Digital Autonomous Organisations

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Posted 2022 by Jane L

Crypto currencies are becoming more mainstream. Ethereum tokens and block chain technology can be used to execute smart contracts which are automated and which complete when a pre-defined set of criteria are satisfied. More recently, this has driven the development of the decentralised autonomous organisation (DAO).

A DAO can be summarised as a group of people who come together through an agreed set of governance principles but doesn’t have a legal personality in its own right. A purpose trust is then put alongside the DAO which allows the trustees to execute projects. The first DAO was created in 2016 to provide a fund in which investors around the world could stake crypto currency tokens and then vote on potential investment projects, making collective decisions through an automated system.

So DAOs can be used as a digital investment club where smart contracts can be used to govern the way decisions are made. People can invest with crypto currencies and decisions, or even transactions, can be recorded on the blockchain.

DAOs can be used for a lot more than just financial investments. They are decentralised in nature and are founded on democratic principles. The ownership structure is devolved with no board of directors controlling it.

DAOs are still in their infancy but as crypto currencies continue to develop and become more mainstream, the use cases for DAOs and smart contracts could evolve and they may become more widely used.

DAOs, smart contracts and purpose trusts could be a good way to bridge the gap between the virtual, online world and the physical, real world. For example, if a group of online investors want to use crypto currency and smart contracts to purchase real estate which could then be held in a trust. As businesses continue to develop their online/digital offerings, there should be plenty of opportunities to utilise DAOs in the not too distant future.

Regulators will undoubtedly need to introduce new regulatory regimes for DAOs and this is likely to happen relatively quickly as individuals and businesses continue to turn their attention to digital assets

Need more advice on Crypto / NFT tax from a Crypto specialist accountant?

We have a lot of information about the UK tax situation for Crypto and NFT on our website which you may want to read before getting in touch.

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