Guide to Decentralized Governance – DAOs

DAOs | An Institutional Guide to Decentralized Governance


DAOs | An Institutional Guide to Decentralized Governance

Societal change can evolve from cultural, political, economic, scientific, or technological forces. In the last
decade—and especially recently—the global community has endured seismic waves in all categories. Civil unrest,
wars, financial downturns, and an unrelenting pandemic have rattled confidence in traditional establishments,
energizing the search for new possibilities. Technological advances have provided a bright spot among the
uncertainty, and blockchain technology, in particular, has stimulated innovations that challenge conventional
ideas—especially those pertaining to centralization. The decentralized autonomous organization (DAO) is a recent
application of decentralization that endeavors to improve legacy systems. Powered by blockchain and web 3.0,
DAOs seek to modernize the formation of talent and capital as a means to efficient and democratic
collaboration. This technological force can pave the way for positive systemic change.

The first iteration of the internet, web 1.0, was a read-only service that enabled users to search for and consume
textual information on static web pages. When web 2.0 emerged, it introduced a more technical framework that
provides the current platform for global connection, collaboration, and shared content. However, in exchange for
this access, users have given up ever-increasing amounts of personal data to the corporations that supply internet
services. Consequently, consumers have grown increasingly skeptical of this model that relies on them for
sustenance and profits from their information but fails to deliver personal dominion over data, content,
participation, and financial value.

WEB 1.0

WEB 2.0

WEB 3.0




Progression of the World Wide Web1


May 2022

Web 3.0, the third generation of internet-based applications and services built on blockchain, promises to
empower a new creator economy and fuel the future of work by adding value through ownership and

governance. Blockchains are systems that enable trustless, decentralized networks. There is no need for a third
party to execute transactions, no one actor has control over the blockchain, and all participants can have

confidence in the integrity of the network. Blockchains enable transactions that used to require trust by removing
the necessity of relying on intermediaries.

The 2008 financial crisis ushered in an era marked by a loss of faith in centralized institutions, and the corrosion
has only persisted.2,3 As a result, blockchain has gained more mainstream traction because it facilitates the

development of alternative innovations and novel frameworks. Moreover, governments and businesses across

diverse industries have recognized its utility beyond cryptocurrencies. They deploy blockchain-based solutions to

satisfy complex use cases that traditional infrastructure cannot address. Accordingly, this emerging technology is
disrupting and transforming entire industries and markets.

Transformation can be an adaptive response to tension within a given system.4 Blockchain technology and the

applications it enables developed as an answer to the exploitation of centralized power and process inefficiency.

Innovations like DAOs challenge conventional ideas of centralization
and inspire a generation of global citizens who prioritize autonomy,
ownership, and democratization.


May 2022

What Are DAOs?
DAOs are blockchain-based, self-governing organizations that enable participants to work toward a
common goal on a trustless network. DAO members can communicate, pool capital, vote, and develop
projects, demonstrating the future of blockchain technology and coordinated decision-making. DAOs start
with an idea based on a defined goal, are organized using smart contracts, and stimulate action by
granting access, voting rights, and ownership to contributors in exchange for tokens of the underlying
project. Participants use governance tokens to vote on topics relevant to the DAO’s mission.

“Decentralized” refers to the distribution of power and resources so that no one
entity—an individual, the government, or a financial institution—can unilaterally
make changes or obtain majority control. In DAOs, governance is heterarchical
rather than hierarchical: decisions are made collectively rather than by a central
leader or an elite ruling body. Further, the level of decentralization in each
organization is on a spectrum; some DAOs operate with a flat management
structure while others retain an element of centralization.

“Autonomous” represents independence from human interference to enable
self-sustainable progress and maintenance. DAO tokenholders can submit
proposals to suggest governance reform, funding, and long-term hires, allowing
the members to communicate on specific business directives and enforce formal
decisions through various voting methods. Once consensus is reached, resolutions
are executed through multiple verification-secured funds to equitably carry out the
DAO’s intentions.

