Decentralizing Organizations: From DAOs to LAOs – Aaron Wright

hey everyone my name is Aaron right I'm the co-founder of open law I'm really excited to be here today to talk to you about Taos and not just aus but really the future of what we can do with dows which is begin to put together dowels that are not just grant-giving but actually can invest and create a profit for its members so look when you think about organizations they've existed for thousands of years pretty much since the birth of civilization we've been figuring out ways to pull capital together in either guilds into partnerships or other illegal entities in order to fulfill some sort of social or economic goal and these entities are incredibly important so when we're thinking about building out ecosystems it's not just really just about assets but the real value that we can contribute is by thinking about how we can pull capital together and deploy it for positive social and/or economic purposes and with each new we get there and with each new era of innovation we've seen innovations when it comes to is that ok ok sure sorry about that and with each new wave of innovation we've seen really innovation when it comes to forums of legal entities and other ways to begin to pull together capital so the Age of Exploration really brought with it the first charter corporations that would have been possible without it the industrial era really brought the joint stock company which many folks have credited is one of the most innovative human innovations of all time the railroad boom brought with it preferred stock which is really what powers the venture capital industry and the oil shocks and the growth of global finance in the late 1970s and 1980s has really been a driver and driven exclusively by limited liability companies for aetherium really to fulfill its vision we need not just a way to pool capital in a way to deploy it for grants we actually need it in a way to create profitable enterprises and dows in many ways are a great way to begin to think about funding projects right so if you're if you're intending to build an open-source project of some sort and you need funding for that project and intent to build a project that's decentralized and token-based days are going to be a great way to do that and I'm gonna impact that in a little bit as well so for folks that haven't been paying as close attention to the dow space about a year ago amin and others began to put together in maalik Dow which was a set of simplified smart contracts that enable people to pool capital vote on certain proposals in a very democratic way and then provide grants so we've been working with Amin and his team and we are proud to announce that we've released a second version of molix smart contract code which it now enables not just grant giving but actually engaging in for-profit enterprises and so Malik in many ways is really a turning point which can help us really accelerate the growth of organizations and as more broadly so Maalik v2 really solved it at the technical level so now we're able mechanically using smart contracts to begin to pull capital and make investments and receive back tokens for those investments but it didn't solve many of the legal issues that we saw with the day off the bat and for those had don't remember the Dow was fantastic in many ways but also ran into a tremendous number of legal problems and really started to kick off some of the pushback from the federal government here in the US when it came to I cos more broadly but we've solved those legal issues through the tooling that we put together through open law we're actually able to build for the first time Dow's that are not just code base but also provide members limit a limitation of liability and kind of structure things so that if something goes wrong there's at least the legal backing to know what those rights and obligations are and this is a kind of a big deal right so before the Maalik be to smart contracts and before the tools that we developed with open law we really could only have these code base doubts so you know folks think that bitcoin and a theory amor many ways operate like a dao we've seen grant-giving downs like what Moloch was providing Medicare tell yang Dow and obviously make her down and some other forms of code base down structures but now that we're able to kind of marry the code with these legal wrappers we can begin to explore a whole host of new avenues new organizations and new structures that I think will not only accelerate the etherium ecosystem but will actually prove to be the engine for growth in the web 3 era and allows really the first example of doing this in earnest so we were blending together the tools with open law along with along with the Moloch vv2 smart contracts in order to rebuild the adapt but to do it in a way that's a in the based in the US and in compliance with US law that means that we can begin to pool capital and make investments in projects that need it that can be entirely member-directed and it can be a new way to fund projects or other initiatives that are going to be important for the etherium ecosystem and incredibly and I think importantly what we're doing here is a lot like what coinbase did with exchanges so before coinbase was around there was plenty of other exchanges that were operating in different jurisdictions around the globe most notably now now GOx and a lot like the dow mal cox ran into security issues and also had regulatory problems so our approach is to do this here in the US we think if we can now this here and do it the right way here in the US then we're going to be able to scale these entities globally so what does that mean so the Lao is gonna be launching at the end of the month it will be a pretty much organized as a venture fund in Delaware which is where you set up entities we'll have a public sale where you're gonna be able to purchase 1% interest in allow for twenty five thousand dollars up to ninety members are like are going to be able to become part of the Dow and then all of the investment decisions and operations of how this entity will work will rely on Mao it could be two smart contracts so the structure of what to think about is the law kind of sits or in the middle it's entirely member managed open law which is kind of sitting in the background handles all the basic administrative tasks that are going to be needed to deal with various different meatspace issues and will be able to support a whole ecosystem of projects that the community thinks is important for the growth of etherium and also the blockchain space more generally I think that's critically important because