Felipe Palhares: What are DAOs?
Before delving into the legal challenges involving DAOs, it is important to begin by conceptualizing what can be interpreted and what characteristics are relevant in this new type of organization. From the very beginning, it is worth noting that DAO, in practice, is nothing more than an algorithm: a series of defined instructions, executable actions, written in a programming language. Currently, DAOs are represented by one or more of them smart contractswritten in blockchainssuch as for example blockchain from Ethereum.
DAO is an acronym for a set of three English words: decentralized Theautonomous ONorganization, or, in Portuguese, decentralized autonomous organization. Each of these words has significant connotations for the concept and its practical applications.
the first of them organizationrefers to a collective of people with a common goal, a group of individuals with a unique purpose, carrying out certain behaviors in favor of a common goal — the vision chosen by the people concerned to guide the actions to be jointly promoted. In this sense, a DAO usually brings together two or more people (and potentially thousands of people worldwide), organizing the work they will undertake to achieve the common purpose of the organization in question.
the other of them, autonomous, has several meanings. First, the idea of an autonomous organization can be interpreted by the absence of an intermediary to create a DAO, since it literally represents code in a computer language, which is executed on a computer, without the need for any government approval or registration. to a trading company for its regular operations. Second, DAOs can have a fully autonomous character (in the case of algorithmic DAOs), or, when they are managed by members, an autonomous condition of functioning after the approval of certain proposals, insofar as their execution would be automatic and therefore autonomous, as long as they are actions to be performed provided for in smart contracts.
The third of them, decentralized, can also represent different meanings. In the first bias, decentralization can be seen in technology blockchain, which by its very nature is a decentralized record of information, maintained simultaneously by several different computers on the network, thereby avoiding the problem of a central point of failure, which could affect the entire network if compromised, and removes the need for intermediaries. On the other hand, the concept of decentralization can also be seen in the management of DAOs, which, unlike traditional organizations, do not have a vertical hierarchy, with people in key positions directing the activities of the organization (such as CEO, CFO, etc.) .) , and it is up to all members to vote on any proposal they present, in accordance with the rules prescribed by the DAO itself, in a decentralized manner.
DAOs can be classified into different categories, depending on their main goal. Among the best known and most used categories are: 1) DAO protocol; 2) Investment DAOs or Venture DAOs; 3) Philanthropic DAOs; 4) DAOs of collectors; 5) Media DAOs; and 6) social DAOs.
DAO Protocol: They are created to manage a given protocol, such as a decentralized financial application (DeFi). They are among the most famous MakerDAO and exchangewhich together have more than 3 billion US dollars in the treasury.
Investment DAOs: They are structured to raise funds for later investment in companies and may have a specific focus on certain segments or types of business. THE MetaCartel Ventures, for example, is a Venture DAO that intends to invest in early-stage decentralized applications. In Brazil, AlmaDAO advertised itself as an investment DAO aimed at democratizing Web3.
Philanthropic DAOs: are formed for philanthropic purposes, such as helping certain social projects. THE UkraineDAOfor example, it was created to facilitate sending donations to Ukrainian soldiers and to help the foundation Come back alive.
Collectible DAOs: Designed to serve as a pool of resources used to purchase collectibles, such as rare NFTs, allowing their members to have a stake that matches their personal investment. The most famous examples are FlamingoDAOwhich has a collection of NFTs, and ConstitutionDAOwho tried to buy one of the rare copies of the first edition of the Constitution of the United States of America.
Media DAOs: are focused on the creation of content by the community itself, in an attempt to rethink the existing traditional media platforms, ensuring that the members themselves are the content generators. BanklessDAO is one of the most popular media DAOs on the market.
Social DAOs: created with a focus on building communities, bringing together like-minded people who want to share experiences and participate in social activities. One of the most active social DAOs is the so-called Friends with benefitsand accepts members by purchasing DAO tokens.
Although a DAO can be classified into more than one category at a time, organizations tend to have a greater focus on one of the above categories, also to avoid adding even more complexity smart contracts which support the DAO.
Felipe Palhares is a partner in the field of data protection and cyber security at BMA – Barbosa Müssnich Aragão Advogados and visiting professor at Insper and FGV/Rio.