Disclosure: The views and opinions expressed herein are solely those of the author and do not represent the views and opinions of the crypto.news editorial.
While cryptocurrencies have already changed the way we trade and invest, they are now starting to challenge the way we organize ourselves, and that is what decentralized autonomous organizations, or DAOs, are all about.
Summary
- Despite huge on-chain treasuries, most DAOs are not recognized as legal entities: they cannot sign contracts, pay taxes, or protect members from liability.
- While DAOs promise openness and decentralized governance, the absence of legal personality means that “community ownership” often masks the concentration of power among a few dominant participants.
- DAO “wrappers” like LLCs or foundations solve basic compliance problems, but they clash with chain rules, create multi-jurisdictional confusion, and increase costs, making smaller teams less competitive.
- A new legal framework is needed, one that defines roles as “digital fiduciaries” and creates a global “DAO passport” for accountability, transparency and cross-border recognition of decentralized organizations.
In fact, DAOs are not a small experiment, as they last $20 billion in liquid assets, however, in the eyes of most legal systems, they barely exist. With no CEOs, no headquarters, and no recognized judicial status, a DAO simply does not fit into the categories that courts and regulators have always used for companies.
So the real problem is that the law must be adapted to organizations that are nothing like those for which it was created. Simply put, as DAOs spread, legal systems must rethink what an “organization” is and whether actual liability survives when the code governs.
The promise and the void
At their best, DAOs offer openness, speed, and true collective ownership, so anyone with an internet connection can show up, pitch an idea, or vote. This works because the code handles the core processes, making governance much more transparent than in a traditional company. The result is a system that lowers barriers to entry and allows people to coordinate at scale without administrators.
But the same features that make DAOs efficient also reveal a major weakness. Token holders may feel like owners, but according to the law, they are not. In other words, without legal personality, DAOs cannot sign contracts, pay taxes, or protect members from personal liability.
The deeper problem is that when no one is really responsible, “community ownership” becomes a performance. In practice, that means the loudest or richest voices, those with the time and resources to participate, dominate the proposals, set the agenda, and sideline the broader community.
Furthermore, when participation becomes nominal, the promise of collective ownership disappears, innovation slows, and trust erodes within and outside the community. That’s why DAOs need to address real accountability, or the vision of open governance seems open but doesn’t change anything.
The key questions are whether policymakers and builders can close that gap and whether traditional entity wrappers solve the problem or simply create new tradeoffs.
Legal mosaic, slower adoption
For now, most DAOs have attempted to close the regulatory gap by borrowing from the corporate world. Some register as LLCs, others launch foundations, and some jurisdictions, such as Wyoming and the Marshall Islands, allow DAOs. record as its own entity type. Together, these moves help fix the basics, since a container allows you to sign contracts, maintain assets, and pay suppliers like any business, but it complicates everything afterward.
Legal wrappers often clash with on-chain rules, leaving the community to choose between code and compliance. That choice is rarely internal, because once teams are distributed across jurisdictions, the same DAO suddenly falls under multiple regulators, tax systems, and even conflicting legal definitions of what a DAO is.
All of this results in a legal patchwork that increases fixed costs across jurisdictions, pushes key decisions off-chain to a few signatories, and ultimately slows adoption as smaller teams are sidelined and users see less transparency. And these trade-offs are already visible in how DeFi projects operate…
For example, Uniswap’s recent “DUNI” proposal shows what entity wrapping really costs. the plan leave aside $16.5 million in UNI for taxes and legal defense, and potential IRS liability is expected to be less than $10 million. If the big names can afford it, the smaller DAOs can’t, so they delay launches, limit access for US users, or move overseas entirely. This is how compliance slows innovation, causing bureaucracy to define the pace of adoption.
In such a situation, the solution will not come automatically. In my view, what DAOs need is a regulatory framework created for decentralization itself.
The road ahead
So what now? In my opinion, if DAOs want to become more than just experiments, the law needs to catch up. We need a framework built for decentralization from the ground up, an institutional scaffolding that keeps DAOs open but holds them accountable.
For me, a practical solution is to rethink fiduciary duty in the digital age. Each DAO names a “digital fiduciary,” specifically, a role established in code and recognized by law. In that case, there is always someone responsible when things go wrong, so trust is not just dependent on reputation, but is backed by clear responsibility.
Another solution is a harmonized baseline across borders or a kind of “DAO passport.” It would establish minimum standards for transparency, liability protection and dispute resolution. This way, projects would not have to rebuild their legal structure every time they crossed into a new country.
That’s the real fork in the road. If the law cannot adapt, DAOs remain a gray area tool for insiders. But if regulators step up, DAOs could evolve into the next layer of the global economy: open, borderless, and accountable by design.
