The United Arab Emirates (UAE) has constantly been taking steps to position itself as a friendly environment for cryptocurrency. This Middle Eastern country has released different rules and regulations to set up a legal framework for crypto-related businesses. Just like every crypto in other countries’ crypto ecosystems, the concept of DAO is becoming popular in the UAE.
Decentralized Autonomous Organizations
Decentralized Autonomous Organizations (DAOs) are becoming increasingly popular in Web3’s communities. A DAO is a software-driven business organization that focuses on producing open-source software.
The goal of DAOs is to run a company where management, decision-making, and ownership are distributed among members/owners rather than centralized within a select group.
The decentralized nature of DAOs eliminates the need for a CEO or CFO that can run the company down.. Transparency is important in DAOs, with spending rules encoded directly into the organization. Smart contracts serve as the backbone. These contracts define the rules of engagement and are easily verifiable and immune to manipulation, instilling trust and transparency in DAO operations and facilitating investment and participation from interested parties.
Uses of DAO
Charities/Causes
A DAO can be used to support individual charities or groups of causes. The DAO members make spending decisions by voting.
Networks
People in a group can pool resources within a DAO for investments. For instance, freelancers can unite to leverage their collective purchasing power (managed within the DAO) to decide on matters like office space, software tools, and gatherings.
Private Ventures
A group of people can set up purpose-driven ventures by creating DAOs. For instance, LinksDAO was formed by a community of golf enthusiasts who wanted to create a new golf course and modernize the golf club membership experience.
UAE’s Regulations for DAOs
The Abu Dhabi Global Market (ADGM) recently unveiled a proposal for a regulatory framework for distributed ledger technology (DLT) foundations (Consultation Paper). This framework covers DLT projects that want to use DLT for token issuance and trading, employing various structures such as unincorporated decentralized autonomous organizations (DAOs), foundations, and companies limited by guarantee.
Proposals in the ADGM Consultation for DAOs
Legal Personality
Although DAOs typically lack some form of legality the ADGM Consultation suggests granting them legal personality, termed as ‘DLT Foundations’, to ensure legal, regulatory, and operational stability. This proposal would extend to all tokens, enabling such ‘DLT Foundations’ to engage in any activity as long as it adheres to lawful practices and is not contrary to public policy.
Capital Requirements
DLT Foundations would be required to fulfill a minimum capital requirement of USD 25,000. This mirrors the standards set for ADGM Foundations and other regulated entities. This capital requirement serves to demonstrate commitment to the project and acts as a deterrent to less serious or smaller DAOs lacking the necessary liquidity or consensus among members for a formal setup.
Governance and Control
In a foundation structure, beneficiaries lack governance or ownership rights. However, in a DLT Foundation, the concept of beneficiaries is more adaptable. This allows for asset distribution to specific individuals even without token issuance or distribution.
Final Words
DAOs are a popular concept in the Web3 ecosystem. DAOs are useful for charities, private ventures, etc. In the UAE, the DAO regulatory framework falls under the ADGM Consultation Paper
