Olga Mack Interviews Adam Miller
Olga: Hi everyone. Welcome to Blockchain Value. So excited to speak to you in 2023. It's our first episode and it is very exciting. We'll be talking about DAOs, what they are, what they aren't, and how they live in the legal world. I have a fantastic guest. He is passionate about DAOs, he's very knowledgeable. Um, I am a fan of his work and, um, welcome Adam to the show.
Please introduce yourself, .
Adam: Thank you so much, Olga. It's awesome to be here. My name is Adam Miller. I'm a founder and I'm the c e O of my dao, which provides legal entity solutions for.
Olga: Really cool. Um, what does that mean? What, what, what is a DAO and what is a legal entity solution? What, what, like, unpack those words for me.
That's a lot of words. .
Adam: So we could have an awesome debate about what exactly a DAO is, but I'll give you our official definition, which is that a DAO is an organization. that uses the blockchain for its governance, membership tracking, and or treasury management. So we're really focused on the, the technology and the mechanism that's used for those three things.
And we can dig into that more, but what a legal entity solution for DAOs is. So a DAO is not a legal term, right? A DAO is a type of organization, it's a way of running an organization, um, just like other. Dows need legal entities in most cases, not all cases. So everyone knows that when you start a company, one of the first things that you do is you create a corporation or an llc or a foundation, some kind of legal form for that company.
Um, and we don't even think about why we do it, but we know we do it. The same is true for Dows. Uh, most Dows also need to form a legal entity when they get.
Olga: Not illegal advice, but I can tell you why you do it. You protect yourself, your assets, your future, your children, your wellbeing, you know, your, your, your peace of mind.
Uh, so there is a reason why, uh, we incorporate, you know, incorporation as our L L C. , uh, it really is a function to that allows you to move through business world freely and not worry about your house, for example. Okay. Um, and, and that's the reason to do it. So that's really interesting. Let's unpack it a little bit because, you know, you know, Dao the way you define it, which is, you know, fairly standard definition sounds like it basically works as a corporation, you know, it has governance, you know, um, it has some sort of mechanism to enforce.
But what you're saying, it is not a legal entity, right? What you're saying is that the law does not recognize the piece of code. As a corporate structure, that's effectively what we're working with, correct?
Adam: Yeah. So whether you call yourself a Doo, a company, an association, or you might call yourself a peanut if you want to, if you're a group of people that's engaged in a common enterprise together.
The law almost everywhere in the world, if not everywhere, sees you as an asso, a, a freely associated, um, association or a general partnership, and so that that subjects you to default legal and tax treatment that you might want to avoid.
Olga: and most importantly, likely, again, not legal advice, not give you the protection you want for you yourself, for your family, loved ones, and you know, to make sure you have shelter and peace of mind, uh, beautiful things that law allows you and to encourage commercial activities in the world.
Um, and it, and. , it's pretty much true anywhere in the world, correct?
Adam: Yeah, it's pretty much true everywhere in the world, um, at least throughout the western economy, which includes much of the rest of the world as well. Um, the concept of, of a legal entity is pretty consistent and no matter where your legal entity is based, um, virtually every, uh, part of this, of the modern economy.
We'll respect that legal entity and thus, it will protect you from the unlimited liability that Olga is talking about, which is that if you don't have a legal entity and your business, your company, your association, your peanut gets sued, the they can come after you for your own personal assets. And, and that's really what you wanna avoid.
First and
Olga: foremost, keep your peanuts away from your assets. , I love that. I, I may, I may adopt that as a tagline.
Adam: Um, Protect your ass, protect your assets. , that's not our official tagline. Maybe it should be . Yeah,
Olga: no, I love it. I totally, I I love it. Um, I'm not sure if I did somewhere between the peanuts and the other reference.
I don't know. I have to think about it. Um, , Adam, I do wanna talk to you about sort of feature of organizing a little bit more about what DAO is, but I actually wanna situate folks. Who you are. Like how does somebody like you get to, I don't know where you are today, what was the cynic route to web threes?
Dallas specifically? Mm-hmm. . How did you get there?
