Thread by @propelforward

#Dao is another word the #crypto industry uses for ...well... anything. Here's a proposed taxonomy to clarify what we mean when we say #Dao: (a quickie sunday am #thread): /1

@VitalikButerin's seminal work discussing the types of human/tech hybrid ventures that may/will be created using censorship resistant technology tools remains the first stop for this discussion: (blog.ethereum.org/2014/05/06/dao…) /2

@vitalik observes that a #DAO "has the murkiest definition of all... it is an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do." /3

Buterin notes two key factors: 1. the code itself controls valuable capital, and 2. the code itself makes decisions about the use of that valuable capital. He name checks #bitcoin and #namecoin as maybe close to being DAOs. /4

I'd posit that we probably don't have any Buterin DAOs yet; we have webs of smart contracts that control capital, but we don't have **autonomous** smart contracts that control capital. /5

so...what do we have? Lets move on to the second type of #DAO, which i'll call an Alegal Dao. These are collaborations to manage powers over digital assets using technology tools. These words are chosen carefully. /6

who is collaborating? it could be anyone or anything. People, entities, smart contracts acting for people or entities, or smart contracts (maybe) acting autonomously, or other Daos of various stripes. /7

they are collaborating to manage powers over digital assets. why powers and not rights? now for a quasi-scholarly digression..../8

I distinguish powers/ rights based on the source. Powers are what you can do because of rules implemented n technology systems. An example is a piece of code that allows a user to elect to send value to another address. A user of that code has the power to send that value.

Rights are powers granted by a legal system and which may be vindicated or enforced by that legal system. A right is backstopped by legal authority. An example is the right given to Americans under the First Amendment to speech without prior governmental restraint.

thus, in systems, participants may have powers as defined by what the code allows a participant to do; the law may or may not grant that participants any right to do what code allows. /11

the apocryphal example is #TheDao attack; the attacker used code that exploited the recursive call bug in the split contract; the attacker had the power to do so, but may not have had the right to assert control over the assets that were moved into the attacker's subdao. /12

why digital assets? what about IRL assets? Alegal Daos are not generally incorporated under the law of any jursidiction, which means they lack legal personhood and have a hard time interacting with legally organized entities. /13

that means they have difficulty handling legal property that requires physical posession, & difficulty interacting with entities that require a legal counterparty to transact; in many cases they must use a legal entity to interact w/incorporated entities to control property. /14

this problem is significant; it impacts how #alegaldaos can get legal advice (who's my client?), how they can hire people to work for them, and limits how they can use their assets. /15

Some legal systems have kluges that try to create some interface for unincorporated groups, or recognize unincorporated groups for limited purposes (or give regulators/ executive enforcement agencies the legal power to act against unincorporated groups) /16

There are few elegant solutions here. The result is that #AlegalDaos have recurring problems interfacing w/ legal entities. For more on the various strategies to "wrap" #AlegalDaos in legal entities, check the recent work by @RSSH273 & @ChrisBrummerDr

https://twitter.com/ChrisBrummerDr/status/1531652515766362112

/17

and we haven't even gotten to liability yet. Because #AlegalDaos are not incorporated, if the Dao takes on liability to anyone else (an aggrieved collaborator, or a third party) that other party may try to use legal power to recover against the #AlegalDao /18

thus a legal actor will be asked to make sense of an #AlegalDao; the result may be that all participants are jointly/severally liable (See early discussion from #THEDAO era by @stephendpalley, me, others) as joint venturers and or general partners /19

this would generally result in bad outcomes, push members to default to anonymous use, and create many bad outcomes for the #AlegalDao itself, as i discuss here: jcl.law.uiowa.edu/sites/jcl.law.… /20

despite these complexities and the second order issues they create, #AlgealDaos have been very popular way to distribute and decentralize control over a protocol, or over decisionmaking over a venture. /21

the third type of #DAO is a #LegalDao which are legally incorporated entities managed by technology tools.A few examples include @awrigh01's #theLao and the @VENTURE_DAO. /22

although several jursidictions have created specific laws to enable the creation of DAOs as legal entities (Malta, Vermont, Wyoming etc...) most of these laws are glosses on existing entity law that are meant to encourage formation in that state/jurisdiction. /23

Wyoming's DAO law, for example, allows for the formation of a highly stylized version of its LLC, with some really interesting features (i.e. the ability to have members identified only by public key address etc...) sos.wyo.gov/Business/Docs/… /24

at their core, however, these #LegalDaos are still legal entities subject to all benefis and burdens that apply to incorporated entities; they can enter contracts shield their members from liability, but have to pay taxes, and may be held liable for violations of law. /25

members of #alegaldaos can argue that their venture has no cental point of control and thus no central point of liability; #LegalDaos can't make that argument. /26

thus, #AlgealDaos may be more flexible than #LegalDaos for some purposes, but i'd caution the reader that these theories have yet to be tested by courts and remain very much conjectural.

In closing, the entire industry would benefit from better nomenclature writ large; hopefully this discusion of #ButerinDaos, #AlegalDaos and #LegalDaos helps clear up some of the ambiguity. Got questions? comments? DM's are open!