Podcast: Navigating Tax Challenges of Decentralization

Weaver On-Chain Series

Key Points:

• DAOs are emerging as new entity structures that have potential to fundamentally shift business management and governance, function as investment vehicles, and tokenize common interests.
• The decentralized nature of DAOs present significant regulatory and compliance issues since they transcend jurisdictional borders and don’t have established legal identities.
• While there have been issues and failures with DAOs and in the broader cryptoasset industry, education about the industry is spreading quickly. Policymakers will need to understand the nuances of the industry to properly regulate.

David Kerr, Principal at Cowrie, has ten years of experience in tax strategy, financial accounting, anti-money laundering, international tax compliance, and risk consulting across the gaming, telecommunications, technology, and digital asset industries. He is an expert in decentralized autonomous organizations and advises on structuring for legal and tax purposes.

DAOs are represented by rules that are transparent, controlled by the members, and not influenced by a central authority or leadership. Without clear legal status, the determination of DAO regulations is widely uncertain. DAOs are also not structured as standard business entities since they are global and transcend borders. This makes them extremely difficult to define and therefore regulate at federal, state, and even local levels.

While there are more questions than answers at the moment, decentralized entities are forming their identities and developing a variety of use cases. Thousands of people across the globe have formed web-based communities and have utilized DAO structures to invest in common interests and govern real world assets. Will decentralized entities be around in the future, and if so, how will they impact the world of business and finance at larger scale?

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