Disclaimer: I am neither a lawyer nor a tax advisor. This article is not legal advice. This article is not tax advice. It is information on an innovative application that could help Decentralized Autonomous Organizations (DAOs) with liability questions.
In the Web3 ecosystem, discussions on DAO taxes and legal jurisdictions are like a “taboo duo.” People tend to shy away and prefer discussing technology trends rather than these administrative burdens. While legal topics may stretch us outside our comfort zones, they are discussions needed in the space.
Besides providing legal clarity, legal topics are essential to diversity and inclusion. In my article, Decentralized Autonomous Organization (DAO) startups will have a Diversity issue unless… I created a simple causal loop diagram used in Systems Thinking approaches (Anderson, 1997).
This analysis used statistics from the Small Business Association, which demonstrated that “…Blacks and Hispanics were more likely to be undercapitalized when launching their businesses” and the fact that legal liability increases as one starts a DAO. Combined, these two factors highlighted that affordable options for legal and tax services are a necessity.
Specifically, two potential solutions proposed were venture capitalists actively seeking out minority startup DAOs and/or professional services such as lawyers and accountants offering free services to minorities. In doing so, Web3 would counteract the balancing loop and prevent the reoccurrence of Web2 precedence where venture and angel funds rarely leave a specific demographic/community.
In another article DAOs as Barter Exchanges? I tried tackling the first half of the taboo duo (taxes). I wrote about potential tax exemptions and questions I have if U.S-based Decentralized Autonomous Organizations operate as barter exchanges. While this article focused on tax implications, it didn’t cover liability protection for the DAO members and their founders.
This is where I stumbled upon a tool created by Kali DAO called Wrappr.
What is Wrappr?
Released on September 14, 2022, Wrappr is a tool that helps entities wrap themselves in a type of liability protection blanket. According to their mirror.xyz account:
At its core, Wrappr is designed to solve the legal persona problem for DAOs and other internet natives. By leaning into the same technology that it aims to serve, Wrappr radically reduces the steps to attach legal protection to online entities. And it’s never closed on the weekends.
Created by the team behind Kali DAO, the Kali legal engineering team initially designed the Wrappr application with three areas in mind, the LLC, a UNA (Non-Profit), and DAO Charters. An LLC and UNA template can be selected for incorporation in Delaware or Wyoming. In contrast, the DAO Charters (a “Stateless or “unpegged” entity that allows “users to set org terms without formally adopting a legal entity or jurisdiction.”) can follow formats used by the LeXpunk Army and Orange DAO.
What’s the big deal?
What makes Wrappr interesting is the ease, cost, and distribution of this legal Wrappr. First, templates for Wrapprs can be completed in minutes and are recorded in a decentralized manner on any major blockchain that supports smart contracts. There is no waiting in line or meeting with expensive attorneys for consultations. You do this from the comfort of your home.
After you have landed on your preferred entity option, the Wrappr app performs name registration checks, completes signed paperwork, and publishes entity information on the blockchain and IPFS. Simple as that.
The second benefit is the cost. With the service completed in minutes, Wrappr can cost as little as 25 dollars. Yes, $25, making it an affordable option for many DAOs and founders.
Lastly is the distribution. After paying the $25 fee (for LLCs), the entity that submitted for the Wrappr receives a Non-Fungible Token (NFT). This NFT can then be sent to the appropriate wallet, which “…represents your legal agreements and entity creation — viewable in a gallery of other tokenized entities.”
Why do I like Wrappr?
I like Warppr because it is a step in the right direction for providing DAOs with some protection in an affordable Web3 manner. I am down this rabbit hole because I have been trying to find the most applicable entity for the DAO we founded, ELI5 DAO. Instead of shying away from legal talks, I want to be proactive and actively seek legal protection for the DAO and our members.
Is this Wrappr all-inclusive? Likely not, but as I said, it is a step in the right direction. Making liability protection simple, affordable, and scalable opens doors to all founders, creating a more inclusive ecosystem, regardless of background. With more diverse ideas and support (that doesn’t break the bank), DAOs can be formed and focus on their missions, increasing the likelihood of success.
Anderson, V., & Johnson, L. (1997). Systems Thinking Basics: From Concepts to Causal Loops (Pegasus Workbook Series). Pegasus Communications.
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The content is for informational purposes only. Nothing in this article constitutes investment advice, a solicitation, recommendation, endorsement, or offer of a security, token, NFT, or application to a DAO. This is not investment or legal advice. Please do your own research.