Adam: So I discovered Bitcoin in 2012 because I heard about the Silk Road and I wanted to check out the Silk Road. We'll leave it at that. So I had to buy Bitcoin in order to see what the Silk Road was all about. For those of you who don't know, the Silk Road is a black market.
Everyone went to jail. It's not something we wanna go into a lot of detail about. Um, but I wanted to check out the Silk Road, which was on the dark web. So I had to buy Bitcoin and I bought Bitcoin at $8, $10, $12. And at that time it was exploding in value. So right away I got really interested in Bitcoin too.
I begged my friends and family to buy Bitcoin at that time, and luckily I bought. One family member had three friends, uh, who bought Bitcoin in 2012. Thanks to me. After that, I kind of lost interest to be honest. Um, it wasn't until about 2020 that I recognized the truly amazing innovation that was happening with blockchain technology, especially with Ethereum.
And of course now there's even many more blockchains and approaches aside from even Bitcoin and Ethereum. But it was seeing what people were doing with NFTs and eventually Dows that, that, that I. Just completely obsessed. I mean, to me, blockchain at Web three, especially DAOs, they represent the future of how we organize ourselves as civilizations, as societies, as cultures.
Um, this new layer of capabilities that. Enables us to organize ourselves in, in new and novel ways that we probably can't even imagine today how they're gonna be used in the future. That's when I said, oh my goodness, I have to devote my life and my career to blockchain, to Web three, to Dows. So the first thing I did was I started a consulting company thinking, um, I'll consult for dows and through this consulting I'll figure out what their biggest needs are, and I'll build technology to meet those needs.
But one of the DAOs I was consulting for, Needed a legal entity because to us it just made sense. Again, like every business needs a legal entity, and we started looking around and saw that there were no good legal entity options available. So that's what led us to reach out to our friends in the Marshall Islands and the government of the Marshall Islands to say, Hey.
Maybe there's an opportunity here to, uh, do something new. So what we ended up doing was, uh, passing a law that's similar to what was done in Wyoming in the United States, but with the benefit of the Marshall Islands being a sovereign nation, not a state within the United States, um, we could do a lot more.
Uh, so that's what eventually led us to pass this law, start the company called my D O M I D A O, uh, to commercialize this new digital asset digital organization, digital organization regulatory framework in the Marshall Island. .
Olga: Okay. Okay. Lot to unpack. Let's treat people. I don't know. Let's treat people where Marshall Islands are.
Where, where is that ?
Adam: Good, good, good idea. So it's in the South Pacific. Um, if you flew from Los Angeles to Honolulu, that's about five hours. And then if you went about another five hours in this, Same direction you'd hit the Marshall Islands. It's one of the first Island nations you'd actually hit coming from the United States.
If you went past the Marshall Islands, you'd start getting to Guam, uh, F S M, which is federated states of Micronesia, Palau, tu, and many more island countries.
Adam Miller, MIDAO, The IRS Is After Me_ Why You Should Incorporate Your DAO: Yeah,
Olga: I think when I looked on the map I was like, between Hawaii and Philippines. . That's, that's what we're talking Yes. In Australia. That's what we're talking about.
Yes. In Australia. Somewhere in that. So not a bad place. Uh, really not a bad place. Beautiful. Um, . It is absolutely gorgeous. I've never been, um, Island, island nations are a little bit hard too to visit. Mm-hmm. , um, . Very interesting. Let's talk about you. You've mentioned a couple of things. Um, I wanna talk about Silk Road because I, if, if you're interested in his, in history, read it up.
Mm-hmm. , it's, it is definitely gonna be an iconic moment that we should never repeat in the history of web three or internet. Um, and we can learn from moving forward from that. You mentioned that this is gonna be a future of the way humans organize civilizations change. and really we get stuff done. Tell me more.
Tell me why. You know, is it all the time? Is it in some use cases? When is doo good for what is sort of virtues, uh, to take advantage of? With why, why, why doo, I guess .
Adam: So let's briefly, uh, revisit the beginning of human history. Um, many of you have probably read the book called Sapiens. Which is, is a really fascinating, um, investigation of human history.
