How to properly incorporate a DAO and protect yourself

0:01I'm Ashton Addison from Block West capital for investment pitch media and today on the Crypto Coin Show we have Adam Miller the co-founder of my Dow Adam welcome to the show and thank you for taking the time today yeah thanks for having me you're very welcome excited to dive into the world of dows in web3 I personally need to know a lot more about Dao's because I

0:20truly believe is the future of Internet organizations but I feel like there's a lot to be done to convert all of the steps and you know the procedures that are involved with the organizations today into the web 3 version and make it more decentralized transparent and all those good things and I know that you know a lot about this so I'm excited to get your insights into where Dows are at

0:43right now how my dad was helping create Dows and everything to do with Taos so let's just start from the top with a little bit on what have you and your team done with my Dow how does it relate to Dows and then we'll dive into all things of decentralized organizations yeah sounds great you know first of all I believe Dows are the future of all organizations not just what we might

1:05consider internet organizations that said what my Dow does midao our company is we help Dows incorporate and so just like any traditional startup company most everyone knows that one of the first things you do when you start a company is you go form your corporation or your LLC and we don't even really think about why it's just a given but for the same reasons that almost

1:28everyone's starting a regular business has to incorporate most Dows should too it's an interesting topic because you know I feel like in the beginning of what Dao's word is sort of a bunch of Cypher punks or just Tech Guys saying hey let's just make this a very decentralized group where we can vote on things and sort of make a company obviously the next logical step would

1:51be you know to make that a legitimate company and I feel like the regulation of you know creating companies corporations or llc's maybe we can talk about this a little bit later but I feel like they'll probably need to catch up to as Dao start incorporating maybe there's some slight differences between traditional corporations and creating a Dao on the regulation side but let's

2:12just dive into in terms of my Dao creating a legit Corporation or LLC for a Dao why exactly do Dows need to do that and why should they yeah so the biggest reason is that you know taking a step back all the governments of the world right that govern every spot of land on Earth and therefore we fall under their jurisdiction as people whether we like

2:36it or not virtually every Institute taxed institution in the world when it looks at a group of people engaging in a common Enterprise collaborating and there's money flowing to the tax institutions like the IRS that looks like a general partnership and what that means is a couple things most importantly one is that all the people participating in that general

3:00partnership are jointly in severally liable for the actions of the other people and that organization so if you're part of an unincorporated Dao and there's some kind of fraud that goes down or someone sues the Dow for whatever reason you as an individual member can be held liable for the entire Dao's liability if you have the money to front it and so like a friend of mine in

3:23crypto likes to say like do you do you have a house and if so do you want to keep that house if so don't join Adele that's not Incorporated so that legal liability is a big one but it also tax liabilities so again those tax institutions like the IRS if they see a group of 100 people working together and that and that group makes let's say a million dollars worth of profit even if

3:47it stays in the Dow and doesn't get distributed to the members the IRS will say Okay each of you 100 people is responsible for taxes on 1 100 of that Dow's million dollars worth of earnings so each of you has to pay taxes on ten thousand dollars worth of earnings even if you didn't see a penny of it so those are the two biggest reasons the fact is that the legal system we live in

4:09today will treat you a certain way unless you do incorporate and thus choose how you'd like to be treated in a more favorable manner by governments makes total sense and I did take business 101 and understanding you know the difference between a general partnership and a corporation and that you really need to focus on you know your personal liability and limiting

4:30that and that makes total sense in a dow as well and I feel like as Dows get more popular people will realize that's the logical conclusion is they need to be incorporated so how exactly does my Dow incorporate you know is there a specific location or methods that Dao should incorporate into optimize their operations so there are a lot of questions that go

4:52into figuring out whether and where and what type of entity to use to incorporate a Dao we have a guide on our website mydow.org that goes through you know picking your jurisdiction and picking your entity type and figuring out who's going to actually create this entity for you but long story short what our specialty is in my doubt is we are working with the government of the

5:14Marshall Islands in the South Pacific to create the best legal and Regulatory framework in the world for Dows and later for digital assets and that started with the passing of a couple of laws over the past couple years that created a dow LLC both a for-profit and a non-profit version It's modeled off of the work that was done in Wyoming but with some Market improvements and we