in many ways we've seen that the traditional venture capital community has gotten aetherium wrong right they missed a theorem off the bat they've missed a number of the incredible projects that have come out of this space we think that the etherium community is better at doing that than traditional venture capital and this is a means and a mechanism in a way for them to do that so for projects that may be interested in receiving financing we've streamlined that entire process so folks will be able to receive financing if members approve it on a take-it-or-leave-it basis the entire fund will be based in crypto so to contribute and become a member of the Dow you will have to pledge either but projects would be funded and died and so we've set up the allow to have to default ways to finance a project one is with a convertible note with a right to receive tokens in the future the second is pretty much a Surry seed financing where a project in tokenize themselves actually create a Sto or tokenized security which would be useful along with those tokenize rights and we will basically provide the legal automation tools so that the moment that the members approve the financing all the paperwork is generated on the backend so a member of our team likes to call us on the Obama team a reverse mullet so we're kind of a party in the front but all business in the back and that's actually really helpful right so if something goes sideways if there's a problem at least you have this legally binding paperwork that describes the rights and obligations of everybody any member will have the right to nominate a start-up or a project or some form of financing from the Lao and and if 50% or more of the members as based on their capital contributions approve the proposal the startup or other project will receive financing and all the documents or automate are automatically generated all on the backend so a lot like with Moloch members will have the right to rage quit so if you are a member of the the Lao and you are not happy with the performance or some or you want to use your ether for some other productive purpose you'll be able to get that capital back if some of the capital that you pledged has been used for investments up until that point in time that's that's fine you will have the right to receive any proceeds from that investments on an ongoing going ongoing basis and any exiting member will have their interest resold to the public so it's conceivable unlike other funds that the Lao will exist in potentially perpetuity so as long as there's demand for new members to come in the Lao will be in existence so this is really kind of the first first day that we think we can put together our goal and our intent is actually not just to put together one Dao that can actually fund these types of investments but in a whole ecosystem so we're starting with a pretty nice experiment up to 100 members $25,000 for 1% interests but assuming that there's enough demand for this there will be an entire ecosystem where we can spin up now after Dao after Dao and what I think is incredible about that is that we'll have the opportunity to have all these funds that are all pointed towards funding projects in the blockchain space that are all synchronized on the backend they're relying on the same smart contract code they're relying on similar tooling that we may be providing which means that we can begin to build and really and and rebuild Silicon Valley in the sky right we can build it on ether aetherium relying on ether and funding these projects on an ongoing basis the other thing that we're really interested in exploring is using dows itself for fundraising so in our sense this model works better or represents a better way to raise capital and build decentralized token-based protocols we think that you can set up a software company or a foundation of that your choice you can create a doubt to raise cap capital publicly from verified and accredited investors and the protocol or project and request funding through a convertible note with tokens what that means is that then the members inside of the DAO are able to determine when the network itself is ready to deploy the token when it's sufficiently decentralized the members of that Dao the investors will enjoy limited liability to the extent permitted by law and if the project's go in sideways instead of having your capital locked up in some sort of way like we've seen in other token based projects you're gonna be able to pull that capital out and so if you invested in a project for a small period of time that's fine you'll enjoy the proceeds of that investment but if the project is not developing the way you thought it would either because they ran into unexpected technical issues or the team wasn't as strong as you initially anticipated completely fine you'll be able to pull your capital and kind of move forward so you know dowels are coming I know we've we've talked about them in 2016 and 2017 and then we kind of got and moved into a VI CO and token boom era but really dows are an incredibly important part of the theorem ecosystem there they're coming there were here on the smart contract side in order to start facilitating this but we're also here on the legal side to begin to facilitate this here in the US and I think that's incredibly exciting and really going to be the path forward for the etherium ecosystem going forward so I don't know if there's any questions but that's all I have questions yeah what are the limits in let's see what kind of limits to investors who are not accredited investors face in investing in these types of organizations and are there any is there any light are there any promising legal avenues through which through restructuring things you could start opening this up to people who you know don't have a million dollars yes so I think we're gonna get there so again our the way that we want to approach is is a lot like coinbase right coinbase started they listed Bitcoin off the bat at that point in time they could have listed a whole host of other assets that were there but they started with one that they complied with the law and then they block-and-tackle their way to building out a robust marketplace that can host a whole bunch of different assets we think that's the right approach for dows themselves so we're starting with the credit investors but we have structures that we think can work and arguments to support those structures that we think we can begin to deploy once we develop a degree of trust to get non-accredited investors involved but that's gonna take a little bit of time to get there the other thing that's interesting for dads