When first introduced, DAOs featured prominently in the discussions around the future of web3 as enthusiasm and excitement for community governance sparked the imagination of many projects and communities.  Although that promise has delivered in meaningful ways, no success can live up to the weight of impossible expectations.

As time has passed, much of the enthusiasm around DAOs has moved on to other promising areas of innovation, which is a common occurrence for the lifecycle of enthusiasm within developing technologies.  However, in spite of the diminished prominence, DAOs remain a critical component within the web3 ecosystem because token-based governance remains the most effective and common mechanism to reflect community decision-making.

Ultimately, this has been good for the development of DAOs and this has been good for the development of governance because it provided room for maturation and many favorable developments supporting DAO infrastructure have developed in this period.

A particularly notable and exciting development for DAOs was Wyoming passing its Decentralized Unincorporated Nonprofit Association Act, which becomes effective on July 1st 2024.  Although, the law itself establishes an entity form that would not serve FWB in its current construction – its existence is extraordinarily relevant within the context of FWB’s existing entity structuring and to our current focus on examining meaningful validation.

Enthusiasm for web3 projects is undeniable, but the unfortunate reality is that the developing technology impacts so many different areas of specialty that misinformation is common.  Thorough and accurate does not easily distil down into a soundbite and as nature abhors a vacuum, character limited summaries on social media and summaries of summaries published in electronic news publications fuel a distorted understanding of legal entity structuring amongst the crypto community at large.

As important and bullish a step forward that the WY DUNA represents in terms of legislation tailored to how developing technology impacts existing laws without conveying preferential treatment to those that use it – it is not an entity form that lends itself to projects that lack a smart contract protocol or some form of technological operation that replaces the need for a managerial layer or immediately responsive self-governance.

Whether a project defines itself as a DAO is irrelevant within the context of its operational structure and activities.

Validation is key.

The existence of DAO specific legislation has created a commonly held misunderstanding that DAOs require their own laws fueled by seemingly infinite publications and posts stating that DAO specific laws are a requirement for a DAO to have an entity form.  This is egregiously incorrect.

Under the broad definition, DAOs can be many things – it is not being a DAO that requires a legal entity structure, and it is not being a DAO that dictates what that entity structure should be when necessary.  It is the facts and circumstances surrounding the membership of the organization and the activity it performs.  Resolving these questions requires answering the basics of Who, What, When, Where and How (sometimes Why is relevant sometimes it is not – Why can be tricky) and then analyzing those answers within the context of any number of operational, legal and taxation considerations.  When conclusory opinions abound, analysis is a rare commodity indeed.

There is no right answer for entity structure based on what a project calls itself.  The decision to utilize an entity form must be undertaken seriously and with an understanding of each project’s facts and circumstances because serious consequences exist for failing to meet the obligations and requirements necessary, akin to not having an entity structure at all.  YOLO is not an acceptable strategy for entity structuring.

YOLO is not an acceptable strategy for entity structuring.

Validation is key.

In the case of FWB, our structure has evolved around the activity and operational requirements of the association and its members.  To call it a labor of love would be a severe understatement and the planning has involved a vibrant and diverse decentralized community, various governance proposals, multiple iterations of the Treasury League, myself (first as an advisor and then a member of FWB), Cooley LLP, Blockchain Tax Partners (taxes have to be filed) and the Crypto Accounting Group (the books need to be right).

All the way back in 2021, the lawyers from Cooley LLP developed a tremendously innovative and advantageous utilization of a C-Corp that met the obligations of tax payments resulting from a token sale, reporting obligations of contributor payments and liability protections for in-person events for a DAO that had already sprung into existence.  There is no denying that the C-Corp pushed activity for FWB into a more centralized trajectory for a time, but modifications to the operational flow, including the creation of the community council and the introduction of the UNA on June 18th of 2023. have revitalized the discussion around progressive decentralization and have allowed for proposals to launch blockchain and web3 projects directly from within the decentralized community, respectively.

This was not done in a clean line and the path is littered with discarded planning projects as the FWB community did its thing and the messaging and planning evolved.  But DAOs are going to DAO and working in this space means adopting to the current plan and making the changes necessary to support that direction while advising on alternative options as necessary.

This work is not done.  This work may never be done given the evolving nature of FWB and the decentralized community and governance driving its direction.  But as is often the case with anything meaningful, the question is the search and the search is the answer.

Validation is key.

In many ways, this work can be equated to establishing a base camp.  The mountain is yet to be climbed.  We have met the challenge of paying taxes, meeting informational reporting requirements and establishing a structure that meets our current needs for having in-person events and promotes decentralized web3 projects.

We have mitigated risk wherever possible and hopefully, we have learned some lessons from that past few years because we have established a bittttt of a track record for making hard jobs even harder on ourselves.

In spite of the difficulties, there are numerous accomplishments to celebrate including the incubation of Scene Infrastructure Company (a technology company building better instruments for socialization), numerous in person events including the flagship FWB Fest (which for the record, is going to be a banger this year), widely expanded our partnership relationships, introduced blockchain tooling and every day, we continue the experiment of forming our community around builders and creatives.

That said, we still have a token and we have an aspect of centralization that permeates our stack.  Absent a renewed focus on progressive decentralization and continued thought around the direction of FWB – this cognitive dissonance will not resolve.

We must continue to come together with our ideas and be each other’s sounding boards.  We must continue to support each other and have resolve that collectively there is a path forward.  And we must continue to question how effective we are in accomplishing our objectives through validation of our conclusions.  Because…

Validation is key.