Connecting DAOs to the Real World

The concept of DACs or DAOs has interested me since I encountered the topic doing research for a previous project working towards giving creatives the necessary tools to conduct their business on their own terms and without having value syphoned by intermediaries. The nature of the firm is changing with Coasean costs becoming less costly due to improving communication technologies. The idea of having an autonomous project operating like a ship at sea with a circulating crew is quite interesting.

Since I have been working with Mattereum, whose goal is to build the necessary bridge between our software systems and the legal systems which govern property rights and commerce, I have been more aware of just how isolated many blockchain platforms or Dapps are from the material world.

So I would like to pose a question: is there any work or research being done on how a Colony DAO could have a legal entity that embodies it for the purposes of conducting commerce or joint ventures involving the material world? For example, an art collective Colony creates 3D designs that are then represented and traded in some sort of NFT framework. They would like to partner with a 3D printing lab to manifest their art in the real world as sculptures or miniatures for sale. How could the two entities create this commercial agreement if the art group DAO only exists via software? Dispute resolution conducted within the Colony ecosystem is one thing but becomes tricky when the contractual parties are operating in fundamentally different worlds.

One way to bridge these two worlds is to have legally enforceable smart contracts. Perhaps Ricardian contracts could be implemented for each Colony. Ricardian constitutions are an extension of this concept into community building. Everyone who enters the community signs the constitution, and a hash of that event is forever associated with that individual. If a particular Colony has certain rules and values outside of the core mechanics of the underlying DAO platform, those could be enforced using hybrid prose/software contracts.

Ultimately, I am interested in these autonomous systems working in the real world where they could do some good for our communities and our commercial and creative endeavors. I am interested in the legal and software engineering that would be needed for this to happen.

Giving DAOs a legal “suit” to where on occasion can enable commerce in novel ways.

Can the DAO become a legal-technical amphibian? Just curious is this has been discussed in the Colony community.

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Yes, we have definitely done some talking about this very subject, and I’m glad you’ve noticed this as a key aspect of how to make DAOs effective in the ‘real’ world.

One thing I’ve thought of as a way to do this is through what i call a “Ricardian task” – in Colony one of the fundamental patters is the task, and it seems like that would be the most straightforward place to link in a legal agreement to a legal entity.

Here’s a more detailed explanation that I wrote up a few months ago:

The ricardian task would, in simple terms, embed a legal consulting agreement into a colony task (in a designated domain). The legal agreement would describe the colony structure, set expectations for payments, liability, and any other terms such as non-disclosure.

The legal agreement is signed using an ethereum private key. Signatories use the same private key to digitally sign the task on-chain, linking the contract to their address.

Provided with a vetted template of the natural language contract, this pattern would allow ‘real’ companies to use colony as a legitimate platform for outsourcing work to external contributors, managing work, payments, and performance (reputation) in one place.

Depending on the language of the contract, it could be tied to a specific performance outcome and contain the payout for work done directly, or it could specify that payment for services will be made through the completion of other tasks in other domains.

I suppose in a legal sense the Ricardian task would only help with an entity that already had some sort of legal standing as a limited liability company or general partnership, but it’s a starting step toward getting the DAO to be its own entity, rather than just the mediating logic between two legal entities (person and company).

On a technical level, the pattern described would be relatively easy to implement, because tasks already have a structure that supports multiple signatures (3, so we could even have a witness or notary signature on there) as well as a reference to a hashed document (the task specification hash).

What I’m not sure about is how the natural-language document would read, i.e. the legalese describing a person’s signature as a signed message transaction on Ethereum. Maybe this is something Mattereum could help with!

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Mattereum Co-founder Rob Knight elucidates on this a bit on this thread:

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Yo, have you made any progress on this front. I’ve been digging into how to make DAO’s LLCs and am very interested in how to achieve recognition of DAO’s as legal entities.