“Organization” signifies the structural makeup, internal processes, and execution
of a group that shares a joint mission. Logistically, people often require conviction
and motivation within a rules-based environment to coordinate successfully.
Corporate bylaws and governmental enforcement of contracts provide this
structure in the traditional business world. For DAOs, software on the blockchain
creates this framework by embedding the organization’s rules and managing
transactions in a programmatic, decentralized manner.


May 2022

Core Features of DAOs

Pool Capital


Develop Projects

Organizational structure has remained relatively unchanged since the development of the corporate form
in the 17th century. This stagnation presents an opportunity to enhance and optimize aspects of
collaboration. DAOs offer a novel way of attracting, organizing, governing, and incentivizing talent by
integrating blockchain into the organizational framework. This democratic approach to
community-building and the alignment of project ownership and compensation through contribution
deviates from the principles of existing centralized organizations. Further, DAOs are fundamentally versatile,
giving rise to greater role flexibility, motivation-driven rewards, and broader participant connectivity. DAOs
are still early in their lifecycle, which presents a vast, undiscovered landscape of significant opportunities
for reform and growth. As of May 3, 2022, over 4,000 DAOs hold more than $9 billion in treasury—compelling
and ever-increasing numbers for a novel organizing technique that has not fully matured.5
DAOs are most similar to cooperatives in the traditional world—organizations, such as unions, run by
workers and customers that do not limit roles or pigeonhole contributors. DAO members choose all aspects
of their involvement—project collaboration, time worked, the longevity of engagement, and compensation
terms—which fosters personal freedom and a voluntary communal culture. Ownership of a DAO’s project
and having a voice in its trajectory personalize the experience and promote loyalty.

Flexible Contributor Engagement






May 2022

DAOs Compared to Traditional Companies












Benefits of Decentralization
Blockchain technology offers a more open, participatory atmosphere that enables the exploration of optimized
business practices.

Fewer Border Restrictions
Blockchains inherently eliminate accessibility restraints and unlock geographic openness to enable
peer-to-peer transference on a global scale. As a result, DAOs can invite broader participation with
remarkable swiftness as they pursue their goals of pooling capital, recruiting contributors, and
compensating users and contributors.
For example, ConstitutionDAO raised more than $40 million from 17,000 people just 7 days before
bidding on an original print of the U.S. Constitution.6
The ability to found an organization, raise capital from thousands of people, coordinate actions, and
execute the goal within a week would not have been possible in the constraints of the traditional
financial system.


May 2022

Worker Contributions

Alignment of Incentives

The top-down management approach, typically

Organizations have the greatest potential for

found in centralized organizations, tends to limit

productivity when individuals’ incentives match

employees to their specific department and

the mission. DAOs align long-term incentives by

rarely sources ideas from those closest to

enabling their members to build, own, and

relevant problems. This hierarchy is evident

influence. Building provides opportunities to

among bank tellers who have little say in

create, ownership fosters financial confidence,

customer service procedures, though they are

and influence grants control over outcomes—all

the first point of contact with customers. In

principles that fulfill self-actualization needs.8 In

contrast, DAOs are formulated with a horizontal

addition, a strong emphasis on community and

management style to extract combined intelli-

mission, combined with a high degree of

gence and encourage engagement across

personal autonomy, often imbues contributors

participants. DAO participation is driven by each

with meaningful intrinsic motivation.

individual’s desire to be part of a particular
project. This active contribution aids in the
development and nurturing of freely flowing
For example, DAOstack is an operating system
for collective intelligence, offering multiple ways

For example, Shapeshift, a decentralized
trading platform, rewarded its user base with a
FOX token airdrop to compensate and express
appreciation for customers’ past and ongoing
trading activity on the platform.9

for users to interact with the system, thus
serving everyone’s needs.7

Distributed Constituents
Centralized collapses can be caused by technology (as in NASDAQ’s 2013 power outage) or leadership (such as
Enron’s fraudulent accounting practices) and have devastating, wide-reaching implications.10,11 Alternatively,
blockchain technology provides greater transparency of participation and transactions, thus enhancing
accountability. DAOs promote the inclusion of diverse opinions and skillsets within these distributed, trustless
virtual networks to reduce the risk of single points of failure. The dispersed configuration of a DAO helps mitigate
groupthink, the effects of localized disasters, and reliance on intermediaries or central authorities.
For example, Sushiswap, one of the largest DeFi protocols, blocked a
suboptimal proposal to offer certain investors a large discount on governance
tokens.12 The decentralized framework enabled tokenholders to communicate
their apprehensions and engage in an impartial vote.


