DAOs have a ‘liability problem’. In fact, they have a number of liability problems. And these problems have serious repercussions on how a DAO can compliantly provide legal and fair employment and compensation. DAOs should be free to design any contributor compensation structure which fits the mission but shouldn’t need to solve the regulatory and legal hurdles associated with those choices.

In this article, we look to identify the various liability problems of the two primary DAO models and consider a solution to these challenges.‍

The legal standing of DAOs

To understand the liability problems we first need to look at the legal standing of DAOs. DAOs have a murky past concerning the necessity to recognize them as legal entities. The original DAO whitepaper in 2016 states:‍

The legal status of DAOs remains the subject of active and vigorous debate and discussion. Not everyone shares the same definition. Some have said that they are autonomous code and can operate independently of legal systems; others have said that they must be owned or operated [sic] by humans or human created entities. There will be many use [sic] cases, and the DAO code will develop over time. Ultimately, how a DAO functions and its legal status will depend on many factors, including how DAO code is used, where it is used, and who uses it. This paper does not speculate about the legal status of DAOs worldwide.

This has led to a deeper analysis of the legal standing of a DAO, with initial work broadly delineating two schools of thought about how to structure DAOs; Pure DAOs and liability-wrapped DAOs. They both work, yet they both have their limitations. Particularly when it comes to the rights, protections, and experience of their contributors and voting members.

Pure DAOs are purely on-chain structures that have no recognition in existing legal jurisdictions, nor need of recognition to the extent that they never enter into regulated activities and never need a real-world presence.‍

Liability-wrapped DAOs seek to elect a legally-recognized entity with the aim of electing an entity and jurisdiction which can provide liability protection for members and the ability to transact in the real world.‍

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We aren’t casting judgment on either model, we’re solely stating the facts of each. The market will determine the model that succeeds and that which is retired. Whether it be one of these models, a hybrid, or a completely different version entirely… time will tell.

The point we are making is thus; both models have a problem with liability that significantly impacts their contributor’s experience. Pure DAOs are unable to legally employ contributors, nor incorporate to protect contributors from being liable for the actions of the DAO. Liability-wrapped DAOs can legally employ contributors, yet the realities of being compliant within every jurisdiction that their contributors live and work in is untenable.‍

Find out more: https://www.theworkdao.com/

I believe two things to be fundamentally true in relation to DAOs and the wider Web3 ecosystem:

1. DAOs are growing rapidly.

DAO Treasuries surged 40X to a whopping $16B amidst the bull market of 2021. In today’s choppy market this figure still stands at an impressive $11B.‍

2. Regulatory scrutiny and pressures are increasing (and will continue to do so).

This is clear with the circulation of Model Acts such as the DAO Model Law and with the recent announcement by the US government that in the 2023 tax year, crypto exchanges will be required to issue a 1099-B.

DAOs are the future of collective capacity. They represent an unprecedented ability to coordinate and organize resources and people towards a common cause. But, for DAOs to continue to scale and build at the rate required, they need to be able to provide a legal and compliant employment environment for their contributing workforce.

Specifically, they need to be able to answer these questions;

• How do we legally and compliantly pay contributors in multiple countries with a mix of fiat and crypto without the intense operational overhead?

• And, how can we support our contributors in managing and paying their taxes, regardless of their compensation structures or regulatory jurisdiction?

Without the answers to these, both DAOs and their contributing members risk hefty taxes, fines, or even jail time.

So far, this is a conversation that has been put into the “too hard basket”. No one is willing to do the heavy lifting on token payroll or prefers to hide under the sheets in the hope that the crypto-tax monster doesn’t get them.

Not us.

We understand the need for a solution to compliant token payroll and crypto taxation is so critical to the next phase and continued growth of DAOs that we’ve tackled it head-on.

Our proprietary tax engine has an integrated token and fiat payroll system. We handle the calculation of withholding taxes and delivery of tokens to contributors based on the existing tax laws of their jurisdiction for tokens, RTUs, RTGs, RTAs and more.