And in that book, the Author makes, uh, the author is no, uh, Noah Yuval Harari makes a compelling argument that what makes humanity such a dominant force on earth. And what leads to all of our success, it's not our individual capabilities, right? We're not the fastest animal on earth. We're not the strongest.
We don't have the biggest clause. Um, what makes us so powerful is that we collaborate with other humans in a really effective way. And so that started with just. Natural, organic, you know, groups of up to 50 people or a hundred people. There's, there's that number of, like, the most number of people that, that can naturally organize together without just, you know, disintegrating into fights.
But then beyond that, we, we started, uh, inventing new forms of organization, right? It starts with tribes and then it goes to things like agriculture and how agriculture. Society and then you get to religion, which is one of the biggest forms of organization ever invented by humanity. And eventually you get to cities and city, states and countries.
More recently, a couple hundred years ago, you get to the limited liability company like the Dutch East Indies Company and how much economic innovation was unleashed by just the concept of limiting liability of a group of people that organizes together. And the Joint Stock Corporation where people can own, you know, small percentages of a company.
And then about 50 years ago, the l l C was invented, which now is the most popular form, um, of, of, of companies that are, are registering as legal entities. That was just 50 years ago. Fast forward to today, DAOs are another great innovation on the scale of all of these other innovations that have happened throughout the history of humanity.
So this is like one of the top 10 inventions. And the reason for that is that it's, it, it, it introduces a. Less expensive, more transparent, and much more scalable way to organize people. So think about, a really good example is like Constitution Dao, right? Not the most effective Dao. They didn't end up achieving their goal, but Constitution DAO was able to organize millions of people raised 50 million and, and introduce a governance structure in one.
There's no way with a traditional company that you could start a company form a legal entity, bring on a million shareholders, maybe it was a hundred thousand shareholders and raise 50 million into some kind of governance structure in one week at, at, at least that takes months, if not years. So, so that's.
Olga: Yeah, go ahead. I, no, I love it. You just took us on the, on the journey from tribes to, you know, religion. You know, we skipped over inquisitions to the, the best part of all LLCs. Um, and, and, and the, the way they encouraged. Of commerce. And you know, the, the thing to point out is that LLCs, there's nothing natural about them.
They do not exist in nature. They're entirely human creation. They're legal creation. They create, they are creatures of statute, right? And, uh, had they not been created, they would not exist. There's nothing natural about them. And unlike LLCs that are already created, recognized, and now have 50 years history, which is a short history in the grand scheme of histories.
Things like those are actually today are purely technology. They may sound like technologies that have governance and pieces that LLCs have, but in fact there are very few countries that, if any, right, that actually recognize them as. The legal structure and, and that's the problem you're trying to solve?
Adam: Yeah. That the problem we're trying to solve is that a DAO cannot easily fit into a traditional corporate corporation or l l c legal wrapper. And so DAOs were left with nowhere to go if they wanted that liability protection. If they. To pay their own taxes rather than i r s going after the individual Dow members for their taxes if they wanted the ability to enter into contracts, sign agreements, own property.
All of these things require a legal entity and are things that DAOs will probably want to do, but DAOs just don't fit into the traditional L L C, and that's why we created the Dow l l c.
Olga: and why not? Um, do, do you have any thoughts on, uh, you know, why, why, you know, one beautiful creature cannot be part of another beautiful
Adam: creature,
Yeah, absolutely. So it comes down to just a couple of things. One is the, uh, record keeping requirements that most corporate entities require. Things like, uh, keeping a written record of all of your members' names and addresses, having a written record of all of your meetings and your votes. I mean, think about for a Dao, anyone who's part of a Dao knows that all that stuff takes place on the blockchain.
There's no reason and no interest in keeping a written record of everyone's name and address. Um, even, uh, simply, uh, a written record of all of the votes, right? The record's on the. So we needed laws to say, that's okay. You can do your governance on the blockchain. By the way, this is Goldie. You see, uh, burrowing in the bed behind me.
I have to say, I can't
Olga: do my, I mean, he is like, I dunno. I'm staging you, man, Adam. Competition. It's not me. He's doing it.
Adam: I'll, I'll unblur so that people can really take a peek at Goldy. Very cute .