May 2022

Degrees of Decentralization

DAOs can vary in their degree of decentralization. The gradation of this central characteristic depends on the
goals and priorities of the organization. Many DAOs transition from a centralized to a decentralized structure, while
others continually function with a degree of centralization. Additionally, established entities with centralized
structures may consider implementing DAOs into their management process as a tool to improve certain business areas or solve specific challenges.

While some DAOs represent an entire organization, others develop to focus on a certain subset of decisions within
an existing entity. The combination of centralized and decentralized decision-making can vary per a company’s
mission and needs.
For instance, a DAO could allow stakeholders of

Hypothetically, Disney could create a DAO for

a company to influence a particular product by

its creative employees to brainstorm and vote

analyzing trends, providing feedback, and

on future plot lines and character development,

making decisions, while other products and

eliciting ideas reflective of fans and cultural

company operations remain under centralized



Organizational effectiveness tends to increase with some degree of segmentation, such as working groups,
committees, subcommittees, or pods. These subunits may be organized by product line or by general function. For
example, an enterprise could form a DAO for each department—human resources, marketing, sales, product, and
It can be difficult to efficiently manage tasks in a flat structure without acknowledging participants’ distinct
competencies, so leaders naturally emerge. DAO subgroups allow leaders to lead and developers to develop,
keeping specialists within their domain but not limiting individuals’ soft skills for overall greater productivity and
business output.


May 2022

Multiple DAOs within an organization14

DAOs are adaptable, allowing organizations that begin with a centralized structure to gradually transition into
a more democratic decentralized form.

For instance, ShapeShift, a crypto exchange

Hypothetically, Airbnb could transition to a

that exempts customers from submitting

DAO to provide contributors (hosts) and users

personal data for platform use was founded in

(renters) with an ownership stake and gover-

2014 and converted to a DAO in 2021.

nance rights over the business.



May 2022

Types of DAOs
Organizations—government, business, non-profit, political, sports—are diverse in purpose and size.
Accordingly, DAOs are functional across industries, presenting a vast field of opportunity. DAOs can generally
be classified based on an area of focus:


Protocol DAOs provide a direct service based on fixed rules to consumers at scale.

Traditional Equivalent:

Bank of America: a bank that
collects retail deposits in
exchange for a low interest
rate and then lends capital to
borrowers at a higher interest
rate to profit on the spread

Compound: a lender that
matches the supply and
demand of a digital asset and
dynamically prices interest
rates accordingly


Social DAOs foster communities and personal connections by encouraging individuals to share insights.

Traditional Equivalent:

Soho House: a collection
of international private
members clubs for
people who work in
creative industries

Friends With Benefits: a social
club that consists of creators,
artists, and builders who
brainstorm ways digital assets
and web 3.0 models can
transform various industries


Investment DAOs fund early-stage projects and businesses or invest in high-end collectibles.

Traditional Equivalent:

Andreesen Horowitz:
a venture capital firm
with more than $20
billion in AUM

The Lao: a member-directed
venture capital fund that allows
members to pool capital, invest
in projects, and share proceeds


Media DAOs curate, create, and publish compelling content.

BanklessDAO: a content
creator and curator with a
goal of onboarding 1 billion
people to open money
systems like Bitcoin and


Traditional Equivalent:

Condé Nast: a mass media
company that develops,
brands, and publishes
content in entertainment,
culture, fashion, architecture,
and more

May 2022

Service Guild

Service Guild DAOs purchase valuable resources for member use, negotiate wages,
and offer other group perks and rewards.


Traditional Equivalent:

RaidGuild: a design
and development
agency for web 3.0
that protects its
members’ interests

The American Federation of Labor
and Congress of Industrial
Organizations (AFL-CIO): a federation
of national and international unions
advocating for better working policies


Grant DAOs fund public goods by providing grants for a specific ecosystem or protocol.