themselves and this is something that we're interested in exploring is that dows can hire folks right so maybe there's opportunities to get involved in a project or even in the Dow itself and ways to receive interests in that project by just participating or developing a relationship with with that Dow so I think we're getting there we're kind of starting like the at Ground Zero but I think over the next five 10 15 years we're gonna start to see it bleed out that we can begin to get unaccredited investors involved and the reason I think that that's gonna work is that I think a whole bunch of folks online that don't necessarily know one another or trust one another it's gonna be pretty difficult for that group through the majority voting of the day of data stroke structure to defraud one another right and that's the big concern that I think governments are worried about they're worried about somebody some somebody with a lot of power defrauding other folks instead of people coming together with equal access to information to do something productively together so is there what I need a change in the law we may just need some clarifications so all the legal law you know listen the US has gotten a bad rap when it comes to the legal regime but dows are we're able to launch member you know member managed organizations here through limited liability companies that was birthed in Wyoming and we have a lot of flexibility other jurisdictions can't do that and even even with the interest in those entities there's a decent argument one that we're gonna probably need to clarify or push on that those interests themselves may not be securities and that would enable a credit investors to get involved but we have to kind of work our way there obviously dows around the radar of various government agencies they picked on the dow off the bat so anything I think we do in this space they're gonna pay attention to and really take a close look at is there a way to like use like know your customer laws to get around the non accredited investor issue so is there ways to get around that so such as like I know you're a social know your customer or like so there may be you know in order to participate off the bat you're gonna have to verify your identity we will not disclose that information so if you want to participate in the Lao or anything that we put together anonymously you're able to do that but at some point that information needs to be collected that's one of the services that were providing the Obon law in terms of getting around that I if you've been paying attention you know lots of governments including governments around the globe are trying to make sure that anywhere around the globe you're not around you're not going to be able to get around some of those requirements yeah yeah if you're doing all the backend what's service fees are you gonna be charged and allows sure so open law will charge a two percent service fee in year one but it will deprecated overtime so we think it's important that we're incentivized to develop the dap and actually do what members may need as they begin to kind of explore the structure but at the same time we don't want to eat the fund so our goal long term is to keep that rate as low as possible what we thought 2% was a reasonable way to start to start off for the services did you have a question as a this a little bit touches back on the accredited investor question specifically for the the you have to have a net worth of Ojai to be accredited investor in the US yeah you spoke a little bit to the anonymous part whether you proving her identity or not but as far as in the being accredited investor with having a certain amount of of wealth involved is is there a legal path to not needing that requirement based off of the the public knowledge of the Dow that might be a be invested in yeah so the big issue with all this is you you can't raise capital for either funds or other projects if there's a general solicitation if you generally request it from the public unless you're you go public I follow the paperwork necessary to be a publicly traded entity or your you qualify for an exemption like your accredited you are an accredited investor that being said there's some strong case law in the u.s. that suggests that if you're a member of a partnership some sort of organization where everybody is on equal footing there's no dominant member of that entity and everybody has equal access to the information necessary to manage that entity that the interest in that entity is no longer considered a security so partnership interests as an example are not considered securities if me and you started a company we had equal rights to manage that it would not be considered a security the interest in it so if it's not a security you're not going to need to necessarily comply with securities laws so there may be some avenues to kind of get there there's some questions about the extent to which that's going to apply in this space that we need to work through yeah follow up on that question in that scenario if you have like an LLC with a thousand members who are all equal kin and it's not a security kid people sell their share in membership that's that that's the vision that you can get towards at that point the interests in the fund could be potentially fungible at that point in tradable so we're not there yet but we need to start at Ground Zero right we we did that with the Dow is a glorious experiment but we need to move beyond experiments and we need to be move beyond grant-giving in order for us to really take this all to the next level we're gonna need to pull together our capital right you can't do that much just your trading you need to pull together capital and deploy it for productive purposes that's when we're gonna have the real impact that I think many folks within this ecosystem want to have and this is a good first step towards doing that as we push towards this vision of permissionless organizations and permissionless financing and Silicon Valley that's not tethered to one area in the United States but really is equally available to everybody across the globe that's why I got into aetherium way back in in 2014 and 2015 and that's why I'm still here today I think we need to build that that that system that we have now is not is not healthy it's a little bit rotten and this is the path forward are you looking to eventually really release the your open law services to other governance like Aragon and colony yeah we are definitely open to exploring that so we do have some public api's where things can be integrated together so if there's a will there there may be a way [Music] you