DAO legal structure and regulatory challenges: Navigating the uncharted territory

Karolina

18 May 2023
DAO legal structure and regulatory challenges: Navigating the uncharted territory

In recent years, the blockchain space has experienced a surge in popularity for Decentralized Autonomous Organizations, also known as DAOs. Operating through smart contracts on blockchain networks, these organizations are designed with transparency, decentralization, and autonomy in mind. The potential of DAOs to revolutionize traditional business and organizational models exists, yet it also brings forth distinct legal and regulatory issues. With the growing popularity of DAOs, it has become crucial to establish legal frameworks that regulate their functioning, creating a need for a clear "DAO legal structure."

Nonetheless, the legal aspects concerning DAOs are intricate and demand an in-depth comprehension of both blockchain technology and conventional legal systems. Presently, the prevailing legal frameworks for classic business entities such as limited liability companies and corporations do not directly apply to DAOs. This situation poses a challenge for regulators and DAO operators since there isn't an evident legal precedent concerning DAOs. In the following section, we will delve into the existing legal frameworks for DAOs. 

DAO Legal structures

DAOs utilize decentralized networks yet often need a legal structure for compliance and traditional system interaction. Various structures are available, each with unique benefits and factors. Common DAO legal structures include:

  • Limited Liability Company (LLC): By forming an LLC, a DAO gains a defined legal framework and limited liability for members. It enables participants to establish ownership, roles, and responsibilities while maintaining legal protection.
  • Cooperative Association: As another alternative, forming a cooperative association enables members to collectively own and operate the DAO. This model promotes democratic decision-making and profit-sharing, adhering to cooperative principles.
  • Non-Profit Organization: Philanthropic or community-focused DAOs may adopt a non-profit structure. This allows them to pursue charitable goals, access tax-exempt status, and use existing non-profit regulations.
  • Foundation: Some DAOs choose foundation structures, prevalent in crypto and blockchain fields. Foundations offer governance, resource allocation, and community management frameworks while pursuing specific goals like developing decentralized tech or promoting causes.

It's crucial to understand that each legal structure's suitability for a DAO depends on its objectives, jurisdiction, and operations.

Would you like to read about Smart Contracts Security Audits? Be sure to check out our article!

The advent of Decentralized Autonomous Organizations (DAOs) has been met with varying legal responses across the globe. Wyoming led the charge in the United States by recognizing DAOs as limited liability companies (LLCs) in 2021. This ground-breaking move has since inspired other states like Tennessee to revise their corporate codes to include provisions for decentralized organizations.

Switzerland, known for its forward-thinking approach to cryptocurrency and blockchain regulation, has also considered recognizing DAOs as legal entities. The Swiss Federal Council has pondered creating a unique legal entity specifically for DAOs, which could help integrate them within the purview of Swiss law.

Meanwhile, the Island of Jersey has introduced a hybrid entity – the Jersey Limited Liability Company (LLC), inspired by the LLC models of Cayman and Delaware. These LLCs are increasingly being used as legal wrappers for DAOs, effectively merging conventional legal structures with decentralized organization models. This innovative approach allows DAOs to benefit from the well-established legal structure of LLCs while simultaneously leveraging the advantages of blockchain technology and smart contracts.

In the United Kingdom, the government has tasked the Law Commission with the responsibility of studying DAOs. Given their growing relevance in the crypto-token and decentralized finance sectors, understanding DAOs' unique characteristics and potential legal implications is critical. The 15-month study aims to understand DAOs' legal treatment under English and Welsh law, their structure, and operation, along with potential legal barriers. The project aligns with the UK's broader ambition of becoming a global hub for crypto-asset technology, and clarifying the legal status of DAOs within the UK is an integral part of this vision.

For more on the legal aspects of Dao, read this

Are you wondering what legal structure to give your DAO? Read these questions, they may help you think through important issues

Should you form a DAO?  If your project doesn't require blockchain and decentralization, creating a DAO may not be beneficial, and another organizational structure could be more appropriate.

Is a legal entity structure necessary for your DAO? Legal entities often possess greater capabilities than those without entities. Some benefits include: managing community-controlled treasuries with ease, owning assets and intellectual property, employing people and generating income, and collaborating with external organizations. Essentially, legal entity status grants a DAO legal existence, reduces participant liability, and assists in determining and fulfilling tax obligations. Although no perfect legal entity structure exists for the majority of DAOs, selecting an appropriate one can help reduce risks.

What kind of DAO are you creating? The DAO's purpose will frequently direct the most fitting legal structure; however, no universal solution exists. A network/protocol overseeing DAO may not be adequate for other types of DAOs. Investment-focused DAOs might fare well as LLCs, similarly to numerous existing investment clubs. Collector, social or charitable DAOs could function better as LLCs or UNAs based on their specific circumstances. Meanwhile, cooperative and collective DAOs might find LCAs suitable—a format utilized by many existing co-ops. When determining a DAO's legal entity, referring to frameworks for existing analogues can be helpful.

