DAO Legal Wrappers: Definition, Types, Jurisdictions, and Use Cases
Learn more about DAO legal wrappers, how they work and can be created. Discover the key legal wrapper forms and jurisdictions where they are available, as well as major frameworks and use cases
Definition of a DAO Legal Wrapper
A DAO legal wrapper – is a legal entity that a DAO employs to operate within existing legal systems, gaining separate legal personality, limited liability, and tax protection.
A well-designed wrapper essentially provides a legal framework for a DAO to interact with traditional financial and legal systems while maintaining their decentralized nature. Think of a legal wrapper as a company having its own rights and obligations, that is integrated with the DAO and its governance.
Types and Forms of Legal Wrappers
Not all organizational forms are suitable as legal wrappers for DAOs. Commercial structures like traditional corporations and LLCs require owners who hold ultimate governance and in whose interests the management is required to act, which contradicts the decentralized nature of DAOs.
Currently, several organizational forms, or legal person forms, can serve as DAO legal wrappers:
Foundation;
DAO LLC;
Association;
Trust;
DLT Foundation (ADGM UAE).
These forms can be further divided into the following two categories, depending on how the DAO wants the wrapper to be used:
To wrap the whole DAO – DAO LLC or DLT Foundation;
To wrap only specific activities of the DAO – Foundation, Association or Trust.
Each of these forms, except for the DLT Foundation, which is specific to ADGM (UAE), is available in different countries around the world. As each country has its laws and regulations, the specifics and peculiarities of the same wrapper form may differ dramatically across jurisdictions. For example, a Foundation in Switzerland will be very different from a Foundation in the Cayman Islands in terms of costs involved, taxation, governance, control, and flexibility.
Among the jurisdictions which are usually used as home for DAO legal wrappers are (the list is not exhaustive):
Switzerland;
Cayman Islands;
Marshall Islands;
British Virgin Islands;
Panama;
Singapore;
Hong Kong;
Liechtenstein;
Guernsey;
Wyoming, Utah (US).
Therefore, it is important to choose not only the legal form, but also the jurisdiction of the wrapper wisely, taking into account the specificities of a particular DAO, its requirements, goals, and the ways they want the legal wrapper to be applied.
DAO Legal Wrapper Use Cases
One of the main purposes for which DAO legal wrappers are created is to obtain legal, financial, and tax protection for DAO members, multisig controllers, and contributors. But this is only a small fragment of things a DAO can do with its legal wrapper.
The legal wrapper can be used by the DAO to manage those activities that cannot be carried out off-chain, e.g., hiring developers and contributors, making fiat payments and so forth. The wrapper can be further used to hold, manage and protect property, such as virtual assets, IP, code, trademarks, domain names, etc.
The most common DAO legal wrapper use cases include:
Entering into contracts;
Engaging in real-world transactions;
Holding and protecting intellectual property, trademarks and domain names;
Owning and managing property and assets, including crypto, fiat and even real-world assets;
Having a bank account and access to fiat payments;
Engaging and managing contributors and personnel;
Issuing grants and similar incentives;
Engaging auditors;
Managing services, subscriptions, and infrastructure (cloud, service subscriptions, socials, etc.);
Improving overall reputation and appearance;
Fuelling decentralization of the whole organization.
In reality, the use cases for the wrapper are remarkably diverse, implying that it can essentially serve any purpose that the DAO deems necessary.
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