Use of Smart Contracts

Use of Smart Contracts for Membership Tracking and/or Governance

• A benefit of the DAO LLC is its ability to make smart contracts (e.g. tokens to track membership or governance smart contracts to handle governance decisions) legally responsible for aspects of your company.

• Smart contracts are not required to be used in any way.

• Many DAO LLCs choose to start out with a structure similar to a traditional LLC (tracking membership on paper and making governance decisions off-chain) and then later transition to using tokens and other smart contracts when they are ready.

  • This is especially common because projects often want to create their DAO LLC before launching a token or other smart contracts so that those actions are covered by the DAO LLC's liability shield.

Discrepancies/Conflicts Between Smart Contract Code and DAO's Formational Documents

• If there is a discrepancy between a smart contract and the operating agreement (e.g., one says a particular decision was made, and the other says otherwise), the operating agreement supersedes the smart contract, because the operating agreement is the source of truth for the organization and must define how smart contracts are involved.

• DAO LLCs often choose to write their operating agreement in such a way that all membership and/or governance decisions are completely delegated to the smart contracts, such that a relevant conflict cannot occur.