Hybrid-DAOs: Enhancing Governance, Scalability, and Compliance in Decentralized Systems (2410.21593v1)

Abstract: Decentralized Autonomous Organizations (DAOs), based on block-chain systems such as Ethereum, are emerging governance protocols that enable decentralized community management without a central authority. For instance, UniswapDAO allows members to vote on policy changes for the Uniswap exchange. However, DAOs face challenges regarding scalability, governance, and compliance. Hybrid-DAOs, which combine the decentralized nature of DAOs with traditional legal frameworks, provide solutions to these issues. This research explores various aspects of DAOs, including their voting mechanisms, which, while ensuring fairness, are susceptible to Sybil attacks, where a user can create multiple accounts to exploit the system. Hybrid-DAOs offer robust solutions to these attacks, enabling more equitable voting methods. Moreover, decentralization can be understood through four properties: anonymity, transparency, accountability, and fairness, each with distinct implications for DAOs. Lastly, this work discusses legal challenges Hybrid-DAOs face and their promising applications across sectors such as nonprofit management, corporate governance, and startup funding. Overall, we argue that Hybrid-DAOs are the future of DAOs: the additional legal structure enhances the feasibility of many applications, and they offer innovative solutions to technical problems that plague DAOs.