5:37really do think it's the best legal entity in the world for daos but that doesn't mean it's a good fit for every Dao so we always recommend people I know you hear it a lot in crypto but like this is not legal advice I'm not even a lawyer you should talk to a lawyer especially in the more that's at stake the more you should hire a lawyer and you should definitely be incorporated so

5:56our specialty is helping you evaluate the Marshall Islands Dow LLC and figure out if that's a good fit for your Dow and if so we can create and maintain that entity for you okay that's great to know and I'm guessing that you've spoken to a lot of different Dows throughout this process and probably focusing on slightly different Industries as well from what I

6:18understand you know the crypto Bros that sort of started the from the incubation of Dao's they're more web 3 focused and just focused on finance or cryptocurrency can you talk about you know the types of companies that you're already working with and have worked with to create Dows and is it branching out Beyond finance and Beyond web3 yeah that's a great question and I do

6:41think that's a strong Trend that I see is people starting Dows to do things in the meat space the real world whatever you want to call it that may not even be directly related to building web 3 open source software which which usually does something related to finance whether it's nfts or D5 or whatever so while we do have a fair our fair share of protocols and

7:04related technology projects we also have people trying to save the rainforest and running meetup groups and investing in ancient artifacts you know kind of like Constitution Dow was going to do with the Constitution so all kinds of things that are not really like web3 native they're definitely not like crypto Bros they're just regular people who were are planning on starting a

7:26project and they've heard that there's this new way of doing something of doing projects of organizing people and resources called a Dao and they're they're thinking to themselves well maybe we should do this as a Dao instead of doing it as a traditi original charity or for-profit company or what have you yeah I've seen a lot of corporations that you know they hear

7:48about this new format of dows and they're interested in like hey we should just switch the company to a dow but I feel like they should really analyze that like the cost benefit analysis and like is it really better for companies that are you know to become a dow LLC versus just a regular Corporation that's for-profit and you know traditional method

8:11are there actually a lot of tangible benefits to going through this process that's you know still sort of gray area and certain regulation jurisdictions and things like that you know I would say that the future state of any organization depends a lot on the structure that's put in place early on in the project and so if you look at a traditional corporation

8:34that's already operating and already has a fair amount of capital and revenue and expenses I don't think it's likely we'll see companies like that actually convert into a Dao per se because they already have an existing set of interests and incentives that are lines a certain way and it's going to be hard to convince those people to for example give up their power or give up their

8:58ownership share or share of profit or whatever it is I think what's more common is either people either starting it out from the beginning or starting it out to complement their existing company and so I think that's what we'll see this year in 2023 with a lot of big Fortune 500 companies and lots of other companies is you'll have the company you've already been operating for a

9:16while and you'll also start a Dao and there will be some official relationship between the two you know maybe some licensing of branding maybe some funding that flows between the two and then the Dow might be given even governance rights over a certain software like is common in crypto but maybe even for a technology company that isn't even doing things on web3 but wanted to leverage a

9:38Dao to give a community even if it's indirect power over some some piece of Open Source software yeah that's a great Point Adam and I feel like with these large companies you know especially these companies that have a lot of capital you know they make a venture arm and they make a research arm you know why not make a dow arm to get more of the community and their

9:59customers their users involved to be able to have a say in that part of the company yeah yeah and it's actually even in the like Trad Phi web 2 world it's pretty common for companies to have multiple entities involved in a project right now we don't want to have like 140 entities then we start to look like FTX which I think at 135 all over the world but I

10:22know some very successful 100 year olds American companies that have like 15 entities right or 20 entities and so people in crypto shouldn't shy away from creative legal structuring that's something that people have done in you know in the old world for some time we need to do it too and so that can mean combining a for-profit a non-profit in multiple

10:43Entities spread out around the world interesting and you know I mentioned a few times about you know the crypto bro sort of came up with this genius idea and now it's spreading out to major corporations and as you said at the beginning you think not even just internet organizations but all organizations could benefit from this but I feel like we're still in the 0.1

11:04percent it's pretty early on what do you see as the balance between you know traditional companies that are already well established reaching out to you and having discussions about should we have a Dao versus sort of this groups of web three people that are just Advocates of the technology they want to showcase the benefits you know where do you see that balance