Traditional Equivalent:

MolochDAO: funds grants for
essential digital public goods
deployed on Ethereum

National Institute of Health
(NIH): the largest public
funder of biomedical research

Operating System

Operating System DAOs provide a DIY toolkit for non-professionals to easily achieve a task.

Traditional Equivalent:

Aragon: provides an
open-source infrastructure
to help users build a DAO
from scratch

Turbo Tax: Intuit, a financial
software company, launched a
user-friendly tax filing solution

Examples of DAOs by Type







Operating System


May 2022

Bridging Centralized &
Decentralized Governance
DAOs are still in the nascent stages of development—members are discovering best practices for structure,
process, governance, incentives, and degree of decentralization. When considering the democratization of
organizing and decision-making, a measured approach to considerations like hierarchy, vote cadence, and
polling process can help avoid the pitfalls of enacting too much change too quickly.

While the promise of democratization through decentralized governance is inspirational, flat hierarchical
structures pose certain limitations. Consider that effective management requires definable roles and
responsibilities for stakeholders to identify and achieve clear goals. Additionally, effective governance
necessitates consensus mechanisms to execute decisions. In traditional organizations, focused groups
create necessary areas of delegation and accountability. In DAOs, the lack of a vertical hierarchy may
confuse responsibilities when individuals cannot classify their roles or identify where to direct questions.
Further, due to the self-designated nature of DAO arrangements, it can be difficult to complete time-sensitive tasks promptly if collaboration falls on multiple individuals and deadlines are not established.
Certain DAOs may fall flat without directional goals.

Vote Cadence
Establishing a regular cadence of community-wide meetings and a pre-set voting schedule brings more
order to the governance process. The acceptance of continual voluntary opinions can result in:

A frequent

abundance of


Low voter participation due to

uninformed members and time

Distraction from the

organization’s mission
and goals

May 2022

Polling Process
DAOs introduce unique voting options specific to digital assets based on the blockchain where the project
is deployed, its purpose, and its goal. New voting mechanisms are being explored and adopted to optimize
impact. A few of the early methods include:




a voting process that relates

a voting process where each

a voting process that grants

the degree of influence to the

token’s number of votes

large tokenholders greater sway

number of tokens.

depends on how long the

but diminishes supplementary

current holder has held that

power as more tokens are



Advantage: encourages an

Advantage: supports member

Advantage: voting is more

individual’s interest in the DAO

longevity by incentivizing early

balanced because large

project to purchase more

and active tokenholders.

tokenholders’ influence is

tokens for greater influence.

Disadvantage: newer members


Disadvantage: promotes

may find it difficult to

Disadvantage: larger

privilege of large tokenholders

implement their ideas, even if

tokenholders could circumvent

over the interests of small

they are valid and would be

this process by purchasing



tokens in more than one wallet.

May 2022

Practical Applications for DAOs
Currently, many applications are theoretical, but the earliest models provide a glimpse of how DAOs could
enhance resource coordination, human organization, and idea generation. Implementing a DAO could disrupt
large corporations’ rigid processes and hierarchies that often impede stakeholders’ abilities to expedite
business transactions, engage with specialists, and benefit from successes.

Raising Capital

Overcoming Traditional Obstacles
Capital raising is essential to build, grow, and scale an organization. The traditional method of employing an
investment bank to help raise funds is based on their promise of relationships with institutional money, leading
and tracking the nuanced process, and solidifying inbound capital from reliable sources. However helpful
outside consultants can be, it is laborious for the business founders and executives:

