blatant discrimination aside - this board member did have a point. See, people with families? They like things like benefits. Health, dental, vision. Those are perks. A steady paycheck. Tax withholdings - those are very nice things to have. In order to do any of that for your employees - you need to have TaxID numbers, a legally recognized business formation - you have to play within the system.

Concluding thoughts
I am not saying that we will have all of these things NOW. Heavens, no. We have so much to build. So many expectations to set. So many cultural norms that we haven’t even established yet. What I am saying is that - DAOs can take over the world! And if we want them to - if we want to empower ourselves, empower our friends and our family - we should think a little bit about how to design these structures to last more than 3 months, more than 3 years - we should think in terms of perpetuity.

Please comment! I want to hear your thoughts!

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Great write up Sam, I appreciate the future the amount of thought you have put into the future of DAOs.

Just curious on the take away from this article, Will Harmony mandate that DAOs should apply for a LLC through Wyoming? I love the idea of working within the system to bring more legitimacy in our space.

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