Unraveling the DAO Mystery with Colorado Cooperative Regulations

Autonomous entities like Decentralized Autonomous Organizations (DAOs) are unique and largely incompatible with traditional American legal entities.

There is currently a lack of new legal entity structures to meet the new needs of DAOs. In this article, we explore why the current Limited Cooperative Association (LCA) can provide the most ideological legal framework for DAOs.

The LCA incorporates cooperative principles and values ​​similar to the DAO’s core principles and provides a legal framework for DAOs seeking to incorporate some or all of their related activities into the legal structure.

The evolution of the corporate form

The company is one of the most important inventions in history. Corporations allow people to create entities that are legally distinct from themselves, while giving these entities rights similar to natural persons, including the ability to own assets, pay taxes, enter into contracts, and have a legal status independent of the owner.

Cooperatives, as a form of corporation, have been part of the American economic landscape since the 18th century, but modern cooperative organizations began to flourish in the 19th century. Cooperatives span all business sectors, from producers to consumers, from workers to multi-stakeholder and multi-sectoral cooperatives, and now exist in the digital realm in the form of “platform cooperatives” such as Stocksy United[1], Savvy cooperative [2] and Fairbnb.coop[3].

Cooperatives differ from other corporate models because cooperatives are made up of and for members. Even where investors are involved, the cooperative must be controlled by its members, and the members are involved in the governance of the cooperative. At the end of the day, a cooperative is a business owned and controlled by the people who use it, so it is different from a traditional business organization.

The first formal set of principles for cooperatives was the Rochdale Principles of 1844, which led to the following principles defining cooperatives:

  1. voluntary and open membership,
  2. Democratic member control (member control of the organization),
  3. economic participation of members (profits and losses arising from members’ activities),
  4. Autonomy and independence (not controlled by investors),
  5. Education, training and information (on the political values ​​of cooperative management training and cooperative alliances),
  6. cooperation between cooperatives,
  7. Concern for the community.

DAOs represent a further evolution of the corporate form, facilitating the creation of disintermediated communities and networks in which participants control decisions and their assets. There is currently no consistent and clear legal definition of a DAO, but, at its most basic level, a DAO is a flexible group that acts together in a conglomerate for a common purpose. Given the commonalities between DAOs and traditional cooperatives, we believe that cooperatives are the safest and ideologically appropriate corporate structure for DAOs.

Colorado Co-op

The latest beneficial update for collaborative organizations, and DAOs in particular, is currently from Limited Associations (LCAs).

An LCA is a hybrid of a Limited Liability Company (LLC) and a corporation. It is an entity established on the legal basis of an unincorporated entity. Like an LLC, it allows investor members to distribute investment returns among patrons and non-patrons, as well as voting rights over investors, while adhering to the principle of cooperation. It differs from an LLC in that its distribution of financial returns is based on sponsorship activities, voting is based on membership (one member, one vote) or sponsorship, and allows the integration of DAO governance principles such as backlash and quadratic voting.

Just as startups from all over the world choose Delaware as their jurisdiction to incorporate or form a company, so do The DAO and Colorado.

The DAOization of decentralized resource coordination may be the most natural fit for Colorado’s cooperative statutes, specifically the Uniform Limited Cooperative Association Act (CULCAA). And, just as startups from around the world choose Delaware as their jurisdiction to incorporate or form a company, so do the DAO and CULCAA. You don’t need to live in Colorado, or even the US, to form a Colorado LCA [4], which makes it more suitable for a global decentralized network [5].

The principles of CULCAA overlap with those of the DAO:

  • They applied the original Rochdale principle network (listed above) to modern affinity networks, with a set of licensing rules.
  • They are built on the principle of democratic voting.
  • They grant limited liability to their members and facilitate the use of the organization’s resources.
  • They have the ability to embed features of autonomous governance in governance documents.
  • They have the ability to raise patron capital and issue digital tokens as a patron-pegged unit of account[6], while building in limited immunity from state and federal securities registration.
  • And more critically, the DAO governance protocol can be structured in the cooperative’s charter, allowing for token-based quorum voting, holographic consensus, permissioned relative majority (Moloch DAO) voting, or conviction voting. In fact, decisions can happen both on-chain and off-chain, with “big decisions” being recorded, or simply on-chain.

Turning DAOs into Cooperatives

Colorado’s cooperative charter can be used in any industry, from retail to housing, construction to craft beer and more. Related groups have been formed. Colorado DAO cooperatives, in the form of LCAs, already exist for freelancers, NFT holders, environmental incubators, and other worker- and project-based initiatives.

Here are examples of different types of traditional cooperatives and how to adapt them to DAOs:

  • Consumer Co-ops: These co-ops sell goods and/or services to members, similar to the popular outdoor merchandise cooperative REI. DAO example: A DAO composed of NFT buyers, possibly similar to the Flamingo DAO, establishes a cooperative to buy NFTs. These NFT buyers are members of the DAO, and they can in turn buy NFTs directly from the DAO.
  • Producer Cooperatives: These cooperatives are usually structured as a sales or marketing vehicle for their members. DAO example: NFT artists form a cooperative, they are members of the cooperative, and then co-create the NFT. The cooperative sells art on behalf of the artists and distributes the income to the artists.
  • Worker cooperatives: These cooperatives employ workers, either employees or independent contractors. DAO example: Designers form a cooperative, they are members of a cooperative that contracts with third-party projects, similar to how Raid Guild and dOrg work. Designers are paid hourly for their contributions to the cooperative’s work, and also receive a sponsored distribution of the surplus (profit after fees) earned from their labor.
  • Buying or Shared Services Cooperatives: These cooperatives serve as B2B collective buying vehicles for their members (usually legal entities). DAO example: Small cryptocurrency companies form a cooperative through which they can receive benefits for their employees at heavily discounted rates.
  • Multi-stakeholder cooperatives: These cooperatives combine members from two or more categories, including from the different types set forth above. These members have different roles and interests in it and benefit all at the same time. DAO example: Similar to the worker cooperative described above, it could allow a class of members that are not designers, such as a consumer or investor class.