Olga: He is really having a good time with those pillows. Man. She loves it. I'm, I always thought, hi, love you, Adam, but now with a dog, you reason, like, you've definitely
Adam: listen , anyone who's coming to eat Denver and all the great side events like Dow, Denver.
Goldie's gonna be there with me. She'll be with me on stage when I'm speaking. She'll be with me at my age. And she's a girl.
Olga: She's just girl. Goldie's a girl. Oh, you've definitely reason now. .
Adam: She's the sweetest. Thank you. . So, I mean, the, the, the, that alone is, is enough of a reason why a DAO is not gonna wanna use a traditional legal wrapper.
Um, but there's other small things that go into, you know, the way that, uh, DAOs operate that are different from how traditional companies operate, that you wanna know that whatever jurisdiction you're registering, you're dow I is actually not just, uh, it's possible to be a Dow there, but that they want DAOs as part of their legal system and they're gonna develop Dao friendly laws and further dow uh, friendly regulations that you'll be able to take advantage.
Olga: I love it. Um, let's talk about things that, you know, if you are sort of purist in, in, in, in the world of web three and blockchain, you know, this thing called decentralization, whatever the heck that means, uh, and, and depending how purist you get there, you know, all of that sounds wonderful and good, but the beauty of Dao is that, you know, it's technology, it's automated.
You don't have to be off chain, you don't have to keep records, you don't have to do, you know, the last. Stuff you can embrace the 21st century and now you're telling me we actually gonna anchor it in a traditional, you know, how else traditional 50 year old institution can be, um, in this scheme of things, , um, Well, what does it do to the centralization?
Does that really pose a challenge? Um, do, do, do you struggle with that?
Adam: You know, I think any group of people that is collaborating on something, there's the risk that they're going to centralize in the way they operate, right? Some people will become louder or more popular. Uh, have more governance rights or have more influence over how other people vote, that that's maybe, um, unavoidable.
But I actually think a legal entity can help you avoid that because with a legal entity, what you're doing is you're writing down the rules of the organization in a way that not only will they be enforced on the blockchain, but if people try to break those rules off chain, you can hold them accountable.
And so having a legal entity, I think can actually help you solidify the decentralization of your organization. Now, when you leverage that legal entity to do things like have a bank account, that bank account certainly is centralized, right? That's tra fi. Um, and so those assets may be, um, more at risk in, in the way that traditional central.
Things are at risk, but you don't have to put all your money in a bank account, right? It's just an easier way for you to interact with traditional, you know, the traditional world. Let's say you wanna buy a booth or sponsor a trade show. Now you have a bank account. So you can write a check and you have an entity.
So you can sign a contract, but that doesn't mean you have to do most of your activity off chain. It just means you can when you want to.
Olga: I love it. Um, very interesting explanation. Let me, let me think about, I need to process it. Um, I'm, I'm, I need, I, I'm still keeping up with you on that one, . Uh, but we'll talk about something that you're gonna have to keep up with me.
Let's talk about jurisdiction. I know that one really well. So let's talk about jurisdiction. So you incorporate in Marshall Island, um, that, that recognizes DAOs. Is, is, is that kind of the law That was.
Adam: Yeah, so the, the law that was recently passed is called the Decentralized Autonomous Organization's Act of 2022 was actually passed on Thanksgiving here in the US but not Thanksgiving in the Marshall Islands.
And, um, that's the law that, um, both explicitly, um, reduces some requirements, introduces some new requirements that that work for. Uh, instead of the old requirements, it also creates default treatment for important things that we need to make sure DAOs put into their operating agreement. So, for example, if a DAO doesn't describe how its membership tracking works, and its governance works, the default treatment is that whatever token that Dow uses will represent governance rights.
And for every token you have, you'll get one vote. And so that way, if for some reason AO doesn't. Describe how their governance works, at least you have that default treatment. What that's really doing is telling DAOs, you should put this type of information in your operating agreement, which is how you do your membership tracking and how you do your governance.
And so if you look through the law, you'll see a number of default treatments that are basically like a guide to how to set up your governance, right? You need to make a decision about quorum. You need to make a decision about membership tracking, about governance rights, about joining the DAO and leaving the dao.
