It’s time for DAOs to get a little more boring
To gain wider adoption, DAOs need to be boring.
They need to be really, really boring. Like the HR-department-level of boring (sorry, HR). How much volatility and uncertainty, or excitement, can DAO contributors stomach?
Let me tell you what I mean:
DAOs need to think deeply about the aspects of work that most DAO builders probably think of as boring right now, but are actually essential for bringing on more diverse contributors from varying walks of life.
Some of these boring aspects include liability, taxes, health insurance, paid time off, parental leave.
For example, U.S. citizens don’t receive health insurance through their government. So, if a U.S. contributor is going full-time DAO, they’re going to have to make some hard decisions about how to get healthcare. For someone with a chronic illness, or even just someone who wears glasses, healthcare is essential. I believe the healthcare issue is holding many U.S. contributors back from “taking the leap.”
But there are so many other things holding contributors back from taking the leap — the uncertainty around liability, time off, taxes, and retirement plans all compound to make it much harder to join DAOs.
In order to provide some of these benefits, DAOs will need a legal wrapper. Which, of course, sounds scary. But, DAOs can start small — maybe by introducing a days-off policy, or forming an agreement around how parental leave is addressed.
DAOs don’t need to treat “the boring stuff” as all-or-nothing. They can start small, see what works, experiment and iterate, and build up from there. If DAOs embrace the boring side of work — all the legal work, compliance, and contributor benefits — they will open their arms to diverse contributors.
Let’s talk about a few important aspects of the boring side of DAOs, so a wider array of people can make the leap to full time DAO.
Time Off: Paid time off and parental leave
Time off may sound like an odd topic to discuss in DAOs, because theoretically everyone works when is best for them. But what about contributors who might not have as many savings in their wallet? What about people who need to take time off, but can’t afford to stop working?
They need paid-time-off, or PTO.
According to CNBC, 64% of Americans live paycheck to paycheck. That means 64% of Americans cannot feasibly work for a DAO without working nonstop. Globally, over 684 million people live in poverty, which doesn’t encompass the number of individuals above the poverty line but struggling to make ends meet. DAOs are not built for this huge group of individuals — actually, right now, they’re built against them.
Imagine you’re a young mother getting ready to have your second child. You’re considering joining a DAO. But, with the lack of parental leave, healthcare, and time off, you would probably not be able to make the leap.
How could DAOs introduce paid time off, especially when some DAOs are thousands-strong without a clear path to profitability?
First, DAOs could specify who a core contributor is — maybe they’re the contributors who work in the DAO full-time. This would narrow the number of people receiving PTO, and make it much more feasible for the DAO to provide. The DAO could start small, maybe with two weeks of PTO per year for each contributor who is considered a core member.
This is just one way DAOs can start looking into contributor benefits. Of course, PTO is more of a long-term addition for many DAOs — they aren’t yet profitable, so they may not be able to offer it. But starting to think about these finer details could go a long way when it comes to contributor mental health and overall DAO success.
Healthcare
Contributors coming from countries that don’t provide universal healthcare are left in a bind when they take on a job that doesn’t provide it. If you’re young and can use your parents’ plan, or have a spouse who can provide it, you’re set. But for the huge group of potential DAO contributors who don’t fall into this category, DAOs are not a viable option.
Some contributors may be able to get healthcare by purchasing it from their state, but that tends to be very expensive. And individuals who have chronic health conditions will have even more difficulty. Overall, the best way to get good healthcare for a non-bank-breaking price is to get it from your employer.
Opolis, a digital employment commons, is one possible solution. It provides healthcare plans, retirement plans, and other “corporate” benefits for individual contributors.
However, those plans can be more expensive and difficult to set up and use, compared to a plan coming straight from your employer. And many contributors won’t want to take the initiative of setting up an LLC or paying the extra costs that come with non-employer-provided health insurance. Opolis is a great option, but it’s still very different from getting an all-in-one healthcare solution from your employer.
DAOs are far from being able to provide something like healthcare. But, they can take steps toward helping contributors find their best solution. Maybe they could walk new contributors through the Opolis process. Or, they could add healthcare to their long-term roadmap and look at steps they can take to get there, such as creating a legal wrapper.
Small steps are still important at this early phase of DAOs.
Retirement plans
Many employers in the U.S. provide a 401k match, meaning they put the same percentage of money you do into a retirement savings account. While 401k plans may not seem like a good deal for crypto yield farmers who are used to sky-high APYs, for non-crypto-natives who don’t feel comfortable riding the highs and lows of the volatile crypto markets, 401ks are a necessity.
The volatility of cryptocurrency makes them a risky place to put your entire stack of retirement savings into. But DAOs, well, they operate in the crypto realm. Unless DAOs go fully on the books, meaning they open a bank account and sign their contributors on with W-2 tax forms, providing a retirement plan could be really tough.
This is where we enter the messy crossover world of traditional work and DAOs, and there are more questions than answers.
Will contributors simply get used to not having the extensive benefits they were used to getting in a regular job? A generational shift in what your employer provides and doesn’t, maybe? Or, will the lack of benefits make it difficult for DAOs to get anything near mainstream adoption?