• DAO / Web3 contributors will receive a comprehensive, conservative and predictable tax bill each month

• DAOs / Web3 organizations will be able to use crypto in their compensation package compliantly

• Contributors will have no unexpected tax burdens and legal ambiguity for compensation that they receive‍

WorkDAO’s goal is to provide a contributor experience second-to-none for your DAO or Web3 native organization.

We know that reducing the burden of compliant tax management is key. And, by being at the forefront of the increasing regulatory pressures, that enabling legal and compliant compensation and token payroll structures is critical.

With this solution, we hope to facilitate the continued growth and innovation in the Web3 space.

If you’re struggling to find the answers to your token payroll or tax problems, come speak to us: https://www.theworkdao.com/

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Gm,

I’m Rob Crabtree and I’m excited to be joining the team here at WorkDAO. In addition to other things, I have a deep background in Employer of Record (EOR) services; building, scaling & advising some of the largest global EOR platforms for almost a decade. Of particular note, I was the first employee hired at Velocity Global, a leading Web2 EOR provider, and as an executive, helped the company to become number three on the Inc. 5,000 list of fastest-growing private companies while scaling to over 100 employees across a multitude of countries in less than 5 years.

I’m joining WorkDAO as Chief Operating Officer with the goal to create an unmatched global employment experience intended to delight Web3-native organizations and their contributors.

I view the work that WorkDAO is doing to be the next evolution (if not, revolution) in the global employment space. The whole concept of work is shifting and WorkDAO is leading that charge.

Why I joined WorkDAO

DAOs represent a monumental paradigm shift in how work, works! We’re moving away from the prescriptive to the personal. From the corporate to the community.

As the ecosystem of Web3 and DAOs exploded, I recognized the increasing need for an employment solution specific to the needs of this space. By crypto-natives, for crypto-natives. Employment in the DAO world is complex and still very much developing. DAOs are built on-chain, in a world designed for on-chain regulation and oversight. The challenge is bridging this gap between this old world and new, to ensure DAOs can operate in an efficient manner while still retaining their core essence. But, doing so in a way that ensures legal compliance and fairness for the DAO, its contributors, and governmental stakeholders around the world.

WorkDAO is that solution. We’re not just redefining a category, we’re defining a whole new industry. Very rarely in your career do you get to be part of something so impactful.

We deeply understand the needs of our customers. We focus on providing solutions to handle the hard, complex labor and tax responsibilities in jurisdictions where we operate. These solutions include:

• crypto-native Employer of Record services,

• token tax and payroll processing,

• HR business partnership services,

• indemnification of employment liability,

• and, intellectual property (IP) custodianship for DAOs.

Our mission is to create the best working experience for contributors and unlock legal, compliant employment solutions for a whole generation of DAOs.‍

I can’t reiterate enough how excited I am to be a part of this team. We are striving to change the world of work and bring it into the future that is Web3.

Also, if you’re looking for a new opportunity, I highly encourage you to check out our Careers page to see if there’s a role that could be the perfect fit for you.

Come work in the future…today: https://www.theworkdao.com/

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The Bank Secrecy Act is US legislation that requires financial institutions to provide documentation to regulators whenever their clients deal with suspicious cash transactions involving sums over $10,000 in value.** **It’s part of the wider anti-money laundering (AML) and know-your-customer (KYC) programs that the US government instated to ensure there was transparency and accountability in financial transactions.

And you’re probably in breach of it.

I’m not in the US — how can this affect me?

Sure, you might not be but I bet a number of your contributors, members, or customers are. The key point to note is that this legislation applies to anyone that transacts with someone based in the US. While your Web3 organization could be completely on-chain or have an entity established in the Marshall Islands, you can still be in breach of the requirements if you buy, pay, award, grant, compensate anyone US-based.

We’re a DAO, not a financial institution, why does this matter?

Three letters; K, Y, C, know-your-customer. The anonymity of Web3 creates significant risk here. You have very little personal information on the members and contributors within your DAO and are therefore at risk of being in breach of KYC regulations.

If a contributor completes a quest, bounty or project, and you reward them with tokens over the value of $10,000 — you’re in violation. If a contributor is based in a jurisdiction currently sanctioned by the US (Iran, Russia, etc) and you compensate them in stablecoin — you’re in violation.

