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
Leo Henkels
April 15, 2024
Data doesn’t lie, so the saying goes. But it can.
That’s why Pyth has become the crypto industry’s go-to for data APIs or oracles bringing real-world data on-chain.
The conundrum is as follows: DeFi actually relies on off-chain real world data. In fact, the vast majority of DeFi services require a blockchain oracle —a secure, reliable method for blockchain applications to obtain financial data from the external world.
The problem was that prior to Pyth, a price oracle for ultra-low-latency, institutional-quality market data did not exist. Web3 developers felt this gap in three ways:
1. Speed: Oracles were not updating fast enough for many financial use cases.
2. Coverage and Availability: Developers did not have access to the price feeds they needed.
3. Sourcing and Quality: Data was opaque and came from aggregated, third-party sources.
Enter Pyth’s ingenious engineering solutions.
Founded in April 2021, as the blockchain industry moved towards a future of high throughput Decentralised Finance (or DeFi), there was a rapidly growing demand for low-latency, high-frequency on-chain data.
Pyth saw an opportunity to help crypto firms build apps with high-fidelity oracle feeds designed for mission-critical systems. High-fidelity oracle feeds refer to the quality of the data being as accurate as the original source.
In other words, Pyth has enabled a Cambrian explosion of innovation in DeFi since 2021. Pyth helps developers build more innovative smart contracts that rely on off-chain data, as it has been engineered to meet the security, accuracy, and reliability standards of DeFi.
Pyth has been engineered to simplify integration with low-latency, high-frequency oracles, so other projects can seamlessly utilise data through Pyth’s engineering feats.
Pyth has access to more than 450 data feed sources. Major financial institutions—including some of the world’s biggest exchanges, market makers, and trading firms—publish their data directly to the Pyth network.
And more than 300 apps have used Pyth, building on more than 50 different blockchains. The idea is that Pyth's complete suite of APIs solves all market data needs for builders. Pyth delivers real-time market data for crypto, equities, FX, and commodities.
Common use cases and partners include stablecoin products, trading, and derivatives platforms such as Sythentix, MargnFi, and Drift Protocol.
This level of ecosystem building meant creating a DAO for Pyth governance was required.
Pyth DAO helps crypto firms secure their smart contracts with reliable, low-latency market data from institutional sources. These include major market participants — including Jane Street, CBOE, Binance, OKX, and Bybit — who all contribute data to the network. Accordingly, this also means governance for data security is crucial.
A DAO is necessary for Pyth’s operating model, as Pyth Network is the largest publisher oracle network with over 90 first-party data sources publishing directly to the network. In this network, the nodes own and publish their data directly on-chain.
As Pyth’s data providers own the data they contribute, financial data can be freely distributed across the blockchain space and beyond. This data distribution model also maximizes access to information and removes middlemen costs for data consumers. The design brings speed and cost advantages, which enables Pyth to scale to thousands of symbols and near limitless blockchains in coverage. However, it also presents data governance challenges.
The DAO was established in January 2024, and it controls everything about the protocol, including:
The DAO operates as follows: Pyth token holders can stake their tokens to participate in governance. Each staked token confers one governance vote. Governance ultimately controls every aspect of the protocol, including which data providers are permissioned for each feed, and the software version running on the network. The Marshall Islands DAO LLC's operating agreement simply points to the token and smart contracts.
While Pyth is an engineering marvel with a healthy client base, a DAO was established to govern the protocol. As for why a DAO structure, contributor to Pyth Network, Jayant Krishnamurthy, explains that:
“Pyth is a decentralized protocol governed by token holders. However, DAOs do not have legal recognition, which can create problems for participants, as we saw in the Ooki DAO case. Incorporating the DAO solves these problems by giving it a formal legal status,” according to Krishnamurthy.
Krishnamurthy suggests there are several positive things about the Marshall Islands structure.
First, it's simple to establish because it's blockchain-native. The other options for DAOs are complicated: you have an entity with a local director who is constrained by some agreement to do what the DAO says. In contrast, the MIDAO does not need to have any directors, and it is possible to directly point to the smart contract and say that the entity does whatever the contract does. “That's really cool and it's a lot easier to create and administer because of that. (It's also a lot cheaper to run because you don't need to pay the local director).”
Second, it's more flexible. “If you go down one of these more complex structures, you'll find that there are various places where the director can't do what the contract voted to do. Then you have to start writing exceptions into the operating agreement and it gets really messy.”