Business pitch creation

and presentation to VC

Due diligence process and
bank loan application

Legal and tax consultation
for capital structuring

DAOs can help overcome many of these obstacles due to blockchain’s global reach and the feature of
peer-to-peer transfer. Such openness significantly expands the pool of available resources by fostering
connections among like-minded people worldwide. This straightforward and transparent investment process
could also bolster the efficiency of traditional investment banking.
Instead of seeking large investors through traditional means, a DAO enables small investors to contribute
relatively modest amounts into a pool of funds. For example, the ConstitutionDAO raised just over $40 million
from 17 thousand people, with a median contribution of just $206.16 Such efforts could signal a shift to individual
investors, as DAOs unlock access to private investment opportunities and allow projects to compete with
wealthier investors.
Further, the regulatory and legal implications of accepting institutional money mean that businesses must
raise large amounts of capital within a specified period to reduce business distractions during the raise period.
Conversely, new members can join a DAO at any time with the purchase of the native token and capital
contribution. This flexibility allows the DAO’s capital base to expand continuously. Additionally, tokenholders can
easily sell their tokens on 24/7/365 exchanges, facilitating limitless entries and exits. While DAOs issuing tokens
deemed digital asset securities will have regulatory requirements to consider, the advantages of continuous
inbound capital for early and growth phase projects are compelling.


May 2022

Venture Capital DAOs
Comparable to venture capital firms, VC DAOs aim to raise capital for other projects. For example, PleasrDAO
pooled $8 million to purchase Edward Snowden’s “Stay Free” inaugural NFT, similar to how Airbnb raised capital
through Sequoia-led Series A in 2009.17 PleasrDAO members receive a digital token directly linked to the ownership
of the projects purchased in the DAO for their involvement. This token acts as an asset-backed security, entitling
holders to a fraction of assets owned by the DAO, which they can trade or transfer at any time. In contrast, the
investment tied up Sequoia’s capital until Airbnb held its initial public offering in 2020. Eleven years after the
original investment is not an abnormal timeframe for venture capitalists; on average, it takes 7-10 years to
realize a return on investment.18
An investment network and community involvement are often equally important as the financial
contribution—for example, investment syndicates such as AngelList endeavor to provide a communal sentiment
with shared purchases. However, the perceived inclusion and participation are limited to the investor circle. VC
DAOs expand this sense of belonging by providing tokenholders with direct project exposure to which they can
offer guidance. This distinct communication channel grants VC DAO members more constructive influence and
enhanced engagement to strengthen connectivity. These features aim to bridge the gap between founders and
investors, transforming how capital is traditionally raised and managed.

As of May 3, 2022, the VC
DAO, BitDAO oversees $2.1
billion in assets.19

A project or business can deploy a DAO as an alternative mechanism for fundraising. This model aims to garner
interest and capital from a wider audience beyond institutions. Further, supporters can fund a DAO more quickly
than traditional payment processing mechanisms, lending speed and agility to the desired outcome. A primary
advantage of crowdfunding via a DAO is that DAOs provide a return for participation, whereas centralized
crowdfunding methods focus only on the sale of a new project.
A donation to a DAO’s crowdfunding campaign grants donors tokens representing governance rights over the
organization’s decisions. tokenholders have a stake in future decisions and can impact a project’s fund


May 2022

Tokens Versus Shares: Ownership Comparison



Digital asset holdings by capital

Traditional method of ownership

or future price of the underlying

fractional claim on the net assets or

contributors that equal the current
project token



representation by offering investors a
future cash flow of a project

Proposal and voting rights

Voting proxies for select

Tokens can be traded or

Capital is locked up until

specified in the protocol

successful exit

for all DAO project decisions

transferred at any time as

Earning potential based on activity risk:




Supplying to new protocols

business decisions

the business realizes a

Earning potential based on security risk:
Senior secured bond

Senior unsecured bond
Subordinated bond

Beyond the genuine governance and liquidity advantages of tokens versus shares, a key distinction is the
earning potential. Instead of purchasing a more conservative or speculative security, as in the case of traditional
shares, tokenholders obtain the right to participate in ecosystem activities to earn on their tokens. Whereas
shares are passive, tokens hold financial and non-financial potential outside of price accrual. In this respect,
tokenholders have a greater ability to earn on their holdings than traditional shareholders.

Recruiting and Retaining Talent
Organizations aggregate people to carry out a purpose. Structuring and incentivizing these individuals can be
complicated because people are driven by diverse principles. In addition, personal motivation variables are
challenging to ascertain due to generational, demographic, and socioeconomic differences. Nonetheless, it is
essential to an organization’s long-term success that founders recruit talent and connect with their employees
to accurately and consistently incentivize them. DAOs, as labor organizers, aim to solve many personnel issues
by offering a new way to align mission with value.