The New York State Department of Financial Services announced as a direct response to the ongoing Ukraine conflict that it requires all virtual currency transactions to be controlled through:

• Use of geolocation tools and IP address identification and blocking capabilities to detect and prevent potential sanctions exposure.

• Transaction monitoring and investigative tools, including blockchain analytics tools, to identify transaction activity involving virtual currency addresses or other identifying information associated with sanctioned individuals and entities listed on the SDN List, or located in sanctioned jurisdictions.

A recent example serves to highlight these points. Two founders and executives of BitMEX pled guilty to willfully failing to establish, implement, and maintain an AML program. They had an established entity in Seychelles but were actively transacting with customers based in the US and were deemed aware of their KYC/AML responsibilities, yet chose to ignore them. This resulted in a $20 million suspended penalty and ending all operations within the United States and no longer serving any US customers.

These regulatory pressures are not going away anytime soon either. The SEC has just announced they’re doubling the size of their Crypto Assets and Cyber Unit. With a focus on “protecting investors” from everything that the SEC views as currently unregistered securities or securities platforms. It’s a vague definition and one that suggests; they’re going to look at everything… in much greater detail.

What’s the solution?

It’s complex. In some cases, DAOs & Web3 organizations that are deemed to be “Money Service Business” will need to apply for licenses and registration, state-by-state, jurisdiction-by-jurisdiction. In others, it’s ensuring you have visibility over the necessary personal information of your DAOs members and contributors to ensure transactions aren’t non-compliant with sanctions or other regulations.

Or, you can partner with WorkDAO.

We’ve done all the hard work, set up the entities, and got the registrations. We can facilitate payroll and compensation in fiat, cryptocurrencies, or tokens, anywhere in the world. Our solution allows you to enter into full and contract employment agreements with your contributors ensuring you have visibility over their personal information and location to avoid any violations of sanctions compliance.

We’re the only crypto-native employment solution that can legally & compliantly handle payroll, tax, benefits, and HR.

If you want to find out more: https://www.theworkdao.com/

Web3 might be the new kid on the block but the leaps it has made in changing the way the world works are immense. And this transformation isn’t expected to slow any time soon with the Web3 ecosystem predicted to be valued at over $87B (USD) by 2030.‍

But this growth comes with a responsibility on founders and leaders in this space to set a better standard for contributors and their employment experience. This is a real opportunity to redefine the way of work and built a reflective and equitable structure for organizing the labor of the future. One critical part of that responsibility is getting employee benefits right to incentivize and support the next wave of talent entering Web3.‍

In this blog, we put together our vision for what the future of the Web3 employee benefits stack should look like. We’ve centered it around 3 key principles that are fundamental to the values of Web3:‍

1. Loved by the community

2. Tailored for fully remote & asynchronous teams

3. Designed by decentralized teams, for decentralized teams‍

Loved by the community

Web3 is ALL about community. It’s about collective ownership, common goals, and shared value. That’s why we think that an effective Web3 benefits stack needs to consider the community at its heart. That includes providing total well-being for employees and their families, financial stability, and stimulating growth within individuals, organizations, and the ecosystem as a whole.‍

Local labor laws and regulations set the minimum requirements but we take the position that these should be seen as the floor, not the ceiling. Benefits like healthcare, paid leave, and pension contributions are typically included in “traditional” benefits stacks. But there is so much more we can be doing within these traditional benefits and beyond to set a new standard for contributor experience.‍

Healthcare

Access to healthcare is a fundamental human right and shouldn’t be dependent on your employee’s domicile. The Web3 ecosystem is global and healthcare access can vary hugely from county to country making it difficult to put in place a comprehensive policy that can meet the needs of a global team. But that shouldn’t be an excuse.‍

WorkDAO works with leading health insurers all across the globe to ensure that our partner organizations can provide full-stack health access to their contributors at a level that you can be proud of regardless of their country of residence.‍

Mental health and wellbeing support

The world is waking up to the critical need of putting mental well-being at the heart of our employment infrastructure. Many of the benefits reflected here play a huge role in an organization being able to provide as much effective mental health support to their employees as possible. But that’s not enough.‍

