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What You Need to Know About Traditional DAO and DAO LLC

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A Decentralized Autonomous Organization or DAO is a type of business organization that is written in a computer code rather than a legal contract. This means that a DAO is an organization that doesn’t have any sort of human intervention to manage it and make decisions.
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What You Need to Know About Traditional DAO and DAO LLC

A Decentralized Autonomous Organization or DAO is a type of business organization that is written in a computer code rather than a legal contract. This means that a DAO is an organization that doesn’t have any sort of human intervention to manage it and make decisions.

Using smart contracts, the daily activities of a DAO can be managed. For example, within a DAO, the company creates a cryptocurrency that can be sold to investors. These investors can then be paid dividends based on the profits made by the DAO.

The DAO is a revolutionary form of company, and exploring the differences between a traditional DAO and a DAO LLC is vital. Read this article to learn more.

Traditional DAO vs. DAO LLC

The main difference between a traditional DAO and a DAO LLC is that the latter is regulated by securities law in the United States. The Securities and Exchange Commission (SEC) oversees how DAOs are structured and how people can invest in the DAO token.

According to the SEC, the DAO had to be registered with them and follow pertinent laws since tokens are considered securities. This regulation includes broker-dealers or any other person or entity that wants to buy and sell DAO tokens. 

What Is a Traditional DAO?

The traditional DAO is a company managed through computer code usually written by developers. In fact, it is a computer program that anyone can replicate. The DAO can be created on top of the Ethereum network and then marketed to investors.

In exchange for investing with ETH, investors would be given DAO tokens that can be used for voting on how the DAO should be managed. These tokens also represent shares in the company.

What Is a DAO LLC?

A DAO LLC is a company that can be created on top of the Ethereum network. The cryptographic code is the heart of the DAO LLC. It is, therefore, a company that can only exist with an underlying digital code. 

The DAO LLC is open-source software created by a person or group and then replicated by anyone. The software is also used to create a financial reward for investors. The DAO LLC adopts and implements a set of rules for the organization based on the software code. Investors or shareholders can then change these rules if they want to.

What Are the Differences Between DAO and DAO LLC?

In terms of the investor, the DAO was structured very differently from a DAO LLC. A traditional DAO token sold on the Ethereum network was a non-refundable purchase. This means that an investor could sell their tokens, keep the profits, and never have to refund the DAO. 

However, this is different with a DAO LLC. It gives investors the right to file a claim or a legal action if the DAO does not perform as it was supposed to. This means that if the DAO fails, then the investors can sue the company.

Conclusion

Both the DAO and the DAO LLC are essential instruments for investors. Each of the DAOs has its own advantages over the other. In some cases, a DAO LLC might be the safer option for investors. In each case, it is important to weigh all the pros and cons before deciding on a particular investment vehicle.

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BIO
Arjun Mahadevan
CEO and Co-Founder
Co-founder at doola, previous Product Manager at Dropbox, and an alum of the Wharton School of Business. He’s personally processed over 100 applications and spoken to 500 customers.

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