F. How can the DAO Contract in the Real World?
At its core, the SSE we proposed in the previous section aims to replicate the economic claims real-world investors enjoy when funding real-world businesses, without the need for the DTH to become shareholders or members in the DAO as a separate legal entity.
Indeed, there are many reasons why The DAO itself may not want to incorporate as a legal entity:
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Doing so would anchor it in a real-world jurisdiction and it is difficult to see how the thousands of DTH could reach consensus on what jurisdiction works for them from a regulatory and individual tax point of view.
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Secondly, incorporation would inevitably lead to full disclosure of each and every DTH's personal details as shareholders or members, details which - even if masked at the blockchain level - would need to be disclosed in most jurisdictions' public company registries.
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Finally, incorporation would reintroduce the elements of centralisation such as Board of Directors which clashes with the idea that The DAO should as much as possible remain a non-intermediated projection of DTH wishes.
In short, why go through the hoops engineering a new way to digitally crowdfund projects only to then relapse into a structure that would ultimately resemble a mutual fund-type pooled investment vehicle?
However, there is a major trade-off: if the DAO is indeed void of legal persona, it cannot enter into contracts, and it can't sue. Essentially, as a vehicle for investing in real-world companies, it is impotent.
It is at this stage that we like to introduce DAT: our Decentralised Autonomous Trust, a modified version of our company smart contracts that enable the DTH, as beneficiaries of a real-world trust, to replicate the voting rights as if they were shareholders in an actual company, without there being a formal legal relationship between the DTH.
In essence, the DAT is an Ethereum-powered version of the tried-and-tested common law trust, but with smart contracts removing the element of centralisation of economic and political power vested in the traditional trustee. We have posted the concept trust smart contract for review here.
- A DAT is a real-world trust settled on behalf of the DTH as its beneficiaries.
- Trust Tokens track beneficiary identities and are directly linked to the DAO tokens of DTH who have funded the DAT.
- The Ether sent to the DAO is earmarked by The DAO or a subset of DTH for investment in real world, offline projects. As a result of the trust itself being a real-world entity, it can enter into contracts, open fiat bank accounts, etc.
- As beneficiaries in the trust, DTH can receive dividends from the assets the trust invests on its behalf, and ultimately benefit from sales proceeds upon exit of any of its portfolio companies.
- The DAT Resolution smart contract, the basic concept code of which we post for review here, ensures the real-world trustee (an authorised trust service provider e.g, Otonomos (Hong Kong) Limited), is at the full mercy of the DTH, who can appoint and remove trustees by consensus amongst the entire DTH or the subset of DTH who funded the trust.
- In this respect, the SSE discussed above gives beneficiaries a tool to control the budget and funding at the trust level, in addition to the portfolio company level.
- Know-Your-Customer is done at the trust level, with the identity smart contract conducting a KYC check on the beneficiaries of the trust. However the identity of the beneficiaries can in most circumstances remain undisclosed to the public, with only the trust company having access to beneficiaries' data (data which at Otonomos we encrypt and store on IPFS using our identity smart contract for company incorporations).
As part of our Proposal to The DAO, we propose to conduct a formal legal review of the validity of the DAT for the role we have in mind for it: as the real-world interlocutor between The DAO as unincorporated entity and the real-world projects The DAO is looking to fund.