Mental health awareness and support needs to be built from the foundation of your employee experience — especially in a Web3 ecosystem. Employee check-ins are usually virtual, the workload is heavy, and it’s a fast-paced, dynamic, and testing environment. All of these add stress and limit the ability of managers to assess the emotional health of their employees. By ensuring time is dedicated to checking in on employees to make sure they are dealing with these pressures and providing the tools or resources such as access to occupational health professionals organizations are not just showing they care, they are actually taking action to achieve it.‍

WorkDAO approach towards mental health is both preventive and reactive, the tools that we hand to our contributors help to keep a healthy mindset ona daily basis. But if a crisis comes we have the best specialist available for you to address your individual issue.‍

Paid time off

Paid leave is a vital part of attracting and retaining the best talent. Studies show that vacations can increase employee performance by up to 80% as well as ensure your employees feel valued and supported at work.‍

But these policies come in many shapes and sizes. A lot of the conversation has been dominated by the idea of unlimited PTO over the last few years as more organizations move to adopt what seems to be a progressive and meaningful stance on employees taking leave. The result is somewhat less clear, however. Recent reports suggest that unlimited PTO policies tend to lead to less time being taken away from work and an increase in employee resentment towards each other. These policies have failed because although they are poorly executed or not meaningfully communicated within organizations.‍

This is more crucial than ever in the Web3 environment. It’s a fast-paced world that never sleeps and the temptation to be ‘always on’ is hard to resist. For Web3 organizations, it is key that paid leave policies are designed and communicated with intention, clarity, and (if need be) enforced to ensure employees are taking the time they deserve and need to recharge regularly.‍

Family/special leave

Life happens and sometimes you need to be able to switch off from work to deal with it.** **One of the challenges of working in Web3 is the thin veil between your personal and professional life. While it’s vital to have clear boundaries to give your employees time to switch off and recharge, sometimes this isn’t possible when the two worlds collide and often these situations can be difficult to explain to your manager.‍

That’s why we advocate for special leave considerations such as “Me days”. Days where employees can be away from their computers to do whatever they need to be doing — no questions asked. Of course, organizations need to set some boundaries around this to avoid it being exploited but the benefits to employee morale, wellbeing, and overall job satisfaction are worth it.‍

Exercise and recreation programs

Physical activity and exercise away from your desk is something that needs to be encouraged in all fields but even more so for Web3. Web3 jobs are predominantly desk-based meaning contributors very rarely get an opportunity to get their bodies moving if they don’t make the effort. Research shows that exercise helps reduce stress, work fatigue, improve mental performance, and keeps the employee happy and healthy. Organizations supporting physical activity through subsidized gym memberships, allocating time off for exercise during the work day, supporting extracurricular recreation, and so many other means is an essential part of maintaining a healthy and motivated workforce.‍

Risk benefits

As Web3 grows and is adopted more widely it is inevitable that organizations will succeed and fail. It’s important to note that this problem isn’t unique to Web3 as seen with some of the largest and most established global businesses. That being said, to ensure we can encourage the talent into Web3 that will enable the sustainable growth of the whole ecosystem it’s important that we can put in place the right protections and insurances. This includes things like life insurance or income protection insurance that will protect contributors’ pockets in the case of any hardship or layoffs that are out of their control.‍

Pension contributions

Saving for retirement is a necessity for most working people. In a recent survey of 309 DAO contributors — over 71% said they were saving for retirement. This is a pretty high average compared to research by the Federal Reserve Survey of Consumer Finances — especially given that most of the participants in the survey were between the ages of 20–40. However, very little of this saving is supplemented by the organizations through which these contributors are employed. Web3 organizations should be supporting their employees through supplemental pension contributions out of necessity and as a means of incentivizing employee retention.‍

Employee assistance

The world of Web3 can be tough. Human-to-human interaction can be limited, particularly when it comes to support, both in the workplace and elsewhere. The pressures and workload that contributors are under can become unhealthy and demotivating very quickly. That’s why we advocate for Web3 employees to have access to expert teams of global HR professionals who are able to provide advice and support for mentoring, conflict resolution, performance reviews, equipment, benefits, and much more. This ensures your contributors stay motivated, happy, and healthy in the workplace.‍

