Analyzing Legal, Organizational, and Economic Frameworks for DAO-Based Businesses

Abstract

This paper investigates the effectiveness of decentralized autonomous organizations (DAOs) as governance models, examining their organizational, legal, and economic frameworks. Focusing on recent DeFi models such as MakerDAO and Uniswap, the study showcases a thorough critique on the potential of DAOs and their possible evolution in the future. This study is significant as DAOs are increasingly being considered as alternatives to traditional centralized systems, particularly in finance and digital coordination. Despite the benefits it provides, certain flaws in the field of jurisdiction and more legal aspects coexist. The research adopts a qualitative approach, relying on analysis of governance structures, economic design mechanisms, and regulatory frameworks based on secondary sources and protocol documentation. The findings in this paper indicate that while DAOs have advantages such as transparency, global participation, and programmable incentives, they face critical challenges, including power concentration, low voter participation, regulatory uncertainty, and weak accountability structures. These results conclude that although DAOs demonstrate strong potential in certain areas, their current limitations prevent them from functioning as fully effective large-scale governance systems. To address these limitations, this paper proposes the CLEAR Framework, structured across five dimensions: Compliance, Layered Governance, Economic Design, Accountability, and Regulatory Readiness. Overall, the study concludes that DAOs are an evolving model with promising applications, but require significant improvements in governance design and regulatory integration to achieve long-term viability.