In the case of network/protocol DAOs, consider the following: does significant U.S. membership or activity exist? Does the DAO control network/protocol income or a treasury? If none of these factors apply, an Entityless structure might be a suitable choice. However, if any one of these conditions is met, the DAO's activities may lead to U.S. tax obligations for the DAO or its members. Opting for U.S. entity structures is recommended as the most straightforward method of satisfying these obligations.

For the visually oriented, here’s guide in the form of a decision tree made by a16zcrypto

Conclusion

The global adoption of Decentralized Autonomous Organizations (DAOs) has begun to impact existing legal frameworks. As DAOs gain popularity, it becomes increasingly essential to establish clear legal structures that accommodate their unique characteristics. Although the traditional legal frameworks for business entities do not directly apply to DAOs, multiple legal structures such as LLCs, cooperative associations, non-profit organizations, and foundations can still provide some compliance and interaction with conventional systems. Innovations in legislation, like those seen in Wyoming and Jersey, demonstrate growing efforts to integrate decentralized organizations into existing legal contexts. While countries like Switzerland and the United Kingdom explore the possibility of new legal entities or study existing laws' adaptability, it is evident that DAO's legal and regulatory landscape is constantly evolving. Stakeholders must remain informed of these developments to navigate the uncharted territory of DAO legal structure and regulatory challenges successfully.

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AI in Real Estate: How Does It Support the Housing Market?

Miłosz Mach

18 Mar 2025
AI in Real Estate: How Does It Support the Housing Market?

The digital transformation is reshaping numerous sectors of the economy, and real estate is no exception. By 2025, AI will no longer be a mere gadget but a powerful tool that facilitates customer interactions, streamlines decision-making processes, and optimizes sales operations. Simultaneously, blockchain technology ensures security, transparency, and scalability in transactions. With this article, we launch a series of publications exploring AI in business, focusing today on the application of artificial intelligence within the real estate industry.

AI vs. Tradition: Key Implementations of AI in Real Estate

Designing, selling, and managing properties—traditional methods are increasingly giving way to data-driven decision-making.

Breakthroughs in Customer Service

AI-powered chatbots and virtual assistants are revolutionizing how companies interact with their customers. These tools handle hundreds of inquiries simultaneously, personalize offers, and guide clients through the purchasing process. Implementing AI agents can lead to higher-quality leads for developers and automate responses to most standard customer queries. However, technical challenges in deploying such systems include:

  • Integration with existing real estate databases: Chatbots must have access to up-to-date listings, prices, and availability.
  • Personalization of communication: Systems must adapt their interactions to individual customer needs.
  • Management of industry-specific knowledge: Chatbots require specialized expertise about local real estate markets.

Advanced Data Analysis

Cognitive AI systems utilize deep learning to analyze complex relationships within the real estate market, such as macroeconomic trends, local zoning plans, and user behavior on social media platforms. Deploying such solutions necessitates:

  • Collecting high-quality historical data.
  • Building infrastructure for real-time data processing.
  • Developing appropriate machine learning models.
  • Continuously monitoring and updating models based on new data.

Intelligent Design

Generative artificial intelligence is revolutionizing architectural design. These advanced algorithms can produce dozens of building design variants that account for site constraints, legal requirements, energy efficiency considerations, and aesthetic preferences.

Optimizing Building Energy Efficiency

Smart building management systems (BMS) leverage AI to optimize energy consumption while maintaining resident comfort. Reinforcement learning algorithms analyze data from temperature, humidity, and air quality sensors to adjust heating, cooling, and ventilation parameters effectively.

Integration of AI with Blockchain in Real Estate

The convergence of AI with blockchain technology opens up new possibilities for the real estate sector. Blockchain is a distributed database where information is stored in immutable "blocks." It ensures transaction security and data transparency while AI analyzes these data points to derive actionable insights. In practice, this means that ownership histories, all transactions, and property modifications are recorded in an unalterable format, with AI aiding in interpreting these records and informing decision-making processes.

AI has the potential to bring significant value to the real estate sector—estimated between $110 billion and $180 billion by experts at McKinsey & Company.

Key development directions over the coming years include:

  • Autonomous negotiation systems: AI agents equipped with game theory strategies capable of conducting complex negotiations.
  • AI in urban planning: Algorithms designed to plan city development and optimize spatial allocation.
  • Property tokenization: Leveraging blockchain technology to divide properties into digital tokens that enable fractional investment opportunities.

Conclusion

For companies today, the question is no longer "if" but "how" to implement AI to maximize benefits and enhance competitiveness. A strategic approach begins with identifying specific business challenges followed by selecting appropriate technologies.

What values could AI potentially bring to your organization?
  • Reduction of operational costs through automation
  • Enhanced customer experience and shorter transaction times
  • Increased accuracy in forecasts and valuations, minimizing business risks
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Want to implement AI in your real estate business?

