1.18 Legal Aspects in web3: Pseudonymity & DAOs

When it comes to legal and regulatury aspects of who is responsible, what are they responsible for if something goes wrong, everything changes dramatically in the web3 space compared to web2.

One of the things is the pseudonymity or who is the team behind a particular project. There is an increasing trend towards some of the people involved in the projects being pseudonymous. This could be because of the regulatory uncertainty regarding cryptocurrencies (or crypto space in general), or also be because of the legal implications thereof.

This changes the way we think about reputation and trustworthiness when it comes to applications, projects or products. It also affects the legal or social accountability when it comes to projects: who is responsible, who is accountable if the team is pseudonymous, how do you even know what what they're doing with the project, with the governance and so on... There's this concept of trusting software and not wetware, which is great but there are still social processes where people are involved to a great extent around building the project, rolling it out and the governance of the projects that has a huge implication towards the security posture.

DAOs

DAOs (Decentralized Autonomous Organizations) stem from the trust minimization and censorship resistance aspects of web3. Their objective is to minimize the role and the influence of centralized parties, or a few privileged individuals, in the life cycle of the projects. This means that the project ultimately evolves or aspires to be governed by a DAO, which can be comprised of a community of token holders for that particular project. They make voting based decisions on how the project treasury should be spent, what the protocol changes should be and, in some of the cases, all these are decided on-chain and affected on-chain as well.

While this reduces the centralized points of wetware failure, as we call it, it also slows down decision making on a lot of the security critical aspects: imagine if there were vulnerabilities to be found in a deployed contract, and somebody had to create a fix and deploy the fix. If that had to go through a DAO for the decision making, you would have to give a certain amount of time for the token holders to vote for that decision.

A centralized party entity in the web2 space can make this decision immediately, unilaterally and deploy that fix in a few hours, if not less. In web3 (i.e. DAOs), the decision making is decentralized and has that downside.