Education & training

Contributors aren’t given access to formal training programs. If they are keen on improving their skills they are left to seek the answers on their own or work with micro-communities of peers to solve problems. This creates siloed pockets of knowledge within the Web3 ecosystem and doesn’t encourage an environment of continuous learning.‍

WorkDAO is building a framework of sharing and education to ensure that these vital skills aren’t siloed, that contributors get access to the knowledge they need, and the whole Web3 ecosystem continues to flourish. From formal education programs to promoting information sharing across projects and communities.‍

Tailored for fully remote teams

Web3 organizations are fully remote and decentralized teams so we have taken the earnings from the most progressive existing benefits packages and paired this with the specific needs of Web3 teams here.‍

Real flexible working

Flexible working is a term that you will find attached to most job descriptions or working policies in 2022. But it is a nebulous phrase with so many possibilities that it is becoming almost redundant. Covering everything from being able to choose your starting time, to offering employees a day or two from home, to having complete autonomy of your location and work hours. Our view is that the world of Web3 requires the latter — complete flexibility. This is reflected in an Adobe study which shows that 51% of enterprise workers would prefer complete flexibility in their work.‍

Web3 is meritocratic. Employees are rewarded based on outcomes, not appearances. There is no weight put into the fallacies of “the last one person to leave the office is the hardest worker” or “being at work 30 minutes before your workday begins makes you better than your peers”. We need to celebrate and reward results regardless of how they are produced. If you choose to work early, from a different location, sleep in until lunchtime — you can, because you are truly autonomous.‍

Web3 organizations need to have the infrastructure in place to support this asynchronous work style and clearly articulate employee expectations to ensure efficiency doesn’t reduce. Putting those policies in place is not difficult and the benefits are immeasurable.‍

Home office allowance

If your team was centralized, working out of an office, you’d make sure they had a desk, a comfortable chair, and the necessary equipment to work. Why should this differ in a decentralized environment? Studies show that employees are 47% more productive working from home but this can drop off if the WFH environment is not adequately set up.‍

The productivity and employee satisfaction gains of remote working plus the reduced cost of needing office space is a real opportunity for any organization to provide that offer remote working. That being said, it is so critical that that environment is set up correctly to ensure efficiency and longevity. By providing an allowance for home office costs (internet, electricity, office set up, equipment, etc) Web3 organizations can ensure that the working environment of their employees is set up for success and effective working.‍

Access to co-working locations

The value of a changing work environment for creativity and avoiding stagnation cannot be overlooked. When you’re working within the same four walls day after day — life can become repetitive. Why not provide an allocation to employees that allow them to spend a few days a month in a shared working environment to give them a change of scenery, access to other professional networks, and help keep them motivated and engaged in their work.

Designed for decentralized teams, by decentralized teams

Decentralized decision-making is fundamental to Web3. Any orgnaization that wants to pull together an employee benefits stack in Web3 needs to ensure it is designed by, and for, their team. No more hollow or valueless benefits schemes from “the top”.‍

Selection proposals & community feedback

Web3 organization structures such as DAOs, provide every member of the DAO to have a voting right in the governance process of the organization. This needs to be reflected in how an employee benefits stack is put together and decided upon — giving the employees the freedom to choose their own benefits. It also needs to encompass a feedback mechanism that allows benefits to be added, removed or revised as the governing members of any organization sees fit.‍

Income tax support

Crypto, tokens, fiat, NFTs, securities, equity… the list goes on. All of these are part of the compensation structure of Web3 teams and are exceedingly difficult to manage when it comes time to pay tax at the end of each financial year. Providing employees the tools to automatically calculate and pay their taxes without all of the fuss is such a value add that can ensure your team stays on the right side of increasing regulatory pressures across the globe.‍

It is so important that Web3 organizations stop viewing employee benefits as a cost center and realize they’re a critical component to a happy, motivated, and effective workforce. Sure, there is a cost attached but the benefits that these bring certainly outweigh any monetary value you can place on them for your employees.‍

Everything (and more) we’ve listed here is provided by WorkDAO to contributors on behalf of our DAO partners. If you’re thinking about implementing an employee benefits stack that is tailored for your Web3 team — we can help: https://www.theworkdao.com/

One of the fundamental promises of Web3 is trustless and transparent transactions through the blockchain. Contributors expect compensation structures that reflect this.