Nextrope specializes in implementing AI and blockchain solutions tailored to specific business needs. Our expertise allows us to:

  • Create intelligent chatbots that serve customers 24/7
  • Implement analytical systems for property valuation
  • Build secure blockchain solutions for real estate transactions
Schedule a free consultation

Or check out other articles from the "AI in Business" series

AI-Driven Frontend Automation: Elevating Developer Productivity to New Heights

Gracjan Prusik

11 Mar 2025
AI-Driven Frontend Automation: Elevating Developer Productivity to New Heights

AI Revolution in the Frontend Developer's Workshop

In today's world, programming without AI support means giving up a powerful tool that radically increases a developer's productivity and efficiency. For the modern developer, AI in frontend automation is not just a curiosity, but a key tool that enhances productivity. From automatically generating components, to refactoring, and testing – AI tools are fundamentally changing our daily work, allowing us to focus on the creative aspects of programming instead of the tedious task of writing repetitive code. In this article, I will show how these tools are most commonly used to work faster, smarter, and with greater satisfaction.

This post kicks off a series dedicated to the use of AI in frontend automation, where we will analyze and discuss specific tools, techniques, and practical use cases of AI that help developers in their everyday tasks.

AI in Frontend Automation – How It Helps with Code Refactoring

One of the most common uses of AI is improving code quality and finding errors. These tools can analyze code and suggest optimizations. As a result, we will be able to write code much faster and significantly reduce the risk of human error.

How AI Saves Us from Frustrating Bugs

Imagine this situation: you spend hours debugging an application, not understanding why data isn't being fetched. Everything seems correct, the syntax is fine, yet something isn't working. Often, the problem lies in small details that are hard to catch when reviewing the code.

Let’s take a look at an example:

function fetchData() {
    fetch("htts://jsonplaceholder.typicode.com/posts")
      .then((response) => response.json())
      .then((data) => console.log(data))
      .catch((error) => console.error(error));
}

At first glance, the code looks correct. However, upon running it, no data is retrieved. Why? There’s a typo in the URL – "htts" instead of "https." This is a classic example of an error that could cost a developer hours of frustrating debugging.

When we ask AI to refactor this code, not only will we receive a more readable version using newer patterns (async/await), but also – and most importantly – AI will automatically detect and fix the typo in the URL:

async function fetchPosts() {
    try {
      const response = await fetch(
        "https://jsonplaceholder.typicode.com/posts"
      );
      const data = await response.json();
      console.log(data);
    } catch (error) {
      console.error(error);
    }
}

How AI in Frontend Automation Speeds Up UI Creation

One of the most obvious applications of AI in frontend development is generating UI components. Tools like GitHub Copilot, ChatGPT, or Claude can generate component code based on a short description or an image provided to them.

With these tools, we can create complex user interfaces in just a few seconds. Generating a complete, functional UI component often takes less than a minute. Furthermore, the generated code is typically error-free, includes appropriate animations, and is fully responsive, adapting to different screen sizes. It is important to describe exactly what we expect.

Here’s a view generated by Claude after entering the request: “Based on the loaded data, display posts. The page should be responsive. The main colors are: #CCFF89, #151515, and #E4E4E4.”

Generated posts view

AI in Code Analysis and Understanding

AI can analyze existing code and help understand it, which is particularly useful in large, complex projects or code written by someone else.

Example: Generating a summary of a function's behavior

Let’s assume we have a function for processing user data, the workings of which we don’t understand at first glance. AI can analyze the code and generate a readable explanation:

function processUserData(users) {
  return users
    .filter(user => user.isActive) // Checks the `isActive` value for each user and keeps only the objects where `isActive` is true
    .map(user => ({ 
      id: user.id, // Retrieves the `id` value from each user object
      name: `${user.firstName} ${user.lastName}`, // Creates a new string by combining `firstName` and `lastName`
      email: user.email.toLowerCase(), // Converts the email address to lowercase
    }));
}

In this case, AI not only summarizes the code's functionality but also breaks down individual operations into easier-to-understand segments.

AI in Frontend Automation – Translations and Error Detection

Every frontend developer knows that programming isn’t just about creatively building interfaces—it also involves many repetitive, tedious tasks. One of these is implementing translations for multilingual applications (i18n). Adding translations for each key in JSON files and then verifying them can be time-consuming and error-prone.

However, AI can significantly speed up this process. Using ChatGPT, DeepSeek, or Claude allows for automatic generation of translations for the user interface, as well as detecting linguistic and stylistic errors.

Example:

We have a translation file in JSON format:

{
  "welcome_message": "Welcome to our application!",
  "logout_button": "Log out",
  "error_message": "Something went wrong. Please try again later."
}

AI can automatically generate its Polish version:

{
  "welcome_message": "Witaj w naszej aplikacji!",
  "logout_button": "Wyloguj się",
  "error_message": "Coś poszło nie tak. Spróbuj ponownie później."
}

Moreover, AI can detect spelling errors or inconsistencies in translations. For example, if one part of the application uses "Log out" and another says "Exit," AI can suggest unifying the terminology.

This type of automation not only saves time but also minimizes the risk of human errors. And this is just one example – AI also assists in generating documentation, writing tests, and optimizing performance, which we will discuss in upcoming articles.

Summary

Artificial intelligence is transforming the way frontend developers work daily. From generating components and refactoring code to detecting errors, automating testing, and documentation—AI significantly accelerates and streamlines the development process. Without these tools, we would lose a lot of valuable time, which we certainly want to avoid.

In the next parts of this series, we will cover topics such as:

Stay tuned to keep up with the latest insights!