Decentralized Autonomous Organizations and Policy Considerations in the United States

Executive Summary

Decentralized Autonomous Organizations (DAOs) can be defined as global, digitally-native organizations which enable people to coordinate and govern shared resources and activities through the use of smart contracts on blockchains. The explosive growth of DAOs since 2020 has led to experimentation, speculation, and investment in this emerging organizational framework. There are an estimated 6,000 DAOs as of June 2022, with participation from contributors around the world and an aggregate treasury value of an estimated $25 billion.

While the web3 space has been marred by scams and bad actors, there are legitimate use cases for DAOs.

Early applications include focuses on fractionalized ownership and control, incentive alignment, resilient operations, and collective action. DAOs demonstrate innovative potential and are producing new forms of tax revenue and employment for the U.S. States have taken various approaches towards legislation, including establishing a DAO LLC.

The U.S. government needs a comprehensive strategy for addressing DAOs as novel organizational structures to retain domestic innovation and protect consumers. Future policy solutions should consider the following:

• DAOs have technical and operational uniqueness that should be taken into account by legislators and regulators.

• The United States must provide legal clarity to retain domestic innovation.

• The friction of existing organizational formation should be reduced and adapted.

• A multi-pronged approach is needed across the federal-level, state-level, and industry self-governance practices.

This report aims to serve as an accessible primer for United States policymakers to understand the unique opportunities and challenges DAOs present, and how these organizations may be addressed in the regulatory landscape of the U.S.

The first section of this report establishes the societal context in which DAOs have emerged, with an emphasis on the trends in organizational frameworks and working conditions to which DAOs respond. The second section describes the underlying technical and structural components that DAOs are built upon. The third section outlines the key purposes and applications of DAOs and shares findings from case studies and semi-structured interviews with 12 DAOs and 20 DAO contributors. The final section provides an overview of existing legislation and concludes by outlining directional considerations for policymakers.

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