May 2022

A recent Columbia Business School study showed that 80% of
individual investors agree: being an owner of a company would
make them more likely to be a customer.20 Additionally, the
research stated that individuals with an ownership stake increased
their weekly spend at the company by 30-40% and maintained that
level for 3-6 months.

The rise of the gig economy has caused a
shift in worker preferences. Freelance and

Gig Economy

temporary jobs provide greater time and
lifestyle flexibility. As a result, people are free
to pursue endeavors that meet their
individual needs and fulfill more than a fiscal
imperative. Consequently, DAOs attract
self-motivated talent by
concentrating on a specific mission and
inviting individuals to engage based on that
shared value. DAOs further strengthen worker
involvement by compensating with
ownership and influence, incentivizing
workers to actively engage in practices to
make the project successful, such as sharing,
building, and continuous evaluation. This
organic recruiting and retention method
provides individuals merit opportunities and
disregards superficial factors like school affiliation, club memberships, or family relationships.
Value comes in many forms—tangible, perceived, and intrinsic. Of course, traditional organizations can also
diligently assess their talent’s passions and align performance with rewards, but the inclusivity DAOs provide
extends beyond recognition and prompts a path that can lead to high levels of personal fulfillment.

Coordinape, a platform for DAOs to easily and fairly distribute
resources to contributors, offers the Gift Circle feature that allows
members to send GIVE tokens to contributors based on the perceived
value of their work.21


May 2022

Spreading Ideology
DAOs inspire an enthusiastic camaraderie similar to religious groups, political affiliation, the arts, and the
entertainment industry, where people connect over shared interests and find personal enrichment. Communities
gather and grow around an ideology—a defined outlook that is popularized with influence—to share ideas, create
change, and lead cultural trends. Traditionally, capital has propelled influence rather than influence driving

Consider the numbers from the 2020 U.S. presidential
election—candidates raised more than $1 billion, each vying
to be voted into a position that pays a $400,000 annual salary.22,23

Candidates and supporters spend exorbitant sums of money on leadership platforms because influence is a
compelling resource.
Idea generation and dissemination have never been easily monetizable and take considerable time under
normal circumstances. Spreading ideas necessitates two main components: people and channels. People
originate an idea, channels circulate the idea, and the public reacts to the idea. The printing press and the
internet are the most notable information spreaders, enabling recipients to consume what is disseminated
passively. Conversely, DAOs encourage the spread of information and ideas through active engagement and
continuous involvement. Where the internet’s capabilities end and the potential of DAOs continues is rooted in
the participants’ connectivity to the purpose and the longevity of interaction and commitment. DAOs integrate
the powers of humanity with the impacts of technology to present a mode of monetizing ideas.

For example, Bankless DAO, an
organization focused on the
importance of decentralization,
coordination, and self-sovereignty, is
on a mission to onboard 1 billion
people to open money systems like
Bitcoin and Ethereum.


May 2022

DAOs turn ideas into catalysts for human progress—ideas propagate themselves and, in time, become
independent tools of human culture, just as important as profit-generating businesses. For example, Facebook’s
original mission was to “make the world more open and connected.”24 The company continuously received
significantly high funding valuations— upwards of $15 billion—before being profitable, as they focused on
growing their user base rather than profits. These valuations are evidence that investors realized the power of a
social network rooted in community, communication, and sharing metrics, despite a delayed revenue model.
Facebook set out to be a mechanism for connecting and sharing—one step shy of an ideology spreader—missing the long-term user monetization component; there was no incentive to stay on Facebook when new social
platforms like Twitter and SnapChat emerged. Whereas technology companies like Facebook demonstrated the
impact of an expanding user base, DAOs capitalize on this concept by allowing users to contribute and receive
compensation for their participation—merging the role of users and owners.

DAOs may provide a means of accelerating social
movements by combining ownership with community
to spur greater influence. Instagram has already
recognized and leveraged the power of influence by
paying social media influencers to include certain
products or service mentions in their posts. These
promotional efforts—posting frequency and staying
power—can be strengthened by providing the
influencer with ownership of the products or services
they post. Ownership is a preferred compensation to
cash or kickbacks because its value has the
potential to appreciate. The DAO model draws on
emotionally seductive factors like belonging, power,
and reward to achieve vitality and resilience.

