Legal Options for DAOs

Jun 08, 2022 | Rodrigo Seira

At Paradigm, we believe Web3 can revolutionize the way people interact with each other online, springing forth the next generation of internet applications and businesses that give users ownership and economic exposure to the growth of the underlying protocols, resulting in more flexible and powerful forms of human coordination. Realizing this vision requires the development of new primitives—the building block ideas, frameworks, and mechanisms that form the basis for advancement. To date, the contribution of these primitives has mostly come from researchers and engineers. We’re no stranger to that, with Paradigm team members devising open-source mechanism designs and tools.

However, the need for new Web3 primitives is not limited to the technical realm. It also includes novel legal structuring that helps the emerging online world become intelligible to offline institutions. Several people have already made significant contributions to creating open-source legal infrastructure. But one burgeoning area of Web3—decentralized autonomous organizations, or DAOs—has lagged in terms of having proper, well-documented legal frameworks. DAOs are experiencing a Cambrian explosion, as new use cases and communities spring up and seek to leverage blockchain technology to re-imagine how people can collectively organize. Yet as a founder it is extremely difficult to make sense of the available legal structures and their implications.

To help solve this problem, we have created the DAO Legal Entity Matrix, a simple resource for comparing various legal structures used by DAOs in the US as well as a few international jurisdictions. The DAO Legal Entity Matrix is intended to be a starting point for founders and their legal counsel to better inform them about the issues as they consider potential legal structuring solutions for DAOs.

To solicit the community's input and engagement and make this a living document, we are releasing the DAO Legal Entity Matrix in two parts. The first part is a mobile-friendly page that can be easily accessed by anyone looking to get a deeper understanding of the available legal structures for DAOs. The second part is a public Notion page for those that are more in the weeds and want to comment on the chart, allowing us to merge updates and revisions onto the website with the hope of providing an evergreen resource to the broader community. We encourage those with specific experiences to add their knowledge to this collective vehicle and further the discussion. At Paradigm we want to contribute to the advancement of open-source legal infrastructure and will continue to look for opportunities to do so in the future – so please reach out if you want to collaborate.

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Disclaimer: This post is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. This post reflects the current opinions of the authors and is not made on behalf of Paradigm or its affiliates and does not necessarily reflect the opinions of Paradigm, its affiliates or individuals associated with Paradigm. The opinions reflected herein are subject to change without being updated.