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 19, 2025
As Decentralized Autonomous Organizations (DAOs) continue to evolve and gain prominence in the Web3 ecosystem, one persistent challenge remains: navigating the traditional banking system. While DAOs represent a new paradigm of organizational structure and financial sovereignty, the reality is that many still need to interface with traditional financial institutions – and that's where the headaches begin.
At its core, the tension between DAOs and traditional banks stems from a fundamental mismatch in organizational structure. Adam Miller, founder of MIDAO, explains during a recent How to DAO course livestream: "Let's say a DAO wants to form a legal entity and open a bank account with a traditional bank. That bank is going to ask, 'Who are your managers? Who's in charge of this thing?'"
This question epitomizes the disconnect between decentralized organizations and centralized financial institutions. Banks operate within a framework that expects clear hierarchies and identifiable decision-makers – the exact opposite of what many DAOs strive to achieve.
The challenge isn't solely due to banks' reluctance to embrace new organizational models. As Miller points out: "A lot of banks are just responding to control and influence from the U.S. government. Because they're all so deeply connected to the U.S. Fed and Treasury, which can freeze their accounts at any moment. So, they kind of have to do what the U.S. says."
One of the most compelling arguments for moving beyond traditional banking comes from Puncar, who states: "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."
This native financial infrastructure found in DAO treasuries offers several advantages:
However, Miller acknowledges that pure crypto solutions aren't always sufficient: "For a lot of DAOs and Web3 projects, you will need to interact with the TradFi system. Maybe you want to hire someone, sponsor an event, or buy a piece of property, and the person you're working with just doesn't use crypto yet."
Many DAOs are adopting hybrid solutions to bridge the gap between decentralized governance and traditional financial systems. Miller describes one common approach:
"Let's say you're mostly decentralized, but because you need a bank account, you set up a Delaware LLC to get an American bank account. You put three managers in charge of that LLC, and they commit to acting in accordance with the DAO's wishes. The DAO doesn't send all of its money there—it just sends what's needed. If the DAO is buying something for $1 million, it just transfers that specific amount to the bank account."
This approach isn't without risks. As Miller notes: "Technically, those three people could commit fraud, steal the money, and try to evade law enforcement—but that's hard to do. And in most cases, it doesn't happen—especially in the developed world."
The need for traditional banking services may naturally decrease as crypto adoption grows. Miller reflects on the trajectory: "If you look at the history of crypto—and I've been following it since 2012, when I first found Bitcoin—we've gone through these waves of increasing adoption, where each wave brings a 5x to 10x increase in users."
The landscape may be shifting, particularly in the United States. Recent developments suggest potential changes in the regulatory environment, though, as Miller cautions: "At some point, the U.S. Congress will have to write and pass a law. That law will have pros and cons. It won't just say, 'Do whatever you want in crypto.' It will regulate crypto."
The long-term vision for many in the DAO space is complete financial sovereignty. As Puncar suggests, the fact that DAOs don't need traditional bank accounts is "one of the amazing innovations of Web3." However, the transition period may be lengthy, requiring careful navigation of both conventional and decentralized financial systems.
While some view banks as adversaries (Puncar mentions being part of "BanklessDAO, but we still have that mindset—banks are the evil ones"), the reality might be more nuanced. The future might involve a coexistence of traditional and decentralized financial systems, each serving different needs.
For DAOs needing to interact with traditional financial systems, consider:
To reduce dependence on traditional banking:
The relationship between DAOs and traditional banking systems remains complex and often challenging. While Web3 native solutions offer a glimpse of true financial sovereignty, most DAOs still need to maintain some connection to traditional financial systems. The key lies in finding the right balance—leveraging the benefits of decentralized finance while pragmatically managing necessary interactions with traditional banking infrastructure.
As the crypto ecosystem matures and adoption increases, the banking challenges DAOs face may gradually diminish. Until then, successful DAOs will be those that can effectively navigate both worlds, maintaining their decentralized principles while pragmatically engaging with traditional financial systems when necessary.
The path forward for DAOs looking to minimize their reliance on traditional banks is clear: build strong Web3 native financial infrastructure, maintain minimal but functional relationships with traditional financial institutions, and gradually transition more operations to decentralized systems as they mature and gain wider adoption.
