Our new Live Interview Series, Venturing In VC, premieres next week on Jan. 4, 2022. Venturing in VC is a live interview series where our host, Landon Campbell, interviews investors about how they broke into VC, their daily routines, views on the future, and lessons learned along the way. Who’s our first guest? None other than Turner Novak, Founder of Banana Capital — a founder-focused fund that invests anywhere from Pre-Seed to Pre-IPO with an average initial check size of $150,000-$300,000. Save your free seat to learn how Turner views the world and shares lessons he’s learned along his journey. Inside.com/vivc Venturing in VC is sponsored by SeedInvest — Fundraising isn’t easy, but it just got easier. Apply to start your raise on SeedInvest, or browse highly vetted startups to invest in. | |  Griffin |  |
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Trends to Watch: DAO Regulation While Decentralized Autonomous Organizations (DAOs) have been around since 2016, they certainly emerged in popularity over the past year. DAOs are organizations designed to be atuomated and decentralized that act as a form of venture capital fund without a traditional management structure or board of directors. Put more simply, DAOs are digital communities centered around a shared mission and enforceable social norms that use their own capital to further their mission. DAOs can be created for a variety of purposes, including product development (SushiSwap, ENS), NFT collecting (PleasrDAO, SharkDAO), investing (BitDAO, The LAO), and social membership (Friends with Benefits, Rally). Kraus House is raising funds to purchase an NBA team. PleasrDAO is out purchasing one-of-a-kind Wu-Tang Clan albums and creating charity DAOs. BlockbusterDAO is trying to revitalize the home movie rental business and buy Blockbuster from Dish Network. PonziDAO is set out to… well, I’m honestly not sure because the Juicebox description is in French. The list of active DAOs goes on and gets about as simple or abstracted as the internet itself. 
Source: DeepDAO With currently over $15B in DAO treasuries, DAOs have also created a massive opportunity for startups to help DAOs manage their treasuries and organizations. Treasury management tool Juicebox, which was home to the ConstitutionDAO, officially launched in July and has already seen over $90M in funds raised on the platform. 
Source: @wijuwiju, Juicebox Protocol (Dune) Snapshot, a Layer-2 type solution for DAO governance and primary voting tool for over 2,000 DAO communities, including DeFi protocols Aave, Uniswap and SushiSwap, raised $4M in a seed funding round led by 1kz and participated in by Coinbase Ventures, StarkWare, and others. 
Source: Snapshot DAOs can take on many forms, serve different purposes, and bring value to virtually anything. The opportunity surrounding DAOs is massive, with several DAOs holding millions of dollars on their balance sheet and even more funding being allocated toward companies looking to help DAOs grow. But without any clear regulatory guidance, the increasingly diverse DAO industry and its participants could be shut down in the U.S. by broadly sweeping regulation or continued lack of regulatory clarity. With DAOs continuing to develop and gain traction and Wyoming being the only state to pass DAO-related regulation, DAO regulation is one of the biggest trends to follow in 2022. Note: If you’re looking for more information on DAOs generally, I highly recommend checking out the Dutchess’ DAO reading list.
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 UPCOMING DAO EVENTS: DAOs and the intersection of tech & media with Kinjal Shah (Blockchain Capital) We've got some amazing conversations lined up for 2022! To start, join Landon Campbell and Daniel Smith in a conversation with Kinjal Shah from Blockchain Capital about investing in Crypto & Blockchain companies, DAOs, and the intersection of tech and media. If you're interested in learning more about the world of DAOs, come check out our first event of 2022 on Jan. 5. Register for free.