11:25well I think really the benefit of what we're building in the Dow space well for a couple comments first of all what we're building is technology that allows you to do membership tracking governance and treasury Management on chain that's what we're building in the Dow space that doesn't mean you have to take that technology and then also have and use it in a fully Democratic

11:47non-hierarchical less structured you know less top-down type of organization day-to-day you can use it you can take that technology and apply it too even traditional corporations that have shareholders and boards and CEOs maybe just instead of doing voting on paper you know ballots you do voting using a wallet on the blockchain and instead of counting votes in a board meeting by

12:11raising your hand and someone counting maybe you go in and you actually sign your wallet so I think this technology can be used in organizations that look a lot like traditional organizations that a lot of like web3 native people won't even say that's a doubt right but to me it doesn't doesn't matter what we call it that effectively starts to look

12:29like a Dao and then on the other end of the spectrum is most of the Dows today are like again highly Democratic but I think most of the organizations of the future will some be somewhere in between those two polls right right they're not going to be every decision is democratic and minimize structure minimize policy minimize top down and it's not going to

12:48be like traditional corporations it's going to be somewhere in between I think what we'll do is we'll find a way to give ultimate power to the people through these Dow structures right whether that means one person one vote or what token one vote or quadratic voting or whatever but that doesn't mean that group of people might not hire a CEO or a board and maybe it's a liquid

13:08hire to the extent that like you're staking on a person and who whatever person has the most stake is the CEO and then as soon as someone else has more Stakes that person's gone so like you could unlike a traditional Corporation you can run it like a corporation but in a way that the community can oust the CEO at any time or maybe shut down the budget right and that still gives a lot

13:29more power to the people as I think is what people like to think we're doing with Taos than just a traditional model alone yeah I feel like when when people think of the Dows and it's like a one vote one one person one vote or one coin one vote and say there's a million coins and there's a million people and nobody really has hierarchy over the other it's

13:52just chaos you know no one can agree you know how can a dow have a common purpose if all a million people have different ideas on where we want to spend the money you know and I feel like yeah some balance between having you know chaos of everybody fully Democratic and having some a little bit of hierarchy it with these companies especially some of these layer one

14:14protocols I'm seeing you know as they sort of start more centralized and they build a common vision and then they start releasing parts of the Democratic process to the community and like okay we built the foundation people that agree with this already can continue on with this direction and you know but it doesn't have to be exactly what the founding team wanted but at

14:36least we have an idea of like where we want to go together yeah I think that's a great model to follow especially if you're building a product I do also think there's another prototypical type of Dao which is the community Dao where it's just inherent in the philosophy of the organization that you're going to be Democratic from the beginning and that wherever people

14:58decide to go is fine and often with these Community does you know take something like nouns right nouns was like a combination of a nft project with a governance structure that had absolutely no purpose out of the gate except to experiment for fun see what happens right over time now they have like tens or hundreds of millions of dollars in the bank and they're building

15:19a lot more structure I'd imagine into what they're doing either approach is fine I think you know when a Dao is thinking about whether to be more democratic or more centralized or it's not all even on one one one scale right there's different dimensions to it but I think a useful metaphor or analogy is to think about governments right and like which is better America or China

15:44right in terms of like its governance and a lot of people would say oh my God our democracy is so challenging and so difficult we're all over the place we can't stay aligned and China is going to beat us and all this stuff and that's possible and certainly China's better at some stuff than America but if you ask a person like where would you want to live

16:01just based on governance structure I still think most people in the world would choose democracy if they really know what the options are and so similarly I think given Choice when consumers employees contributors even investors when people have a choice between companies where one is like the old model like dictatorship and the other is like highly Democratic and

16:24decentralized I think people are going to choose the Democratic one and that company might even end up being worse in other ways but I still think it's the one that people are going to choose yeah I would love to see you know the election process and then voting moving into web three and maybe the growth of dows and internet organizations into Dao's will help you know realize that

16:47paper voting has a lot of flaws in it and like blockchain is a great use case for that yeah exactly exactly yeah yeah that right that what we're building with Dows today those core competencies are going to be used in so many situations I mean you know it's kind of like even just somewhere in between a multi-sagan and DOW there's a bunch of use cases too

