Over the last few years, decentralized autonomous organizations (DAO) have been steadily gaining in popularity. While the location-independent nature and transparency of these organizations are attractive to participants, what core members and contributors, alike don't know is that they may be unknowingly exposing themselves to liability just by virtue of being a member.
Don't believe us? Consider a recent civil penalty handed down to the bZerox (bZx) DAO by the Commodity Futures Trading Commission (CFTC) to the tune of $250,000. Yikes. The CFTC maintained that bZx unlawfully offered to its members leveraged and margined retail commodity transactions in digital assets in violation of the Commodity Exchange Act (CEA) and CFTC regulations.
Reuters noted, “[the] CFTC also commenced a federal civil enforcement action in California based on the violations of the same laws against Ooki DAO (Ooki), a successor in interest of bZx, which has the same members and operates the same software protocol…Importantly, CFTC's settlement order also held personally liable Tom Bean and Kyle Kistner, co-founders of bZx who transferred control of bZx's software protocol to Ooki. While the DAO's conduct was found to be illegal, the finding of personal liability of the owners based solely on their status as voting token holders of the Ooki DAO should cause concern among DAO members.”
Of course, not all legal issues that arise come from the leveraging of DAO assets, and, in this case, the CFTC based its decision on California precedence. But the reality is, when you are a DAO founder and dealing with a truly global organization where members exist in all pockets everywhere, the legalities can get pretty tricky–especially when it comes to how you handle and execute compliant payments to your contributors.
According to DeepDAO, the entire DAO ecosystem consists of over 4,800 organizations managed by 4.1 million members, controlling a treasury of over $11.3 billion. At the same time, we're also seeing an increasing number of public and private enterprises bridging into web3 & cryptocurrency initiatives. This basically means that regulation is inevitable and it’s beyond imperative to ensure your operation is as legal and compliant as possible.
Why DAOs Are Attractive
Are DAOs the future of business? Maybe. In fact, there are many in the space who believe that DAOs have the ability to revolutionize organizations in the way the internet transformed communication.
One of the biggest attractions of a DAO is its egalitarian approach to decision-making, relying on no sole authority but instead, distributing voting across every member of the organization. This eliminates the bureaucratic challenges faced by many traditional enterprises by putting power into the member's hands.
Other advantages include:
- No involvement of intermediaries: With a DAO, there is no need for regulatory bodies, law practitioners, or any other middlemen to perform transactions. In place of this, DAOs directly carry out these plans through voting and subvert the requirements of banks.
- Transparency: Unlike traditional business models that usually keep their operations internally, DAOs work upon a decentralized blockchain that is completely transparent, publicly viewable, and ensures permanently stored transactions.
- Meritocracy: Since DAOs work virtually, all the contributors can work anytime, anywhere, enjoy the freedom of holding the DAO tokens and voting rights that come with them.
- Democratization: All the members get to enjoy certain voting rights on protocol moves and changes that ensure more accountability and liberty throughout the decision-making process.
- Automation: Human intervention in traditional business models always accompany errors and flaws while DAO rules are embedded codes that involve no manipulation, labor, errors, or discrimination.
If there are anything DAOs need, it's the ability to easily and securely access DeFi. This is one of the big reasons why multi-signature (multisig) wallets like Gnosis Safe have become the operating standard in Web3, ensuring true decentralization of pooled funds. And while these multi-sig fund management solutions have a lot of functionality for DAOs, having a way to convert digital assets into fiat currency is sometimes necessary and a solution that is flexible enough to meet the DAO’s needs is not always the easiest to find.
Of course, when it comes to compliance, we would be remiss if we didn't talk about the KYC ("Know Your Customer") process. The KYC process is pretty comprehensive and clear. It means you can verify people’s identity and, for anyone managing money, it's a non-negotiable. This requirement is often talked about and debated in the Web3 space, specifically when it comes to DAOs, as the notion of KYC tends to directly conflict with the collective ethos of facilitating an environment that is open, decentralized, and anonymous.
The good news is that while it’s notoriously difficult to find a tool that addresses all the aforementioned pain points, it’s not impossible. At Rise, we’ve built a comprehensive tool with flexibility at the heart and it makes payments and compliance easier than ever before. Let’s address the above issues one by one.
As much as we love and believe in crypto as the monetary instrument of the future and the advantages having your own token creates for DAOs, the fact remains that we still live in a fiat-driven world and sometimes you need the ability to use established currency to live. Rise creates payment flexibility for everyone involved in your DAO, allowing core members to fund, scale, and automate payments while equipping contributors with the flexibility to cash out in crypto or in fiat independently from the treasury used by the DAO. This allows everyone to access their funds in a way that is the best fit for the life they live. The best part? Payments are instantaneous no matter where in the world they’re sent from
We already talked about Gnosis Safe being the gold standard in Web3. Now, imagine a world where you could automate these contributor payments on top of Gnosis Safe through the entire payout process with just one click. What would you do with all the time you would get back (hint: perform more vital DAO activities and focus on what matters instead of the laborious processes that bog any project down)? Not using Gnosis Safe? That’s ok. You can also use Rise with several other wallets to effectively manage and automate payments to contributors.
Whichever multisig you’re using, Rise is the easy button for paying contributors in crypto or fiat using a predetermined payment schedule. By introducing smart contracts to existing payroll and HR functions, automation can strip out the admins and room for human error. These smart contracts, which sit within the blockchain, are deployed to instantly remit DAO members for the work they have done, and so much more.
There is no doubt that KYC is one of the most prominent regulatory hurdles that DAOs have had to contend with in the last few years. As we mentioned, the mere concept of decentralization necessitates a healthy skepticism of it. Unfortunately, though many DeFi and DAO projects are designed for privacy and anonymity (both against individuals and central authorities), it's still not always practical to try and operate outside of regulatory mores.
But that’s what makes what we’ve built at Rise even more special for the DAOs and their contributors. Through our platform, DAOs can ensure KYC laws are followed, and contributors are able to stay anonymous should they want to, giving them the power to uphold one of the key traits that make DAOs revolutionary in the first place.
How Rise Works
- Import all your contributors in one place
- Generate compliant agreements with each contributor globally
- Create, automate and scale contributor payouts
- Give your contributors the freedom to choose how they want to get paid
You’re already revolutionizing the way business is conducted. Shouldn’t your DAO also transform how it handles payments and compliance? Let’s talk about how your organization can benefit from Rise today.