Presenting ESG DAO Governance: DAO and alternative investment funds
DAOs have several limitations because they operate in a relatively new and evolving legal context. There are no standardized legal frameworks specifically designed for DAOs, but they must still comply with existing laws and regulations.
The following are some limitations and legal considerations that DAOs may encounter:
1. Regulatory Compliance: DAOs must adhere to applicable laws and regulations, including financial regulations, securities laws, anti-money laundering (AML) laws, and know-your-customer (KYC) requirements.
Compliance can be challenging for DAOs as they typically operate in multiple jurisdictions with varying regulatory frameworks.
2. Contractual and Legal Liability: DAOs are composed of participants who contribute to and govern the organization. The legal liability for the actions and decisions of the DAO may not be clear, and it is complex to hold the entire DAO accountable.
Legal responsibilities and potential liability of DAO members and developers may vary depending on the jurisdiction.
3. Dispute Resolution: In case of disputes or conflicts within a DAO, traditional legal mechanisms may not be easily applicable. Resolving disputes within a decentralized organization requires the establishment of transparent and effective mechanisms for arbitration, mediation, or consensus-based decision-making.
4. Taxation: DAOs must consider tax obligations for their members and operations. Tax authorities may have different interpretations of how-to tax DAO activities, such as token distribution, staking rewards, or governance activities.
DAO participants should be aware of their tax responsibilities and consult tax professionals with expertise in cryptocurrency and blockchain-related regulations.
With awareness of the limitations and advantages, our proposal combines the strengths of FIAs and DAOs, creating a path to efficiency and sustainability while keeping a check on the predominance of the so-called "onlife world" in financial services. Essentially, it maintains regulated activities and funds within the SGR and FIA structure but enriches it with the involvement of the stakeholder community through appropriate governance.
The operation of the FIA, with regulatory consequences and the security of fund maintenance within the traditional structure, is enriched by complying with the DAOs typical functions of an advisory board or advisory committee.
Tokens distributed by the DAO to stakeholders (investors or stakeholders in general) can enable the analysis of management choices, shareholders can be involved in strategic decisions, and virtuous contributions can be rewarded with additional token distributions. The final distribution of FIA proceeds can take into account the different contributions of various entities, for example, by providing for the repurchase of distributed tokens.
This collaboration between an Administrator (SGR), a Financial Vehicle (FIA), and a DAO ensures transparency in every step, from proposal creation to voting. Every decision made is crystallized and verifiable, providing investors and regulators with complete visibility and confidence in the process.