DAOs can use the cooperative structure for all or part of their activities, which can be unpacked or packaged into different legal entities for different operational purposes such as licensing, holding intellectual property rights, hiring employees and contractors, Allocate grants or pay taxes, etc. This effect can also be achieved through a federated cooperative, which is a cooperative of member cooperatives [7]. Under this structure, various activities can be dispersed among the different member cooperatives serving the core cooperative.

Current ULCAA-based DAO cooperation use cases

Two examples of our recent work with DAOs are Employment Communities and SongADAO.

Employment Commons LCA

The Employment Commune LCA (“Commune”) is structured as a multi-stakeholder shared services cooperative. The express purpose of this DAO cooperative is to create a decentralized technical and legal framework, supported by employment cooperatives and charities with a sustainable purpose, to better align incentives for ecosystem participants with sustainable, user-friendly driven, web-based utility employment infrastructure coordination [8].

A commune has two types of members: employees [9] and union members [10]. An employee is an individual who uses the legal shield of an LLC or corporation to provide services to other businesses (such as independent contractors) and join a DAO cooperative in order to receive wages and related employee benefits, such as health insurance.

The business activities of the commune are similar to those of the Professional Employers’ Organization (PEO), in which the DAO cooperatives function as cooperative employers. By being the co-employer of its members, it can negotiate on behalf of those members for employee benefits, aligning incentives for the traditional employment sector. Consortium members, on the other hand, are individuals or entities that meet the sponsorship requirements of the DAO cooperative, who recommend new employee members, thereby expanding the network effect of the DAO cooperative. The DAO cooperative rewards both types of members with a token called $WORK, a wage-volume-pegged unit of account designed to reward all members of the commune ecosystem.

SongADAO

SongADAO’s business mission is “to help “Song of the Day” be heard by as many people as possible and to spread the daily creative meme.[11] SongADAO is structured as a consumer cooperative. Artist founder of the DAO cooperative Songs are created every day and transmitted to the DAO. The DAO casts these songs into NFT, and then sells the NFT to consumer buyers. Consumers who are willing to let the platform verify their identity are eligible to become members and can also become voting rights Membership. Both membership tiers are consumer tiers, but providing identifying information will determine their voting rights and whether they can vote on the use of the DAO cooperative’s financial funds.

While innovating with DAO values ​​in their structure and form, the activities of these DAO cooperatives can also be translated into more sophisticated forms of cooperative business activities and entity-member relationships.

Is the LCA structure the blueprint for a liability-resistant DAO?

The digital community has sounded the horn to create and codify an entirely new legal framework to meet the needs of communities governed by the Internet or smart contracts to provide digital legal personality, limited liability protection, division of fiduciary duties, and issuance of compliance tokens and clear guidelines for dealing with community finances.

Before this framework was established, we believed that the LCA cooperative structure was the best and most flexible legal option for many DAOs. Combined with other solutions (such as community legal compensation funds and/or self-insurance), the LCA model would allow DAOs to remain true to their ideals while remaining in a safe legal position. We will continue to explore and develop solutions based on this structure.

We hope this article serves as a reference and provides you with initial guidance on DAO cooperatives. However, in our experience pure co-ops, pure DAOs and DAO co-ops can never be fully generic and you will need to discuss their specific structure with an experienced attorney to address issues specific to your DAO and entity design.

Jacqueline Radebough is an attorney with Jason Wiener PC in Boulder, Colorado. Yev Muchnik is a securities attorney for the firm based in Denver, Colorado.

Thanks to the DAO Research Group for their support in the preparation of this article. The authors would like to thank Connor Spelliscy, Sam Vance-Law, Spencer Graham, Bill Warren, Auryn Macmillan, David Kerr, Morshed Mannan, Erika Sato, Samuel Gray, Adam Kay, Nathan Schneider for their review and comments.

references:

[1] It offers a “highly curated collection of royalty-free images and video clips”.

[2] A multi-stakeholder-owned research cooperative that enables industry and start-up tech companies to easily conduct user research with patients to ensure that products coming to market are patient-centric and patient-focused.

[3] A more just and fair alternative to Airbnb.

    [4] See Jason Wiener, Linda Phillips, Colorado – “The Delaware of Cooperative Law,” The Benefits of Forming a Worker Cooperative in Colorado, 5/5. Employee Ownership News (May 29, 2018), https://medium.com/fifty-by-fifty/colorado-the-delaware-of-cooperative-law-babedc9e88eb

[5] We believe that these communities do not need to be concerned with state-by-state laws; they can operate in any state and still be established under Colorado law, in which case they must take the form of a foreign entity in the state where they have employees, but Internally subject to Colorado law.

[6] In a cooperative, a patron is a person who buys (or uses, or sells, or provides) products or services from (or to) the cooperative.

[7] A federated cooperative may act as a central agency providing services to cooperative members (e.g., human resources, accounting, trade training, services to members of all cooperative entities), as a centralized purchasing department (e.g., buying paper, or All other members need goods or services for their own business), and other uses that utilize the collective resources and energy of cooperative members.

[8] According to the articles of association of the company.

[9] Defined as a limited liability company or other corporate legal entity that meets membership requirements.

[10] is defined as a natural person or entity that meets the membership requirements.

[11] As stated in the Bylaws adopted on May 11, 2021.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/unraveling-the-dao-mystery-with-colorado-cooperative-regulations/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2022-01-08 09:11
Next 2022-01-08 09:12

Related articles