So all of those things go into the. Uh, and,
Olga: uh, and, and into the conversations with your lawyer when you incorporate, because what, what's happening with your lawyer is your lawyer essentially takes you through the questionnaire. This is if we do nothing, this is, this is where you are. Do you love that? Do you not hear your options?
Right? So you what I think you essentially default. That's the beauty about default is that, um, they. Force one, um, results and two conversations if, if you want to intentionally change your future. Yeah.
Adam: And, and they tell you that that what the default talks about is an okay way of doing things, right? So in a lot of jurisdictions, um, you know, there's no mention of governance tokens, right?
In, in any traditional legal, um, corporate framework anywhere in the world. Right now the default treatment talks about governance tokens. And so, you know, it's okay to have a governance token and that even if you end up in court, there's a legal statute that says it's okay to have a governance token, and it's called a governance token.
And so there, there's a lot of gray area that, um, people all over the world are, are, are deep in, in terms of, you know, tokens and securities laws. Um, so it can be helpful to have clarity on something like what a token is. .
Olga: Yeah. Well, web three is full of places where we can benefit from clarity . Mm-hmm. . But maybe that's outside the scope.
Let's talk about sort of, cause I do wanna talk a little more about jurisdiction, uh, when, what jurisdiction is currently recognizing Dao besides Marshall Island and I. And, you know, you're not a lawyer and I'm a, I'm a lawyer who is not practicing in Marshall Island, so not legal advice at all. Mm-hmm. , uh, take that and consider it to be entertainment, um, an educational value.
Um, how do you, how do you, how do you choose if there are choices? What are, what are my
Adam: choices? Yeah, it's, it's a great question. So, Um, the only jurisdictions in the world that I'm aware of that have created DAO specific legislation are states in the United States, such as Wyoming and, and the, the country of the Marshall Islands.
Now, that doesn't mean that there are not DAOs that are looking at leveraging other types of legal entities around the world. Especially we hear about the Cayman Islands, Switzerland, and the British Virgin Islands, and sometimes Panama. Now, in all of those locations, what these DAOs are probably creating is actually a found.
Right. Not an L L C. And the downside of a foundation is that it has board members, it has trustees or officers. And in most of these jurisdictions, you're also required to hire a local independent director to sit on that board. I
Olga: love that. Pause for a second. The downside of your foundation is the board members
Yeah. Right. Which, Yeah, humans is a problem. But, but that's a sort of a traditional, it's basically foundation is essentially a form of corporation. Yes. It's, and it, and it's exactly that operates in the same way and, and things like Ethereum. Is, uh, have foundations. So that that is, that is not a small thing.
That is actually a fairly widely accepted way to set up a Swiss foundation to govern yourself to deal with this problem. So this is actually, you, you could even say that that's default way of doing things.
Adam: I, I would say, not for DAOs, but for, for crypto projects. Yes. Yes, yes.
Olga: Thank you for that clarification.
Yes, you were absolutely right and you're a really good junior lawyer in training .
Adam: I know I'm learning a lot about law, but it's good to remind people that my DAO is not a law firm. I'm not a lawyer. We encourage our clients to also have a lawyer and a tax advisor. Um,
Olga: man, that disclaimer, look at that disclaimer.
You were like,
Adam: disclaimers are, are important.
Olga: You're up in the world, .
Adam: Yeah. And, and, and I mean, disclaimers are really important. You know, I think people almost just ignore them. It's like a cliche cuz you hear it in every podcast, every show. Um, but it's important for two reasons. One is, you know, you need to know that the person you're talking to is not trained in all of the issues that are gonna be important.
To your, your, the legal issues that your, your organization faces. The other thing is that a lawyer is required to really get to know the specifics of your situation and then only give you advice once they understand everything that's involved. Right. Whereas you talk to a registered agent like us, I can tell you what I'm seeing, what all of our other customers are doing and what all the, the hundreds of DAOs I've talked, I've spoken with, I can tell you what, what I've heard their lawyers say, but even that isn't, you know, customized legal advice for your particular situ.
Oh, you're muted. Uh, OCO, you're on mute.
