This guide was built to help you understand the benefits of incorporating your DAO and how the process of DAO incorporation works. We help you answer questions like:
Why should I incorporate my DAO? In what geographic jurisdiction should I incorporate my DAO? What legal entity type should I choose?
Get all the information you need to make the best decisions for you DAO by reading this guide.
By
Leo Henkels
May 8, 2024
MetaDAO is a new organization that uses code and markets to make decisions instead of professional managers. The problem MetaDAO is solving is universal. Regardless of the size or type of organization, they all face the same obstacle: the challenge of aligning their members’ desires with the organization’s goals.
MetaDAO uses an intriguing solution that is only made possible through a Decentralized Autonomous Organization (DAO) structure. In MetaDAO’s case, this ambitious project was initiated by a single anonymous developer who goes by the moniker “Proph3t” but has grown to become a community-based DAO.
“Since speculative markets excel at a task where democracies struggle, we might try to improve democracy by having it rely more on speculative markets.” - Professor Robin Hanson in Futarchy.
The basic idea underlying MetaDAO is to give decision-making authority to markets. That is, instead of allowing voters or appointed leaders to make decisions, allow markets to make decisions.
This is promising given that there’s a long track record of markets outperforming individual experts:
In true speculative market fashion, MetaDAO is placing a bet that this is true for organizations as well, that organizations governed by markets will outperform those governed by leaders and voters.
So how do you use markets to make decisions?
The idea isn’t new. It’s called “futarchy,” and it was invented by George Mason University economist Robin Hanson in 1999. It can be best explained with an example: a company deciding whether or not to fire its CEO. A company organized as a futarchy would do the following:
Interestingly, reverting means that the fork in the road can only have one path forward. So once the decision has been made, it is canonical. (That is, the choice never existed. It is mechanically as if you didn't make that decision). You can always wonder if you should have made a different choice, but the path you take moving forward only implies one.
In essence, you allow the market to speculate on what the value of the company would be if the company fired the CEO, and then fire the CEO if the company would be more valuable.
MetaDAO uses this process for all of its decisions. Whether or not a proposal to MetaDAO passes is a matter of market prices, not votes. Also, automated smart contracts are well suited to canonical decisions.
But of course, this wouldn’t be possible in the traditional world. Imagine trying to convince NASDAQ, DTCC, the clearinghouses, the SEC, and the brokers to allow markets like these. It would cost many millions in legal fees, if possible at all.
“MetaDAO is fully embracing futarchy—a governance model utilizing markets for decision-making—necessitates a legal entity that mirrors this innovative approach. As governance evolves on-chain, it's imperative to adopt legal structures tailored to the DAO's original vision.” Notes Kollan House, MetaDAO’s Co-Founder.
“However, to achieve this, MetaDAO needed an exceptional team versed not only in legal intricacies but also in the operational dynamics of MetaDAO. Enter MIDAO—a forward-thinking team proficient in the needs of crypto projects, well-versed in the legal framework for on-chain governance, and capable of delivering exceptional results.”
According to House, this partnership has proved to be very organic. “MIDAO not only comprehends the most innovative approaches for DAOs but also aligns with MetaDAO's ethos of enforcing "code-is-law," where legal entity decision-making is explicitly defined as on-chain instructions.”
“A truly decentralized DAO is characterized by fluidity, flexibility in membership, and unwavering adherence to on-chain activities. This is where the Marshall Islands DAO structure shines, diverging from conventional setups like Cayman and others and aligning more closely with the core ideals of DAOs,” reflects House.
In other words, “where the laws of the land can work to enforce blockchain ideals and visions, accelerates its adoption for the masses. There is immense benefit and history as to why and how laws came to be; we don’t need to throw the baby out with the bathwater when building crypto companies; we should understand and meet halfway as much as we can.”
