This guide was built to help you understand the benefits of incorporating your DAO and how the process of DAO incorporation works. We help you answer questions like:
Why should I incorporate my DAO? In what geographic jurisdiction should I incorporate my DAO? What legal entity type should I choose?
Get all the information you need to make the best decisions for you DAO by reading this guide.
By
MIDAO
February 4, 2025
In the rapidly evolving Web3 landscape, Decentralized Autonomous Organizations (DAOs) often face criticism for their seemingly chaotic and slow decision-making processes. However, recent insights from industry experts suggest that this perception might be fundamentally flawed. The reality? DAOs might actually be more efficient than traditional corporations in many aspects.
Traditional corporations often project an image of streamlined efficiency through their hierarchical structures and well-defined processes. However, this apparent order masks significant inefficiencies that aren't immediately visible to outsiders.
As highlighted during a recent How to DAO course livestream, the perceived inefficiency of DAOs compared to corporations might be more about visibility than reality. According to Puncar, one of the course instructors:
"We often look at the mess inside a DAO and think, 'This is inefficient—it's too slow, too chaotic.' But in big corporations, the same mess is happening—it's just hidden inside many silos, so you can't see it."
This insight reveals a crucial truth: corporate inefficiencies are often concealed within departmental silos, making them less apparent but no less impactful. Decision-making at the company-wide level becomes challenging when different departments operate in isolation, creating layers of hidden bureaucracy that significantly slow down processes.
One of the most compelling examples of DAO efficiency comes from ConstitutionDAO, which demonstrated unprecedented speed in organizing and mobilizing resources. Adam Miller, founder of MIDAO, points out:
"If you tried to raise $42 million and buy something at Sotheby's using a traditional legal and organizational system, it would take months. Maybe even longer. And it would be costly—you'd have to hire lawyers, pay fees, and spend a lot of money just to set it up. But ConstitutionDAO? They formed an organization, raised $42 million, and took action in just one week. That's faster than any traditional organization could have done it."
Miller also highlights an often-overlooked advantage of DAOs: their ability to pivot quickly due to their distributed decision-making structure:
"A DAO's ability to rapidly shift its direction is probably way faster than any large organization today. Because in traditional companies, the small group of decision-makers in charge are less likely to make sudden changes."
As organizations grow, maintaining efficiency becomes increasingly challenging. However, DAOs present unique advantages in scaling operations. Their distributed nature allows them to maintain agility even as they expand, primarily because they leverage blockchain technology and smart contracts for coordination.
Interestingly, even traditional enterprises are beginning to recognize the potential efficiency advantages of DAO structures. As mentioned during the livestream, research by the Ethereum Enterprise Alliance suggests that DAOs are more effective than traditional corporate structures in certain aspects.
Whether to start as a DAO or transition later depends on various factors. Miller provides valuable insight into this consideration:
"Sometimes, the beauty of a DAO is that you can bring a bunch of people together and get them to start working—even before they're fully aligned like a traditional small group of founders would be. Because DAO members know they have governance rights, they don't have to immediately figure out everything from the start."
One of the key advantages of DAOs is their flexibility in governance structure. Miller explains:
"There's the technical side. Are you tracking membership with a token? Is your governance on-chain? Is your treasury on-chain? And if it's just two or three people, maybe they each have 50% or 33% voting power. I think that is a DAO. Even if it's just one person using blockchain technology for their organization—I think that qualifies as a DAO."
The potential for DAOs to outperform traditional organizations in terms of efficiency suggests a broader shift in how we think about organizational structures. Miller predicts:
"In 20 years, the biggest wealth generation vehicles will be DAOs, crypto protocols, and Web3 ecosystems. They'll have market caps way higher than Google, Apple, Microsoft, and the traditional giants."
While some traditional organizations might resist change, the efficiency advantages of DAOs could force adaptation. As Puncar notes from his experience with traditional corporations:
"10 years ago, I worked a little with Volkswagen Group in their innovation hub... And it was so slow—like, you couldn't do anything there. I remember thinking, 'Is this really how innovation happens? I need 15 approvals just to change an icon?'"
One significant efficiency advantage of DAOs is their built-in financial infrastructure. As Puncar points out:
"If you're actually a DAO, you already have a native bank account attached to it. Nobody can debank you. So, I feel like that's one of the big advantages of DAOs—you have a sovereign bank account attached to the organization."
DAOs can significantly reduce the administrative burden typically associated with traditional organizations. This includes:
The perception of DAOs as inefficient compared to traditional corporations is largely misguided. While DAOs may appear more chaotic on the surface, their ability to rapidly mobilize resources, make decisions, and adapt to changing circumstances often surpasses that of traditional corporate structures. The visible nature of DAO operations makes their processes seem messy, but this transparency contributes to their efficiency by eliminating hidden bureaucratic bottlenecks.
As organizations continue to evolve in the digital age, the efficiency advantages of DAOs—including their native financial infrastructure, reduced bureaucratic overhead, and ability to scale while maintaining agility—suggest they might become the preferred organizational structure for future enterprises.
The evolution of DAOs represents not just a technological shift, but a fundamental reimagining of how organizations can operate efficiently in the digital age. As more success stories emerge and traditional enterprises begin to recognize these advantages, we may see an accelerated adoption of DAO principles across various sectors of the economy.