17:06where you know multi-sync for those who don't know basically means like three or five people or a small number of people controlling a treasury together and it's usually a majority vote or something like it that's basically a mini doubt right but often you don't think of yourself as an organization at that stage maybe it's a vacation trip that a bunch of friends are going on together

17:26or a group of people that wants to buy an nft or invest in crypto together or buy you know whatever that group is it could be a high school chess club it could be a college clubs and sports teams right all these types of like groups where people a homeowners associations and related right Parks all these things that are like in between just a few people that already trust

17:48each other and to work together in today's world and then a massive you know organization are all these other types of organizations that today we don't really consider them organizations or just like a club but in the future these clubs are going to have a tread treasury shared treasury membership tracking and governance on the blockchain for sure and whether we call

18:06that a dow or not will be up to us very cool and from what I understand with my Dow you're not limiting Dows that come to you and say hey we want to create a dow that's legit and under you know Incorporated under certain regulations their level of how Democratic they want to be versus their hierarchy they get to choose all of that themselves and

18:28your team actually isn't involved with any of that yeah good point I mean I can share my perspective from having spoken with so many Dows over the past couple of years but it's really not our responsibility to figure out the governance approach that a dow actually takes or the technology even to implement it our job is really just to help you incorporate

18:48your Dao in the Marshall Islands if that turns out to be a good fit for your doubt we do have a partner network of lawyers and tax advisors and governance consultants and others and even Tech firms that we can connect people with and that whether they're a client of ours or not we're happy to do that so you know always happy to help Point people in the right direction when

19:08it comes to you know those types of matters you mentioned earlier in the beginning of the interview about some predictions for 2023 and the next stages for Dao's moving into sort of mainstream adoption can you give your insights into you know this year and then the coming years how what will be the next big step for Dao is that people sort of take them

19:30seriously as as they would a regular Corporation yeah so I'll give you an argument why 2023 is going to be the year of the Dow or at least the year of the Dow and maybe other things too there was a study middle of last year by someone in the Dow space that was not a perfect statistical analysis but it wasn't bad and it showed that about five percent of Americans had

19:51heard of what of a dow like six months ago and there's this I forget what the numbers called in like societies and large groups of humans but usually when some something gets around like 12 13 is when you go from like something that it feels like no one's ever heard of and it's like this Fringe thing to suddenly being kind of mainstream right like nothing ever goes 100 or even 50 but

20:13when you get up to a certain point everyone starts to hear about it and talk about it and think about it and consider it as an option and I think that's what's going to happen this year as we go from like under that like minimum threshold to a point where kind of like nfts like everyone's kind of heard of it and I think that is going to 10x or 100x the number of dows that are

20:31out there when 10x or 100x people have actually heard of them and realize that it's an option for their next project yeah it's very exciting and yeah I feel like a lot of people have nfts they've heard of them but there's many use cases and they probably think oh that's you know a digital picture but actually it's much more than that and I feel like Dows

20:51will be the same they'll say oh it's just a democratic voting process but it's actually not it's actually just no company just like a corporation yeah and does can be all kinds of different things right a doubt can just be a community it can be a company it can be an association like there's all these words that people use that again it could be a family a friend group you

21:10know these words often don't have technical meaning just like Dao but I think we will see Dao's used in all kinds of different circumstances even aside from what we would think of as business very cool Adam and what's the best way for people to learn more about starting a Dao and to reach out to my Dow to get assistance with that as well sure go

21:31to midao.org it's midao.org in the upper right you can click to read our guide which is that guide to down Corporation or browse around our website if you want you can find us on Twitter at my dowds that's m-i-d-a-o-d-s or I'm at zero X thriller or if you're into web 3 social and you're on forecaster already I'm the Thriller wow very cool Adam I will leave

21:53the links for my Tao and your socials as well in the description box below I appreciate you taking the time to come on and give me and all the viewers insights into the future of Dao's we'll see if those predictions come true and I think that it I as well think it's going to be a big year for Dallas in 2023 here and hopefully for Bitcoin and all of web3 as well as it's very exciting thank

22:14you so much for your time and let's follow up in the near future all right thanks Ashton foreign