Olga: Oh, uh, we're coming to the end and we've had a great conversation. And, and thank you for pointing out that I was on mute. Um, . You're welcome. My, my, my house is being cleaned and my, my cleaners are unstoppable and thank God, because I need help. Um, so, but that also means I have a vacuum machine right behind my door that, that's making noises.
Let's talk about DAOs. You know, we talk about, you know, obviously they're useful for your crypto project, your blockchain, your DAO project. But say you are, I don't know, a public company you listed on nasdaq. Is that at all something you should, you know, explore, consider, think about.
Adam: Yeah. So I think in 2023 we're gonna see a number of Fortune 500 companies, uh, release DAOs to the world.
But these DAOs are not gonna be governing the company, right? Starbucks is not gonna turn over its corporate governance to a dao, but Starbucks will create a DAO for its customers and for its community. Um, and so that's doing, I mean, imagine like you can have a newsletter. Your customers can join, you can have a discussion forum, 'em, or you can actually invite your customers to actually take part in governing something, right?
Maybe voting on future product direction, maybe a share of Starbucks profit goes into the DAO and the, the community gets this. It's, excuse me, it gets to decide how that money gets used. So there's a lot of reasons why DAOs, I think, will be popular for marketing purposes and customer engagement, community engagement purposes for large existing companies.
Um, eventually
Olga: we see that, right? We see. , there are examples of that already happening. This, this, this, the prediction is of explosion, not not, but it's already observable in, in, in the wild. Right.
Adam: I've heard of people announcing that they're doing it. I haven't actually seen concrete evidence of this happening.
So for example, I heard about Starbucks doing an N F T and the NFT makes you a member in a dao, but I haven't actually confirmed that there's actually a Dow and that anything's actually happening that makes it truly a Dow as opposed to just saying there's a. .
Olga: Okay. But that's it. But that's very forward.
And by the way, Starbucks has a very enlightened board, actually have members of the board who, you know, under 40. Um, and, and, and so this, and, and it makes sense. Starbucks is a product consumed by folks not, you know, just over 60 or 70 with, with degrees and everything. So it actually makes sense for consumer facing product.
There's a really good way to. Governance that is more inclusive, you know, across, you know, yeah. Various demographics characteristics, because their product, you know, sells to many kinds of people, so it makes sense. Mm-hmm. , and it's, and it's un unfortunate when, you know, companies like that have governance that only.
includes, you know, cert, let's just say certain kinds of people, . We all know that, we all know what that means, , but that's not a subject of the conversation. Mm-hmm. . Um, so that is definitely a way, marketing purposes or frankly, you know, feeling that you, you, what you consume represents you. Um, is, is is one way to do it.
Yeah. Let's talk about voting. How will that work? Um, and, um, and what, what are we seeing today?
Adam: Yeah, so I mean, actually I think there's a, an even broader issue that's worth discussing in, in, in the DAO community. So all of the, say, tens of thousands of DAOs that are out there. What I'm seeing most commonly is people who are reacting to the traditional corporate world that everyone's used to and saying, now we have a way to do things differently, so we're gonna do things completely differently.
Right. They're saying we're only gonna use do. Technology and DAO approaches. We're gonna have no management team, no board, uh, no hierarchy. Everything is gonna go to a vote of all of the members, and we don't wanna have people who control too much of the Dao. So p people are really reacting and they're saying, we're gonna do the opposite.
I think actually the future of DAOs is a future where we say, DAOs are bringing this new set of capabilities to the table. Right now you can do membership tracking by tokens, which, which existed even before DAOs were popular, right? Comes from blockchain. Now we can do governance using tokens as the proof of your, of your voting power, right?
Whether it's N F T or otherwise. And we can transparently and instantly calculate the results of votes at scale and prevent fraud. Okay? And then finally, now we can control money on chain so we can control a treasury directly from a governance process. Okay? Those are the new. But what's gonna be really amazing is when people start combining the old stuff with the new stuff and they say, how can we maybe run an organization that maybe does have a hierarchy?
