Finance

Blockchain-managed DAOs as an alternative funding source? Experts weigh

Blockchain-Run DAOs As Alternate Source Of Finance? Experts Weigh In

DAOs can be used for many purposes, but are mainly applied to charities and raising capital.

Cryptocurrency made global headlines in the most unlikely way during the Russian-Ukrainian war. Whether it’s US lawmakers’ insistence on enacting legislation to sanction foreign crypto companies doing business with sanctioned Russian entities or Ukraine receiving funds via cryptocurrencies, any of these methods was through the Decentralized Autonomous Organizations or DAOs.

DAOs, like cryptocurrencies, are powered by blockchain technology. Raj Kapoor, Strategic Advisor, equiDEI, explains DAOs in one line: “DAOs are an internet community with a shared bank account where people use the Ethereum wallet.”

According to the Ethereum website, the smart contract defines the community rules of a DAO and no member of the community can change it except by vote.

DAOs can be used for many purposes, but are primarily applied to charities and raising capital – the former being the case during the ongoing war.

UkraineDAO, a special initiative of Pussy Riot music group founder Nadezhda Tolokonnikova, has raised over $6 million by selling Ukrainian flag non-fungible tokens (NFTs). According to its official website, all proceeds from the sale will go to “Come Back Alive”, a non-profit organization that helps the Ukrainian military.

“The Ukraine DAO case shows that a decentralized structure can be created quickly and inexpensively and engage with a community around issues of global concern,” says crypto expert Anndy Lian.

The UkraineDAO project, Lian observes, is an indication of how DAOs allow charities to bypass bureaucratic delays and direct funds into the pockets of those in need. “DAOs are more formal means of channeling funds and with less expense in terms of money transfer fees,” he adds.

DAOs and its future

While the Russo-Ukrainian war has shone a light on the DAO – and crypto assets in general, this is not the first time a DAO has raised funds for any cause. For example, in November 2021, ConstitutionDAO hoped to raise funds through a DAO to purchase a copy of the US Constitution.

“A DAO is a great way to incentivize the population during a war – an alternative form of financing. Russia and Ukraine have the opportunity to see how the DAOs work, understand their shortcomings and improve them. This war can be a step towards DAO adoption,” Kapoor says.

However, there are concerns about the possible use of DAOs to circumvent global sanctions. But Lian says crypto transactions are not anonymous and can be traced through a public-private partnership. Thus, he says, any illegal embezzlement of funds can be brought under control.

There is also the broader problem of DAOs that lack a consistent regulatory framework. Cryptography expert Lian supports a global DAO framework for greater sustainability. “A lead should be taken internationally, for example through the UN, as well as by individual nation states if the DAOs are to prove sustainable,” he said.

CAD in India?

In India, DAOs are likely to add another dimension to the financial sector. “India finds the role of self-governing organizations to be cost-effective and useful for ease of doing business. They can have a positive impact on business bottom lines,” says crypto veteran Kapoor. He also adds that DAOs don’t need cryptocurrencies, arguing that DAOs use blockchain technology which can also be used to build a job portal or ridesharing app.

The issue of regulation of DAOs and other crypto-related products is the elephant in the room that has yet to be addressed in India.

Kapoor believes the government will eventually be open to adopting DAOs if it sees the benefits. India is concerned about the misuse of crypto assets for terrorist financing and money laundering. Kapoor says a regulatory framework, which he says will come once DAOs are brought under a legal mechanism, will control any abuse.

But the fine print of such a settlement will be of paramount importance. Kapoor explains why: “DAOs eliminate the need for a central authority. Regulating DAOs poses the problem of legal identity. Forcing DAOs to conform to an existing corporate structure can negate their decentralized nature.”

While provenance and compliance can always be key elements of regulations, it will be difficult to fit “smart contracts” into a framework as no changes can be made after they are created and this could be an issue if contractual circumstances change, he notes.

Kishan Srivastava, co-founder of SDLC Corp, a crypto development and marketing company, says regulation needs to enforce KYT (know your transactions) mechanism to combat money laundering and terrorist financing through DAOs . “The KYT mechanism will focus on transaction behavior rather than user identity. This can help not only monitor real-time transaction behavior, but also ensure user privacy,” he said. declared.