Web3 organizations that expect to attract the best global talent need to be able to provide payroll to their contributors through means other than just fiat currencies. But they need to be able to do so with a very clear understanding of the regulatory landscape in which they are operating in order to avoid inadvertently entering into (or violating) regulated activities.

This is a monumental undertaking. To achieve this organizations need a comprehensive understanding of the labor and tax laws in each regulatory jurisdiction that their contributors exist, such as:

• Employment laws (minimum wage, etc)

• Fiat tax laws

• Token tax laws

• Securities & equities laws

• KYC regulations

• Money transmitter legislation

This list isn’t even exhaustive — just a few of the most common regulations. And that’s under the assumption that the local authorities have even provided clarity on these laws and how they apply to token payroll. Extrapolate these across the number of jurisdictions your contributors live in… it starts getting incredibly complex.

But that’s only half of the battle. Upon receipt of compensation, the burden now falls squarely on the shoulders of contributors to be able to accurately calculate and distribute their tax obligations as required. Sure they can engage a specialist crypto accountant… if they can find one.

And, don’t think you can continue operating unnoticed by tax authorities. Regulators are starting to pay much closer attention. The U.S. has doubled the SEC’s Crypto Asset unit and are requiring crypto exchanges to issue 1099-B forms for transactions. Where the U.S. leads, the rest of the world tends to follow. Getting this wrong can have some serious, real-world consequences, and regulatory pressure is only going to increase over the coming months.

It’s not all bad news… we’ve built the solution.

WorkDAO’s token payroll and tax engine

Our token payroll solution is redefining compensation in Web3. It’s the only token payroll solution that provides legal and compliant token compensation to contributors, globally. Crypto, tokens, RTUs, RTAs, RTGs, NFTs — whatever compensation structure required, we can deliver — provided it meets regulatory requirements in local jurisdictions.

The tax engine then does all the heavy lifting to instantaneously calculate tax and token withholdings on the contributor’s income. After the Tax Engine calculates the relevant tax withholding, it performs a “sell-to-cover” transaction to exchange crypto for fiat to pay the local tax authorities and ensure the employee is paid the right amount.

How it works

In order to compliantly offer token payroll in each country, WorkDAO first undertakes a comprehensive review of a country’s legal, tax, and labor laws to ensure we are able to compensate contributors compliantly. We do this alongside local legal and tax experts. When rules aren’t clear, we will work with local governments and solicit tax rulings to ensure clarity.

The tax engine instantaneously calculates token taxes in each country based upon key demographic data from the contributors. Powerful backend tax logic is able to classify different types of token income and determine the appropriate amount of taxes that need to be withheld or paid depending on the jurisdiction. Once the taxes are calculated, the tax engine is able to summarize the outputs in a clear and easy manner that can be read and understood by contributors anywhere.

Why it matters

1) Contributors will receive a comprehensive, conservative and predictable tax bill each month.

No unexpected tax bills at the end of the financial year. No costly fees for hiring specialist accountants. No ambiguity around the legality or compliance of your compensation.

2) Organizations will be able to use crypto in their compensation package legally.

Compensate contributors the way they want. No costly establishment fees for licensing or registration. No wasted time understanding the convoluted and unclear regulations jurisdiction-by-jurisdiction.

Our token payroll and tax solution has taken tens of thousands of hours to get right, and it’s unique. We’ve engaged the local experts. We have applied for the necessary licensing. We understand the global payment regulations and we monitor them constantly for change. We’ve done it all so you don’t have to.

We understand the need for token payroll to meet the needs of the Web3 community but deeply believe in the importance of providing it in a compliant and legal manner. With WorkDAO’s token payroll and tax engine, Web3 organizations and contributors alike can rest easy knowing they are on the right side of global regulations as scrutiny increases.

If you want to find out more: https://www.theworkdao.com/