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Yeah, a little bit of progress has been made, but I think it’s worth saying that there’s no ‘correct’ way to do it. An organization that is ‘fully decentralized’ is not something that can really be fully represented in any jurisdiction, and so any “solution” is going to make trade-offs somewhere, either in limitations of liability or in describing just how ‘decentralized’ the legal entity is. In a few cases, this is exactly what you must trade off: In order to have a limited liability company, you have to select which people are responsible for the company, which means that those people are going to be the ‘centralized’ part of the DO. There are also alternative models like structuring as a cooperative, a collective, or some analog of those in civil law. But there’s no ‘best fit’ solution for a DO or DAO (as a side note I really like “DO or DAO” as a little motto for the org-tech space, let’s make it a thing!).

Relevant to Colony, specifically, is the larger point that, depending on how the colony is run and what it’s trying to achieve, one or more of these models could be made to fit; it’s just important that the rules which the colony abides by internally must have ‘traditional’ or what I would call a ‘fallback’ representation in the legal entity. So, a colony could have rules stating that anyone above a certain reputation is considered a board member, or member-owner, or what-have-you, and if they are below a certain threshold, they are just a shareholder (in the case of a GmbH or LLC), or a non-exectutive member (in the case of something like a cooperative).

So yeah, totally varies by use-case. One model that fits particularly well that I’m looking into is an open collective, which you can check out here: https://docs.opencollective.com/help/collectives

Another great starting point would be this talk from EthCC: https://www.youtube.com/watch?v=q7MO3BrL1OA

Pia from OpenCollective wrote a great article on the blog which, in her case, applies to governments, but I think in ours, could apply to companies and organizations:

“If you can’t beat them, abstract them.”

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Big fan of “DO or DAO”.

The only issue I see with legally being recognized as a collective/cooperative, is that legally recognized versions of those I’ve read about do not have limited liability and community members become liable for issues caused by the organization. Liability seems like a barrier that needs to be overcome to really demonstrate the potential of DAOs, less they shy away from having large effects.

From the threads I’ve been pulling, I agree that there needs to be a legal representative, or specified legal counsel, who can receive legal documents and be a point of contact for legal matters. I think this works better from a local collective front, who can offload their decision making and structure to the chain, but remain geographically centralized. I agree that the DO would need a well defined structure for who can participate in these decisions and this is something I see colony bringing great value to.

Thanks for sharing this info. looking forward to checking out the links.

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I think that there are several cooperative structures with limited liability: https://www.seedsforchange.org.uk/legalforms

One thing that might be more important for a DO, and potentially a crutch for limited liability, would be a sort of organizational dead-man’s-switch in the form of a security trustee. This entity would need to be a bank, and could have a defined agreement with the DO’s corporation whereby the bank can disband or seize the DO’s assets in the event of a legal dispute. But of course, some people would be unwilling to agree to such a thing.

To get the ‘A’ in DAO into there, perhaps structuring as a platform cooperative would allow for the scale that might be necessary. But again, I think it’d depend entirely on the values and activity of the DAO in question.

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Creature from the Crypto :frog:

Let’s make a self-hosted DAO
to auto-aquisition land and tools
as we feed it money and skills.

Land is about 1$ per sq ft.

If we swap skills early
we can achieve goals
without token-passing.

Treat Product as ROI
to avoid paying Profit.

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Forgive if this is naive, but might there be a number of advantages to a DAO not having a legal entity (being jurisdiction agnostic/pluralistic), thus underlining the A in DAO? To the extent that real humans are acting in the world with the support of the DAO, and need to be held responsible, that responsibility / liability could be pushed to individual actors (e.g. Lead Link roles in holacracy).

I haven’t managed to wrap my brain around it all yet, but among other things this would seem to imply that:

  1. coordination is a bit harder
  2. overall DAO adaptability and resilience is increased - no single point of failure
  3. if DAO’s eventually gain wide adoption, governments would be incentivized to collaborate on reducing tax havens and other loopholes.

Also sorry for resurrecting this and other old threads. :confused: New here - please let me know if a new post would have been more appropriate.