Jeffrey is the CEO of pocoIt is a startup that enables investors and entrepreneurs to launch and manage DAOs or local blockchain businesses.
I have spent over a decade working with startups in developing countries as an investor and entrepreneur. I realized that few startup systems can succeed. Despite significant market opportunities, startups in these countries are struggling to raise funds.
International investors do not understand nor trust local company structures. Investors are disinterested and afraid when it comes to investing in companies registered outside of Colombia, Vietnam, Nigeria or Pakistan. However, they are comfortable with companies registered outside the BVI, Cayman Islands, Delaware or Singapore. Many of these startups get limited local financing options and receive onerous terms as a result.
Compare this to our experience coming out of Y Combinator in San Francisco. Companies are only registered in Canada, the United States or Singapore. The legal due diligence has been completed beforehand. Investors only invest with a standard legal structure called a safe note. After 30 minutes of conversations with each investor about business opportunities, the team, and investment terms, we can raise all the money we need within two weeks. No one asked us about our legal structure – except for one investor who said he had never invested in a Singapore-listed company.
DAOs and the Web3 ecosystem can solve this problem by giving investors and entrepreneurs in these countries access to a globally standardized governance framework and global financial infrastructure that is not at home. It makes entry and exit of members cheap and easy, greatly expanding the base of investors and early collaborators for an investment syndicate or startup.
What are DAOs?
Decentralized Autonomous Organizations, or DAOs for short, are a new type of blockchain-based organizational structure that jointly controls a treasury and makes decisions about how its capital is used. Owned and operated by members who own tokens that provide decision-making and/or economic rights in the organization. It allows members from anywhere in the world to compile the capital bases and code for how the capital is allocated. Governance (in theory) is automated by code and decentralized (i.e. no one can tamper with the rules).
How are DAOs used?
As we raised our initial round, we spoke to several DAOs for investment. These are the communities that come together to invest in startups or tokens. They range from social clubs to mutual funds that are organized as DAOs. Some notable examples include Orange DAOAnd the VC3 DAO And 250 million dollars Bessemer Dow.
For countries at the border of startup ecosystems, blockchain elements give startups access to markets and the financial ecosystem on a global scale. Although not a DAO per se, Axie Infinity, a startup in Vietnam, has built the for-profit game play that has surpassed $1 billion in revenue last year. It allows users to reward players with non-fungible tokens (NFTs) based on their in-game activity. Users came from all over the world. The symbolic nature of these societies enables new models of ownership and participation.
In Kazakhstan, we are talking about Web3 Entrepreneurship to Astana International Financial Center Entrepreneurs with Deputy Minister of Commerce Assel Zhanassova. The state just submitted a file National encryption strategysparking a growing interest among entrepreneurs keen to access Web3’s global opportunities.
Examples of investing DAOs include DAOs, such as the Flamingo DAO and Pleasr DAO, that invest in NFTs. There are investment communities like Global Coin Research, which invest in startups through tokens or stocks. There are VC-like DAOs like Orange DAO and VC3 DAO. There are community DAOs like Bankless and Friends with Benefits. Developers, lawyers, and accountants have also organized DAOs. Not to mention the token issuance protocols that sprang from the DAO’s concept of bringing governance into their ecosystem.
DAOs face significant adoption challenges
Investors and entrepreneurs are still in the early stages of exploring DAOs as there are many adoption hurdles. Instead of issuing traditional stocks, DAOs usually issue tokens. In practice, many token holders and token issuers expect governance rights and/or economic returns from their tokens. However, there is often no actual legal relationship between token holders and DAOs. This puts token holders at risk.
There is the question of the legal form of the DAO. In DAO, there is often no formal institutional structure, there There are no express terms of liability protection or a clear distinction between the different roles of the participants, such as owners, managers, or managers. Questions remain about what bridges are needed for off-chain assets that are looming (eg, security records, property ownership records, and recordable intellectual property).
How DAOs will be treated in terms of their compliance is still questionable. Traditional corporate entities are required to report affairs in accordance with globally harmonized accounting and reporting standards. This reporting provides clarity on issues such as taxes. Early adopters of DAO find that without a legal entity, they face unpredictable tax exposure.
These challenges are on top of the existing barriers to wider adoption of Web3. Web3 user experience remains poor, crypto to coin bars are limited, and the market is subject to rampant speculation that leads to spectacular booms and busts. Consumer protection remains an afterthought for many DeFi protocols and products.
It’s time to reinvent the company
Technology has bypassed regulations in this field. The approach taken by many regulators is to contain DAOs within a corporate filing framework created for the era of pen and paper, which often results in gaps and inconsistencies. There is an opportunity here to reinvent the legal form of the company and create a Web3 version of it – one that prepares entrepreneurs, innovators and investors in developing ecosystems for startups or startups with the same opportunity that we have in the developed world.