Or, could DAOs provide some kind of a crypto-native retirement plan in yield-earning stablecoins? Given the events of mid May 2022, I’d venture to say people will be avoiding stablecoins for a while.
Again, more questions than answers. Many DAO contributors today are very young, so they might not be thinking about retirement plans. But since your youth is the best time to start saving for retirement, it seems that this is a hole left open in the future of full-time DAO work.
DAOs could help contributors navigate setting up their own retirement plans separate from their employer. Maybe consultants could come in and support DAO contributors who need help getting started with IRAs. The solution for retirement saving as a DAO contributor looks like a mis-match of options right now, but I’m hopeful that crypto-native solutions will emerge in the near future.
Liability
Many DAO contributors hoped that DAOs could fly under the radar, separate from any taxation, operating as autonomous nation-like entities that skirt around any regulation. Unfortunately, the opposite is true.
Marta Belcher, a guest on the podcast DAOn the Rabbithole, talked about how “Earth law,” or the laws of the traditional, non-crypto world, still apply to DAOs even if we don’t want them to. Even though DAOs want to be above and separate from the law, they realistically need to play in the realm of “real-world” laws in order to survive without the ire of the legal system.
Today, DAOs are still trying to skirt the legal system. But what that ends up meaning is that all contributors in the DAO are liable for the actions of a DAO, as in a general partnership. According to Investopedia, “In a general partnership, partners agree to unlimited liability, meaning liabilities are not capped and can be paid through the seizure of an owner’s assets.”
That’s the reality of DAOs today: contributors’ assets could be seized.
If you haven’t already gleaned this, you need to have a considerable amount of trust in your fellow contributors that they’re not going to do anything that will get your DAO sued. And even if you do trust your fellow contributors, getting sued is not something you can plan for or predict.
What options do DAOs have?
They can be incorporated in crypto-friendly jurisdictions such as the Cayman Islands or Marshall Islands. Or, they could go the route of a Wyoming or Tennessee LLC. They could build a separate legal entity, such as a Swiss association, that handles contracts and agreements for them.
The options can be complex, but when it comes to protecting the liability of your DAO’s contributors, they’re necessary. Before making any legal choices for your DAO, I recommend reading a16z’s Legal Framework for DAOs.
Taxes
Taxation in DAOs has been a topic of discussion since before DAOs were in existence — just look at this Reddit thread from seven years ago. But the real-world realities are starting to creep in when it comes to taxation.
The taxation conversation is related to the legal wrapper conversation: no one wants to dive in, but it’s necessary for the safety of contributors and their assets.
Many DAOs today are flying under the radar, or off the legal books. But some DAOs are beginning to explore incorporation and legal wrappers — for example, MakerDAO has had discussions around how to create a legal entity to sign contracts and interact with other external entities.
If a DAO does become “legal,” how would their contributors pay taxes? Those contributors would likely be contractors, meaning they have to pay taxes with a 1099. The contributor is then paying for 100% of their taxes, rather than the 50% that they would pay as a W-2 employee. And this is yet another thing keeping contributors away from DAOs — contractors pay many more taxes than employees of traditional companies. If your DAO becomes an LLC but considers all contributors to be “contractors,” the tax implications are steep for those contributors.
But, if the DAO started giving W-2s to all the U.S. employees, things would get very complicated very quickly. How would the DAO handle taxes and compliance when they have contributors from all over the world, without completely draining its treasury? What about contributors who work in multiple DAOs? And where will DAOs choose to be based if they are accommodating people all over the world?
Things are messy — there are no easy answers. But the sooner you plan your DAO’s legal framework, the better off your contributors will be. It’s likely easier to start a legal framework with a smaller group of contributors, than to go backwards and do it with a large, sprawling DAO.
What does the most boring DAO, that *might* have the top contributors, look like?
This DAO has a legal wrapper. It pays taxes and does all of its financing “on the books” so contributors are never uncertain of where they stand or if they’re safe.
This DAO might not have a token, to avoid the securities issue. Or it might have a token that it distributes on a more limited, secure basis. Instead, it might do NFT voting or have a whitelist of addresses that can vote (such as the DAO’s members).
This most-boring DAO would help their contributors set up Opolis or some other healthcare system. It would have sessions to help young contributors set up their IRAs, or maybe start exploring a crypto-native solution.
This “boring” DAO also could have the top contributors in the ecosystem. It hosts a diverse array of contributors, not just those who can take the financial and legal risk.
Because being boring can pay off, right?
No one wants to be boring, until they need to be
Builders in the web3 space often don’t want to look at the boring parts of DAOs. But to bring in more diverse contributors with unique skill sets, they will have to dive into all the boring stuff. And once regulation enters (which could be sooner than we think), the boring side will be absolutely necessary.
Best of luck with cultivating your boring side!
Resources on the boring side of DAOs:
A Legal Framework for Decentralized Autonomous Organizations (pdf) by a16z
Legal Issues in DAOs, DAOn the Rabbithole podcast episode
Legal Entity Solutions for DAOs, Decentralized Law interview with Adam Miller
Samantha is on the writing and communications team at Aragon. She writes the Quorum newsletter, which is focused on the human side of DAOs.