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DAO Regulation: Securities & Recognition Like anything involving crypto in the U.S., there’s always one unknown liability that could destroy a project overnight: securities regulation. The SEC’s favorite way to kill a vibe has constantly hindered the development of digital assets since the existence of digital assets and is a problem that bleeds into DAOs as well. In the earliest example of DAOs and securities regulation actions, Genesis DAO was the first DAO created in May 2016 by a few Ethereum members of the Ethereum community. Within a year, the SEC took action against Genesis DAO, finding that the DAO tokens were securities. However, even if tomorrow SEC Chair Gary Gensler came out and said that DAO membership tokens did not constitute securities, DAOs would still have to face an additional regulatory hurdle: legal recognition. Without being legally recognized under U.S. law, DAOs are virtually unable to enter into contracts unless in a state that recognizes DAOs, and its members would be directly exposed to vicarious liability for any legal action taken on the DAO. During NFT.NYC, I got to meet up with some of my friends at TileDAO for an IRL gathering with SquiggleDAO. For the rooftop event to occur, someone was required to get insurance for the venue and sign a liability waiver. Because DAOs are not legally recognized in New York, the DAO couldn’t enter into the agreement, and an individual person had to step up and take on the liability. When a WAGMI embodying member stepped up to do it, I was admittedly horrified and spent the first hour of the event looking out for potential tripping hazards, spilled drinks, or anything else that could result in a personal injury lawsuit. Thankfully, after some music, conversation, and gin and tonic, I got over it and enjoyed the party. Yet, even after it was over, I couldn’t help but think about what other steps along the process that made that event happen required a few individuals to step up, face risks, and act on behalf of the DAO. How was the contract between the artists or venue filled out? Who incurred tax liabilities to pay for services that the whole DAO enjoyed? Without the ability to handle affairs or enter into agreements with others, decentralized autonomous organizations felt a lot less autonomous. Fortunately, Wyoming stepped up to the plate and passed a DAO law in 2021, and we’ve also had some commentary from a16z and others on what DAO legal frameworks should look like. I’ll spare you from reading about traditional legal entities in this newsletter and focus on current regulatory frameworks for DAOs and other frameworks that were proposed in 2021.
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The Current Regulatory Landscape for DAOs (U.S.) While we all still wait on clearer regulatory clarity in the U.S. on crypto and securities regulations, some states have taken a proactive step ahead for legally recognizing DAOs: Vermont and Wyoming. Vermont Since Wyoming passed its DAO regulation this year, the state has been championed as the first state to provide legal recognition for DAOs. After all, it was the first state to recognize LLCs, so it would only make sense. However, Vermont actually "legalized" DAOs just over a year after the term DAO was coined, but just didn't use the name. Instead, the state with more cows than people passed a law in 2018 formally recognizing what it called Blockchain-Based LLCs (BBLLCs). In essence, BBLLCs are legally recognized structures that provide for their governance through blockchain technology. The first company to take advantage of the new structure was dOrg, a web3 development collective that created the BBLLC to obtain protection from liability and allow the DAO to enter into contractual agreements. The founding team of dOrg claimed that the legal framework made creating a legally registered DAO as easy as creating a social media account, and to be honest, I'm not sure why we haven't seen more DAOs obtain legal registration since dOrg. Wyoming The biggest news in the DAO regulatory landscape in 2021 was Wyoming's newly enacted DAO legislation. The timing of the new law and the incorporation of the name DAO put a spotlight on the new law and gave many DAO participants hope that the organizational structure would be a step closer to legitimacy. Under the Wyoming legislation, DAOs can register as an LLC without the need for a board of directors and can democratize control over the entity to members of the DAO. The American Crypto Fed DAO became the first legally recognized DAO filed in Wyoming with the Secretary of State's Office. Soon after, BLOCKS DAO incorporated in the state, and more were expected to follow. However, the legitimization of DAOs in Wyoming hasn't gone over as well as expected. Soon after its recognition, The American Crypto Fed DAO became the target of an SEC action that blocked the further issuance of the DAO's currencies. Admittedly, when you look at American, the DAO's mission is unique even for DAOs and doesn't seem to have a clear path forward. While I can't speak on the legitimacy of the project or the missions it's trying to achieve, the SEC's action has put a damper on the continued search for legal recognition by DAOs and has raised concern over DAOs never clearing its first regulatory hurdle.
