A Primer on DAOs—A New Form of Entity, with Explosive Growth, that Some Envision as “The New LLCs”

DAOs—“decentralized autonomous organizations”—are a new kind of entity that have experienced explosive growth. Although to date most have been focused on cyber-related projects, their presence has been expanding beyond the cyber realm. Indeed, DAOs have proven very successful at raising large amounts of money in short periods of time, and there are now “SPADs”—SPACs that are DAOs seeking to acquire physical companies. As DAOs, still in a nascent stage, face significant business and legal challenges and risks, it remains unclear whether, how, and to what extent they might displace traditional organizational structures. But they represent an increasingly popular and potentially transformational business idea, rooted in the mindset and methods of modern times—making them worthy of attention as they evolve. In the attached comprehensive primer, we discuss the recent growth of DAOs, how they work, their advantages and disadvantages, legal and regulatory issues, pending legislation, and case histories, and offer related practice points.