From Code to Contract: How Legal Wrappers Are Reshaping DAO Governance

As blockchain technologies continue to blur the boundaries between code and corporate governance, Decentralised Autonomous Organizations (DAOs) are emerging not as lawless experiments but as evolving organizational structures. While DAOs promised radical decentralisation, disintermediation, and freedom from traditional corporate governance, their real-world implementation is increasingly shaped by legal and technological pragmatism.

In my article, I investigate how DAOs are adapting to real-world legal environments by adopting formal business structures, which are often called ‘legal wrappers’. These include US DAO LLCs, trusts, foundations, and benefit corporations certifications, which help DAOs manage resources, protect assets, and navigate the complex regulatory environment. The adoption of these legal structures reflects the evolving culture in DAO communities, not as a contradiction, but as an integral part of their development.

What’s Driving Legal Structuring in DAOs?

The use of legal wrappers sign an inevitable turn to law and commercial structures. DAOs were never wholly ungoverned/decentralised. While built on the ideal of ‘code is law’, reality is more nuanced. As DAOs mature and amass billions in treasuries, they face problems familiar to traditional firms: risk, accountability, and coordination. A simple example of why DAOs choose legal wrappers is the need to pay third-party software providers that are incorporated in specific jurisdictions and must declare the nature of their income. This is needed particularly in places where cryptocurrencies are either not recognized as a legal medium of exchange or pose regulatory risks. Legal wrappers in jurisdictions like Wyoming (US DAO LLCs), Guernsey (trusts), Liechtenstein, or the Cayman Islands (foundations) help address these challenges.

Nevertheless, the introduction of multiple jurisdictions into the alternative virtual world where DAOs operate may be viewed through the lens of law as a ‘legal Irritant’. Borrowing from comparative legal theory, I argue that transplanted legal rules do not just fit neatly into new contexts—they disrupt and co-evolve with the local culture. DAOs, originally imagined as borderless communities governed by smart contracts, now selectively adopt traditional legal frameworks. These structures often create new hierarchies, obscure transparency, and concentrate on control, contradicting the original ethos of decentralization.

What’s at Stake for Decentralised Governance?

The first aspect that might undermine decentralised governance are jurisdictional arbitrage and offshore choices: Based on a case study, I show that DAOs incorporate in DAO-friendly jurisdictions offering flexible governance (such as Guernsey, Liechtenstein, and Switzerland). These choices reflect practical needs (e.g., asset protection and regulatory avoidance) and signal evolving organizational maturity. However, they also introduce conflicts: who controls the funds? Who gets to decide? And how decentralised is a DAO when legal authority lies with a trustee or a foundation’s board?

However, these changes indicate a cultural evolution, not betrayal of blockchain ideals. The culture of DAOs, rooted in the ethos of blockchain ideology, emphasizes political decentralisation, financial inclusion, minimal government involvement, and the elimination of traditional corporate hierarchies. These values are often encapsulated in the idea that ‘code is law’, positioning software as the core governance tool in place of managers or boards of directors.

Yet, culture is not static. As DAOs confront the practical realities of resource management, legal risk, and regulatory uncertainty, they increasingly adopt traditional business structures, such as LLCs, foundations, or trusts. The adoption of legal wrappers should not be seen as a betrayal of DAO values but as a response to technological and legal constraints. These choices reveal how DAO culture is adapting rather than dissolving. Foundations, for example, allow DAOs to function without identifiable owners while protecting their assets. Trusts allow DAOs to maintain decentralisation without relying on a single governing figure.

The Future of DAO Governance

DAOs are not structureless, they are structured differently. Their hybrid existence (part encoded rules, part legal entity) challenges both traditional corporate theory and blockchain idealism. As DAOs continue to develop, we may see new legal forms emerge that better fit their unique needs, possibly moving beyond borrowed corporate models.

The legal structures chosen by DAOs are more than just administrative tools. These commercial structures are not merely assimilated, they trigger a complex co-evolutionary process in which both legal frameworks and DAOs’ social fabric undergo mutual transformation and adaptation.

Incorporating legal wrappers into DAO governance represents a middle ground—a cultural and legal compromise rather than a departure. It also invites a broader reflection on how cultural assumptions shape legal systems and organisational choices. DAO governance can either reflect collective participation or concentrated power. When all members vote on key decisions like legal wrappers and asset allocation, cultural values of decentralisation are upheld. But when control over treasuries and protocols rests with a technically skilled minority, governance risks become oligarchic, shaped more by code and token concentration than by democratic input.

To sum up, rather than abandoning their values, DAOs are redefining them through legal innovation, forging hybrid structures that preserve core principles while enabling operational functionality in the real world.

Vanessa Villanueva Collao is an Adjunct Professor at Bocconi University and Visiting Fellow at the European University Institute.
 

The article can be found at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5143035