Maybe it does have a board, maybe it does have a C E O, right? We see sushi hiring a head chef, which sounds a lot to me, like a C E O, and a lot of people are reacting against that and saying, well, maybe sushi DAO isn't really a Dao. But actually I think they're onto something. And what we need to see is people taking some of the old, some of the new, putting it together in novel ways.
And that's where I think we're gonna see hugely successful. DAOs emerge, and they might not even call them DAOs right at that, at that point they might just call themselves a company and they might use the blockchain for governance, and therefore maybe they do want to create a Dow l l c, um, but maybe they even feel comfortable being in a traditional corporate structure, but leveraging some of the, um, the, the technology that we're developing in the Dow world.
Olga: All right, we're coming. We're definitely coming to the end and I wanna talk about two things and they're not gonna be easy. Adam, I like you that much that we're gonna answer difficult questions. Okay? Love it. Yeah. So why hold back? Um, yeah, let's talk about, look, I mean, my conversations with general public around blockchain web three and, and crypto, uh, have.
a positive or negative outcome that correlates with what's going on in the world, specifically ftx. Mm-hmm. , I can tell you the, the face and this technology is all time low. We are, you know, we're gonna see this unravel for a few years. This is a magnitude that is worsen in run and you thought that could never get worse.
And there we go. So that is not helping all with that in mind. What do you, what do you think is the future of DAOs in light of f?
Adam: Yeah, so actually I think DAOs present a really compelling opportunity, um, to help solve the problem of the Ft Xs of the world. Um, the reason I say that is that for the first time, thanks to legal entities for DAOs, DAOs can do all of the things that traditional companies can do, which means pretty soon we're gonna see DAOs that are launching things.
Centralized exchanges, but governed by a decentralized organization. And now all of a sudden you might be able to have the features of an FTX platform without one person being in charge and being able to open hundreds of bank accounts all over the world and no one having any clue where the money is.
Right. Instead, things will be run in a very democratic, transparent, um, foolproof compliance manner in terms of the things that are important to preventing the Ft Xs of the future. So I think while, yeah, it does put a bad, uh, face on crypto and, and on web three for people who are not as familiar with it.
But the fact is that what we saw in 2022 with a number of FTX type, uh, uh, events happening is that we need decentralization more than ever. And even though, Failures were part of the crypto ecosystem. What failed was the centralized institution and the centralized power structure. And that's exactly why we need DAOs and why DAOs are going to be so big in the future.
Olga: Oh, look at you taking my difficult questions and making them work for you. All right, let's talk about democracies. Um, you know, what, what, what, what, what is the effect? You know, that all, that all sounded great, but you know, democracy is again, another new institution. , uh, in the world is struggling. Uh, we've seen it struggle.
Yeah. Uh, how, how does Dao fit into that, um, and where we're going with that.
Adam: Sounds good. Yeah. And maybe before we close too, we should specifically answer the i r s question. If people are wondering why we say that the i r s maybe after you, um, in terms of democracy, it's a great question too, because. The way most das are operating, and what's made possible by doing on chain governance is you can have a, a company or an organization that operates much more like a democracy than like a traditional company.
And, and that's what's getting people really excited, but it's also leading people to, to say, well, democracies aren't effective. They're inefficient, they're slow. What if, you know, sure you could leave, uh, the decisions up to everyone, but what if everyone's wrong? And I think those are relevant and rational criticisms, but what I would ask people to consider is, which do people prefer to live in?
Do people prefer to live in a dictatorship or do people prefer to live in a democracy or even get philosophical about it and say, whi, which is better? What should people prefer to live in? What's the way people should, um, govern things in our. And to me the answer is democracy. And when, when you give people, especially customers, a choice between, uh, bringing their business to the dictatorship of Starbucks, right?
And I love Starbucks. I'm not criticizing Starbucks. That's all we've had for a long time. You can go to the dictatorship of Starbucks where yeah, they're shareholders, but all they really get to do is elect the dictator every now and then, right? Or. Go to the coffee company that's is much more like a democracy, right?
It's like the America of coffee companies because everyone gets voting power and not just the people with financial interest in generating profits. I think people will choose that version of Starbucks. And a really good example I like to give, I'm writing an article about this right now, is sports, right?