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DAO Regulation: 2022 and Beyond The U.S. regulatory environment has consistently been slow to adapt and provide comprehensive legislation for emerging technologies. At the pace U.S. law moves, it can feel a bit strange to search for a legally recognized DAO when the verdict is still out on whether XRP is a security. However, the crypto industry has continued to adapt to traditional finance regulation while simultaneously modernizing the financial code, and there’s no reason that DAOs couldn’t do the same with corporate structures. Following the current U.S. regulatory framework, a16z’s David Kerr and Miles Jennings wrote a proposal for a legal framework for DAOs in the U.S. in an effort to bridge current regulations to DAOs. Under the proposed frameworks, DAO treasury activities would be “wrapped” and operate as unincorporated nonprofit associations. Highlighting the similarities between DAOs and traditional partnerships and corporations, the a16z framework would enable DAOs to act in the same way for transactions that fall under separate and distinct protocol activities. While the a16z approach is compelling, I would not personally advocate for this framework in its entirety (maybe I’ll share more on this in a later newsletter). What I do like about it, however, is that by solidifying an organization structure for DAOs, a16z’s proposal strives to foster the further development of DAO regulation and even throws the U.S. the opportunity to talk about DAO taxation for bait. Despite my issues with some sections of the framework, a16z’s proactive stance on DAO regulation opened the door to a broader conversation with U.S. regulators and hopefully will bring on more framework proposals, and potentially federal DAO legislation, into 2022.
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 INSIDE CRYPTO EVENT RECAP: DAOs Disrupting With Code In August, Inside held a DAO event with experts and industry leaders in the space, including: If you missed the event, check out the full event playlist on our YouTube page for the full presentations and Q&A Session!
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This is not part of the trend analysis, but I wanted to take a moment to thank you all for reading Inside Crypto in 2021, and I hope you enjoyed these 2022 trends to follow over the past couple of days. Special shout out to Aaron for taking the time to edit these longer-form trend reviews for me, and to the entire Inside team for making writing for Inside such an enjoyable experience. Happy new year, and I'll see you all next year. - Griffin
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UPCOMING EVENTS: - January 04 - Venturing in VC Episode #1 - featuring Turner Novak (Register Here)
- January 05 - DAOs and the intersection of tech & media with Kinjal Shah (Blockchain Capital) (Register Here)
- January 06 - Augmented and Virtual Reality with Timoni West (VP of AR/VR at Unity) (Register Here)
- January 11 - The Business of Interactive Gambling with Jon Kaplowitz (Penn) (Register Here)
- January 11 - Venturing in VC Episode #2 (Register Here)
- January 13 - Education within the Metaverse with Steve Grubbs (VictoryXR) (Register Here)
- January 25 - Need To Know NoCoder - Leon Young (Cogniss) (Register Here)
- January 27 - Understanding the Metaverse (Register Here)
- February 03 - Blockchain Gaming & Play-to-Earn Economies (Register Here)
- February 10 - The Business of Wellness (Register Here)
- February 17 - Customer Acquisition in a post iOS 14 world (Register Here)
- February 23 - Need to Know NoCoder: Derya Sousa (Kianda Technologies) (Register Here)
- February 24 - Alternative Investments (Register Here)
- March 03 - The $12B Appetite for Amazon Aggregators (Register Here)
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 |  | Griffin McShane is a New York transplant currently living in Brooklyn, NY. He is a graduate of Providence College, where he studied both computer science and business, and the University of Maine School of Law, where he earned his JD. Beyond his work at Inside, Griffin has written articles for CoinDesk and is a member of the International Association of Privacy Professionals (IAPP). | | | | Editor | Aaron Crutchfield is based in the high desert of California. Over the last two decades, he has spent time writing and editing at various local newspapers and defense contractors in California. When he's not working, he can often be found looking at the latest memes with his kids or working on his 1962 Ford. | |
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