DAO: Benefits, Limitations And Compliance Practices For Security

  • DAO is a decentralized autonomous organization with no intermediate central authority. 
  • It can benefit companies by increasing trust, transparency, and security. 
  • Investors also benefited from high interest rates. 

DAO is a traditional management organization that can structure companies. It is controlled and managed by a group of leaders, as there is a lack of central authority. DAO can invest in many assets and acquire companies, NFTs, and any other token. Protection is important; hence, legal compliance should be considered for DAOs as well, which is very well taken care of by legal wrappers. 

What is DAO?

DAO is a decentralized, autonomous organization with no central authority. The main aim of DAO is to improve the traditional management structure of many companies. It gives every member a vote, a voice and the opportunity to propose initiatives. It is popularized through blockchain technology and cryptocurrency enthusiasts. These are used to make decisions in a bottom-up management approach. DAO ensures security is a priority. 

A group of developers came up with the idea of DAO in 2016. The group of leaders acts as the governing body, as there is a lack of central authority. It relies heavily on smart contracts. These coded agreements dictate the decision-making based on the underlying activity on a blockchain and the voting process for DAOs is posted on the blockchain. DAO raises capital by trading fiat for its native token. 

The native token is the representation of voting power and ownership proportion across members. Then DAO can issue future tokens at a greater value. A DAO can invest in assets as well. For example, it can acquire NFTs, companies, or other tokens. 

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Benefits And Limitations DAOs

The benefits of DAOs are participation, publicity, decentralization, and community. The limitations of DAOs are inefficiency, security, speed, and education. 

The pros of DAOs are:

  1. There can be more voices in the strategy, planning, and operations of the entity. 
  2. Stakeholders are naturally incentivized to act more responsibly as votes on the blockchain are publicly viewable. 
  3. A variety of individuals can come together to work as a single entity. 
  4. DAO members may feel empowered to collaborate with like-minded individuals. 

The cons of DAOs are:

  1. There is a greater burden to educate users as the collective voting population is diverse. 
  2. The decision-making process is time-consuming because there are more voting participants. 
  3. The voting process is also time-consuming because gathering takes more time due to the decentralized nature of the entity. 
  4. If the DAO’s security is not proper, then severe exploits such as treasury theft can happen. 

DAOs Compliance Practices

DAO compliance practices include the fact that it needs a legal wrapper. DAOs can effectively address the following key aspects of their operation by adopting legal wrappers. The aspects are hiring employees, interacting with other parties, liability protection for contributors, tax compliance, and legal protection and compliance for digital assets. DAOs have to fulfill their tax obligations to ensure legal compliance. It is associated with any financial transactions within a DAO. 


DAOs have many features that can make processes in a company more efficient. The DAO model is best for many organizations as it is an immutable, transparent and trustless smart contract. The users can get higher returns after investments, which is a great deal for any of the users. The legal wrapper needs to include DAO compliance practices, which include tax compliance, etc.

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