Networks built on the blockchain25

DAO Stakeholders

DAOs are inspirational because they present a level playing field, providing a channel for influence to all project
stakeholders—founders, developers, tokenholders, and institutions. As a result, DAO members are granted
inclusivity and a right of expression in which all voices are heard.
As DAOs originated from technology, they tend to attract developers to engage first. Technologists ideate a
project concept and construct the DAO formation, initially drawing additional members with complementary
skills. Next, finance-savvy individuals join the team to address the project’s capital needs and involve investors of
varying sophistication and caliber. With intense passion and funds raised, the stakes to achieve success are
inevitably high. Further, favorable outcomes may vary based on the stakeholder—founders seek product
development, developers seek collaboration, and investors seek returns.


May 2022

All DAO stakeholders have a unique value. Even though members are drawn to the DAO because of a shared
belief or goal, collaboration to execute on a united front takes effort and discipline. While traditional finance is the
industry blockchain initially intended to disrupt, investment professionals can add tremendous value. Most
organizations, and in turn DAOs, are integrated with a fiscal component—contributions, payments, donations, or
dues—the management of which can determine the organization’s fate. Finance leaders with experience analyzing economic trends, structuring assets, and managing treasuries, can be instrumental to a DAOs future.
The merging of intelligence that DAOs stimulate can be profound. However, at this alpha stage, DAOs are under

It is the responsibility of stakeholders to diligently guide projects to
ensure the health and progression of the decentralization evolution.

The Potential for Legal Recognition
As with any new technology, legislation needs time and information to adapt and provide clarity for users.

Regulators have been paying attention to the digital asset industry, with guidance issued as early as 2013, but
the pace at which blockchain has multiplied with innovations and permeated the market makes it challenging
for them to keep up.26 Thus, President Biden’s recent executive order focuses on one fundamental
element—central bank digital currency (CBDC).27

Liability of the
Central Bank


Bank Digital


Bank Account or
Digital Wallet



Venn diagram: central bank digital currency28


May 2022

While the industry’s need for stablecoins and government involvement is evident, fundamental questions prevail,
like when is a digital asset a security, and into which regulatory jurisdiction does it fall? The SEC has repurposed
their Howey Test mechanism for determining if federal securities laws apply, yet Ripple has unfortunately
suffered the brunt of this indecision, and the authority debate continues.29,30,31 This determination will likely affect
DAOs and their future adoption because they distribute ownership in the form of tokens. However, discovery and
exploration of use cases show no signs of slowing down—a reflection of the entire digital asset ecosystem.

The Howey Test

of Money



of Profits

Derived from
the Efforts of

Regulating the blockchain tokens32

The nuances of regulating a decentralized entity are extensive, but modest legal acknowledgments have
provided momentum for the sector to progress. For example, on a state level, Wyoming announced the world’s
first law to recognize DAOs as legal entities in July of 2021.33 The state allows DAOs to register as LLCs, with the
DAO’s governance rules taking precedence over any corporate bylaws when conflict arises. As DAOs have the
potential to generate comprehensive solutions that harmonize owners, contributors, and users, regulation and
legal clarity are essential.


May 2022

Notable moments in history often initiate and accelerate cultural transformation. In
particular, the convergence of pressure and human ingenuity often leads people to
reconsider what was and is, followed by a shift to what could be. For instance, in 2008, the
Fed’s excessively loose monetary policy combined with weak bank underwriting standards
and irresponsible derivatives exposure created a once-in-a-generation catastrophe.
Although the ensuing financial crisis led to the degradation of trust in centralized institutions,
it also sparked an age of enlightenment that drove innovators to disrupt systemic limitations
of antiquated infrastructure with revolutionary solutions.
More than a decade later, economic, geopolitical, and public health turmoil has accelerated
the drive for innovation and catapulted decentralized frameworks into mainstream
consciousness. Most notably, blockchain technology and the application of DAOs have
invigorated individuals and communities seeking paths to reclaim relinquished autonomy
and establish sovereignty where it was historically absent.
While it is revolutionary in its simplicity, decentralization is still challenging in its application;
successful coordination and efficient governance will depend on considerate, methodical
implementation. DAOs are a promising alternative to traditional models of organizing talent,
raising capital, and administering governance. They show great promise, and we believe they
hold great potential for the future. The current landscape offers a glimpse into a new form of
human organization that will coordinate resources more efficiently and fairly than ever
before. DAOs provide a platform for innovation and stand to transform entire industries,
disrupt markets, and establish new paradigms.


