One of the most critical legal aspects of Web 3 is that it makes problem-solving more creative in a blockchain-based space. To achieve this, “legal structuring” is required to use the created dApps in an organized way.
Once founders understand the strategic considerations that apply to dApps, they should decide to designate a “legal wrapper.” This legal process requires detailed analysis. The “legal wrapper” structure should be created quickly in line with the technical reviews.
What are decentralized apps (dApps)?
Decentralized apps and programs reside on a blockchain rather than a single computer. Decentralized apps are called dApps for short. These applications are not controlled by a single authority and can be developed for different purposes.
- DeFi: It is the technology developed to perform financial transactions by eliminating central institutions and third parties. Its infrastructure is continuously expanded, and appropriate arrangements are made. They can be used for staking and yielding.
- GameFi: It is a combination of DeFi and games using blockchain. Players have the chance to earn money as they play the game. It is a very new concept in the cryptocurrency industry. In the gaming industry, they are called play-to-earn.
- SocialFi: It is a combination of Web3 and social media. Social media is in the blockchain and has a finance component. Users can earn profits by following the move-to-earn approach.
According to most analysts, these applications will become an indispensable element in the increasingly popular metaverse. dApps are essentially a set of smart contracts. Each smart contract has specific sections it controls.
Various trading algorithms can be controlled through smart contracts. The treasury part’s structure and virtual assets can be determined per the rules. In addition, the participation of contributors to the application ecosystem can be managed.
The legal status of dApps and Web 3 projects
Smart contracts that are part of dApps are usually uploaded to the blockchain and deployed once. All smart contracts work autonomously. Smart contracts do not need servers and domain providers.
Smart contracts exist in a blockchain network. They do not require human intervention to continue functioning. This is the reason why dApps are called on-chain entities in some cases.
dApps do not have any owner or administrator. They can also act ultimately autonomously. Practical approaches such as the “legal wrapper” are required for legal requirements, as their real-world counterparts are uncertain.
Why is a legal wrapper necessary for dApps?
When Web3 founders start working on a dApp, they usually don’t find it necessary to create a legal structure. Since the dApp is not centralized, they skip this step. They have a hard time deciding which legal configuration to use.
Web3 founders need to use a legal wrapper when they want to interact outside of the blockchain. The legal wrapper to be bound will vary according to the qualifications that will take place in the interactions of the founders.
- Interface: After dApp projects are created on the blockchain, they can be ready. The “interface” is required to enable users to interact with applications. The interface can be a website or mobile application.
- Payment Gateway: A payment gateway should be used to convert crypto assets that users will receive with the dApp to fiat currency. A similar condition applies to converting crypto assets to other virtual assets.
- Fundraising: Fundraising can be realized through the use of token assets. At this point, the agreements to be made to attract investment in the project should be evaluated correctly. Agreements such as SAFT can be applied.
- Token Distribution: It is decided how token assets will be distributed. It can be listed on crypto exchanges. Token distribution among team members and advisors should be supported by “token incentive schemes.”
All these mentioned conditions should be examined in the best way. Necessary “legal bridges” should be created for fully autonomous dApps. App stores, payment systems, centralized exchanges, and venture funds are the most suitable areas for legal bridging.
The legal structure of a legal wrapper for dApps
dApps do not have any central administrator. Therefore, they are considered ownerless and permissionless. The ownerless and permissionless solution should be resorted to when a decision is made to create a legal structure.
All necessary “legal bridges” must be created for interaction between dApps and the outside world. A “legal wrapper” must be determined by creating a group of companies to build a legal bridge. Each company will have its area of responsibility.
1. Development Laboratory
When Web3 founders want to develop a project, they first create smart contracts for the dApp. They then design the interfaces and designate a team of developers for technical support.
In addition, they must make a salary payment plan for each person they employ on the project. They establish a development laboratory (dev lab) to facilitate their goals. Then they perform operations such as renting offices and managing subscriptions.
2. Product and token distribution
When Web3 founders initiate an investment round, they don’t just offer company stock. A token distribution company needs to be created because investors want to feel safe.
The token distribution firm also checks the listing status of token assets on exchanges. “Token legal opinion” is required for everything to run smoothly. A registered legal entity is required to create this.
3. DAO legal entity
Web3 founders may want to build a DAO around their project. Therefore, they want to involve DAO members in governance and treasury management. This right is granted to DAO members with private keys generated by dApp algorithms.
A DAO company helps create a legal wrapper for DAO members. A situation may arise if the legal wrapper is not made, as if each DAO member has unlimited liability. Also, the creation of a DAO company simplifies treasury management.
Legal structures are essential for dApps and web 3
The legal framework created for dApps provides Web3 founders with many different benefits. After the legal structure is established, situations such as solving authorization problems and determining the responsibilities of ecosystem members become easier.
- Streamline interaction: Create “legal bridges” for on-chain dApps to interact with the outside world. Legal bridges facilitate interaction with crypto exchanges and payment systems.
- Distribute responsibilities: Accurately allocate responsibilities designated for dApps to the proper legal entities. Due to the ambiguity of the regulation, responsibilities should be distributed.
- Protect members: Protect members of the dApps ecosystem from unnecessary liability. Limiting responsibilities ensures that the application structure and ecosystem are preserved.
In addition, legal structures ensure the preservation of the ownerless/permissionless structure concept at the core of dApps. Suppose the priority of the dApp project is to protect the privacy and provide transparency. In that case, an ownerless/permissionless structure is the right choice for the project.
The paths you must follow to establish the legal structure for dApps projects are clear. It would be best to create “legal bridges” and “legal wrappers” for this decentralized structure. You can get legal support to meet this requirement.