Down the Rabbit Hole: The LAO, organized in the spirit of The DAO.
In 2016, ‘The DAO’ (a well-known Decentralized Organization) was launched that raised over $150 million. However, due to certain issues, including the technical and legal challenges, it failed, and that is what caused the need to create The LAO, aiming to be compliant with the US laws.
With the growing need for DAOs to validate and approve the right form of investments and reliable projects, the LAO started gaining popularity in the United States.
What is The LAO?
The LAO is a legal corporation (a Delaware limited liability company), just like a Venture Capital, mainly managed through a Dapp using smart contracts. The LAO allows its members to pool capital, engage in proposals, and share in the profits.
It has funded over 30 projects across the blockchain ecosystem since its launch in late April 2020. Funding will be supplied to projects in the form of the Ether unless the members change their minds.
The LAO will seek the assistance of a service provider to handle several administrative tasks on behalf of its members, like:
- maintaining and updating the Dapp
- preparing and sharing the annual tax forms
- validating details related to projects chosen for investment
- handling any other interactions that may arise during The LAO's existence
How to Join?
The LAO's membership can only be gained by accredited investors as U.S law defines, and the total membership limit is also set to only 99.
To become a member, one must give Ether to The LAO to purchase some block units and signify their ownership. The current price for each LAO block unit is 310 ETH and it offers a member 0.9% voting rights with 0.9% pro-rata rights to any investment earnings.
Each member will be able to buy up to nine blocks of LAO Units (or 7.2 percent in all).
Here are the steps to do it:
- Visit The LAO webpage and move to the option stating ‘Become a Member.’
- Now select the ‘Start or Login’ option.
- You will be redirected to the next page of becoming a member section.
- Select the entity type, suppose a Person, and fill in the expected contribution amount. Then click on the ‘Identity’ option.
- You will be redirected to the next page. Here, on the Identity page, you are required to fill in all the details and upload the ID scan for verification. Finally, after verifying all the details, click on the ‘Submit for Verification’ option.
Eligibility for the Membership
- As stated above, membership can only be acquired by a person who passes the following checks:
- Is an accredited investor
- Has completed KYC
- Approved by the Office of Foreign Assets Control
2. An accredited investor can be someone who:
- Has an annual income of at least $200K
- Is a married couple with a combined income of at least $300K in last two years and expects the same or better in the future too.
- Has a net worth of more than $1 million, excluding his/her primary residence.
3. A legal entity can be:
- A trust or a fund having total assets worth at least $5 million. Furthermore, it must not specifically be founded for buying subject securities and its founder must have an excellent understanding of business and financial affairs to adequately assess and analyze an investment under consideration.
- An entity comprising of accredited investors as its shareholders.
To pass these checks, the member is also required to provide valid documentation, like a passport, a driving license, a Tax ID, etc. These are then verified by the LAO’s service provider to validate and register the members.
Whitelisting Process for the Members
The LAO's underlying smart contracts will whitelist the Member's Ethereum addresses whenever they contribute. The validating and whitelisting process will take at least 14 days. It takes 7 days to process the proposal and another 7 to give Members the option to "rage resign" if they wish. After acceptance, participants can contribute to the LAO using any digital wallet compatible with WalletConnect.
Submitting a Proposal to The LAO
Are you looking for funding for your project? Here are the steps to apply for it by submitting a proposal to The LAO:
- Visit The LAO webpage and move to the option stating ‘Submit a Proposal.’
- On the next page, enter your project name.
- Now, keep entering the other details, including the project website, project contact name, contact email and title, project description, pitch deck/ whitepaper link, requested funding amount, fund usage, current investment status, discord URL, twitter, telegram, funding address, proposal privacy, and then click on ‘Submit Proposal.’
How to Contribute?
Members vote via The LAO Dapp for the decisions of reviewing investments, altering The LAO's structure and other strategic ones. An Ethereum based smart contract primarily supports voting and the LAO stores all the voting records for later access by the members.
If a member is unavailable to vote on any issue, they can "delegate" their power by selecting an Ethereum address to which such privilege is to be delegated. Each member must decide whether or not to assign any voting rights, and members cannot delegate to another member.
Here are the statistics depicting daily activities in The LAO for the past year:
Voting and Decision-Making by The LAO Members
Every member can propose any project or candidate for funding on the Dapp and then The LAO’s members or their delegates vote on whether to invest in that or not. The voting is also carried forward in the Dapp itself. If more votes are in favor of the proposed project, it gets authorized for investment and then The LAO develops the required legal documents. These are then forwarded to a chosen representative for signature after seven days period of allowing the members to "rage quit." Finally, if everything goes in favor, The LAO will transfer the money to the project once it has been digitally signed.
Every member of The LAO must accept the financial risk associated with the investment and they must check all the details provided about the project and verify them.
Applicants are requested to present essential information about their concepts, such as a bio of the founders, a pitch deck, and financial data. Members may contact the project owner directly or ask the service provider to obtain relevant data on The LAO's behalf if they believe more information on the concerned project is needed.
Here is how to review a project proposal on The LAO:
- Move to the Projects section on The LAO website.
- Click on the ‘Review’ button for any of the listed project proposals. You will be redirected to the page containing its details.
Members can also freely contact projects and perform due diligence on any businesses filed for funding. They will use telegram, Slack channels, and Discord to communicate with applicants, and The LAO's service provider can also organize meetings or assist more interactions with any applicants being considered for investment.
Changing the operating agreement of The LAO
If 50 percent or more of members or their delegates vote for any amendment's approval, the terms and regulations of the agreement may be changed. The amount of LAO Units possessed by the members while voting will determine the outcome.
Ether to wrapped Ether
To allow for seamless interaction with The LAO smart contracts, Ether contributions get packaged in ERC-20 tokens (wETH). This helps to ease the tracking and transfer of tokens between the involved parties, including the members, and the applicants. Ether predates the ERC-20 standard and thus lacks tracking and trading capabilities. This issue is addressed by converting Ether to wETH.
Winding Down of The LAO
The majority votes by The LAO’s members can wind it down. If The LAO is dissolved, a person nominated by the members via a majority vote will be in charge of winding down the organization as per the operating agreement.
The LAO members are solely responsible for the expenses related to the liquidation while dissolving. Any further losses or obligations will be as per the operating agreement's conditions.
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