May 2022

Lead Author

Sarah Legenza Macedonio
Vice President of Content

Sarah Legenza Macedonio is Vice President of Content at Arca. In her role, Sarah is
responsible for curating, enhancing, and amplifying digital asset information for
sophisticated investors. She has over a decade of finance and digital asset

experience focused on early-stage business strategy, communications, and growth.
Before joining Arca, Sarah served as Head of Marketing and Commercial Operations
at Lukka, and Director of Marketing and Operations at SenaHill Partners. Sarah holds
a Bachelor of Arts degree in Communication Studies from Northeastern University.

Lead Editor

Jaime C. Randle
Senior Editor

Jaime C. Randle is Arca’s Senior Editor, collaborating with cross-functional teams
and internal subject matter experts to develop, edit, and publish impactful

communications for institutional investors. Jaime brings over a decade of marketing,

copywriting, and editing experience to Arca’s marketing team. Previously, Jaime led a
content team as Marketing Manager of a London music tech company. She has also

worked as a copywriter and editor for diverse clients across industries. Jaime holds a
Bachelor of Arts degree in Psychology from The University of Connecticut.

Project Contributors
Matthew Hepler

Vice President, Portfolio Management
Matt Hepler is Vice President of Portfolio Management at Arca. In his role, Matt

identifies and analyzes digital asset and blockchain opportunities, and investment
structures for Arca Investments. Matt has over 20 years of experience in active

investing and investment banking, engaging management teams, board members,
and shareholders to improve shareholder value. Formerly, Matt held executive

positions at Relational Investors LLC, Marcato Capital Management LP, and Credit
Suisse’s investment banking division. Matt holds a Bachelor of Science degree in
Economics from The Wharton School of the University of Pennsylvania.


May 2022

Alex Woodward

Associate, Research
Alex Woodard is a Research Associate at Arca responsible for identifying and

conducting analysis on digital assets and monitoring current positions. Alex has

more than 2 years of experience on the Arca research team, specifically focused
on DEXs, decentralized derivative DEXs, and centralized exchanges. He holds a
Bachelor of Arts in Economics from Whitman College.

Nick Hotz

Associate, Research
Nick Hotz is a Research Associate at Arca responsible for sourcing and analyzing

digital asset investments and supporting the research team with macroeconomic
trends. Formerly, Nick served as Global Macro Analyst at U.S. Bank for 3 years. Nick
is currently studying at the Yale School of Management for an MBA and holds a

Bachelor of Business Administration in Finance and International Business from The
Carlson School of Management at The University of Minnesota.


May 2022

The information contained in this publication was prepared by Arca for illustrative and informational

purposes only and does not constitute a recommendation, offer, or solicitation of an offer to buy or sell
any security or financial instrument or to participate in any investment strategy. Any reference to past
performance is not indicative of future results. The information and opinions expressed within this

publication are as of the date it was written and are subject to change at any time without notice due

to various factors, including, but not limited to, changing market conditions and regulation, and should
not be construed as recommendations or investment advice. Where data is presented that is

prepared by third parties, such information is cited, and these sources have been deemed to be

reliable. All investments are subject to risk and there can be no assurance that the future performance
of any specific investment, strategy, or product referenced directly or indirectly in this publication will
be profitable or is suitable for your portfolio.

About Arca
Founded in 2018, Arca is a leading regulated financial institution in the digital asset space. The Los
Angeles-based company consists of Arca Investments—its asset management arm—and its

innovation division, Arca Labs. The firm’s overall mission is to develop financial products that allow
investors to seamlessly transition into a new digitally-powered economy. Every aspect of Arca’s
offering is designed with sophisticated investors and institutions in mind.

Contact Us:





May 2022

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