Think about how much people love sports. And it goes much beyond, way beyond just being a fan. There's sports betting, there's fantasy sports, and now there's even the combination of fantasy sports and sports betting. Those, those new inventions have led to way more engagement in sports than they ever saw before.
Imagine when you can actually involve people in the decision making processes about their favorite team. Now, it's not even fantasy sports. It's Dow Sports. It's you get to help decide whether or not you sign that next player and whether or not. You, let's say you, you, you, uh, bench someone for doing something inappropriate out outside of the league, right?
You get to take part in a democracy of running a sports team. Now, are you gonna prefer to be a fan of that team or the team where you have absolutely no decision making power? I don't, and I,
Olga: I, I, I don't know if it's cheating to combine democracy and. Popular sports . I think that's hitting, I think it's totally cheating.
It's gonna be awesome. But yeah, you can go ahead and answer your IRS question. . . I would like you really wanted to, I, you know, I was trying to end on the democracy and You wanna end on irs. I wanna end, let do it. Tell me more about
Adam: irs. Yeah, and I love this. I, I love it because, you know, I gave a talk on this recently at a conference and literally at the end, People who are involved in DAOs were standing up and yelling like, this can't be true.
I mean, are are you really saying that I'm gonna be held liable for these taxes? And everyone on stage was mostly lawyers. And me was like, unfortunately, yes, this is definitely true. And what we were talking about is, um, the fact that, okay, so any unincorporated association, so again, any group of people that's working on something together, again, whether you call it a DAO or a peanut or a company or whatever, if you don't have a legal entity, The tax institutions of the world, including the I r S, are gonna look at that organization's activity and they're gonna come after the individual people involved in that organization for taxes on the entity's earnings.
So if you're dao, which is not incorporated, Has a profit of a million dollars this year, and there's 10 members of the Dao, the irs, who have equal voting rights. The i r s is gonna come after each of those 10 people for taxes on a hundred thousand dollars worth of earnings. This is now it, it actually hasn't happened yet.
We haven't actually seen the I R S yet. Suing DAOs that are not having people pay taxes in this way. But it is almost a certainty that DAOs that do not form some kind of legal entity will be treated as general partnerships and the I R S will come after you for taxes on that organization's earnings, not just when they finally decide to start paying attention and.
Already learned what a DAO is in the first place, but they'll go back and they'll tax you for all the back taxes on years of those DAOs earnings. So I think people need to be really careful about their participation in unincorporated DAOs, and that's the biggest reason why people need to start thinking about, should I incorporate my Dow and what's the best way to incorporate my Dow?
And
Olga: whatever you do, treat this as entertainment and education, not legal. Uh, tax planning is an art and science that neither Adam nor I are affluent and or competent to, to give you advice, but yes, that's, there is definitely the protection of corporations and LLCs. That's the thing. And most jurisdictions, DAOs are technologies.
They're not default, uh, corporate entities or LLCs. So yes, it is you, the person who is responsible. and um, yes, it is a consideration why many folks will not join a DAO especially. Yeah. Uh, once you have a certain income and assets that you want to protect, that will definitely be a decision that you make, whether you join the joy.
Um, with that high note , and, uh, it's great to have you on the show, what is the one thing you want folks to take away from this convers?
Adam: Um, DAOs need to think of two things. If you're not involved in a DAO or you're just learning what a DAO is, DAOs have the capacity to change the way we organize ourselves as a species.
So go. It doesn't mean it's gonna happen tomorrow, but it's gonna happen in the next five or 10 years. Go learn more about DAOs. Um, reach out to me if you wanna talk about DAOs. Um, get involved in a dao, start a DAO if you're already involved in da. What I wanna encourage you to do is to just ask the question in your discord, wherever your Dao communicates and collaborates, are we incorporated?
Are we thinking about incorporating, do, do we, are we getting legal advice? Do we have a lawyer? Do we have a tax advisor? And, and how is this Dao gonna protect me as an individual member from having all the tax liability and other liability put onto myself as an individual?
Olga: Oh, I love it. And if you ever thought you cannot combine technology, irs, um, and law in one happy conversation, we just proved them all wrong.
Adam, thank you so much for this fantastic conversation. I hope we talk again.
