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DAOs, NFTs, Web 3.0, and the metaverse: What does it all mean?

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3. Identify legal issues to help measure and mitigate risk. Because DAOs, similar to most organizations today, have multi-platform social media interactions, it’s difficult to identify legal risk. Many DAOs, as well as most NFT-oriented projects, rely on common community-based communication platforms like Discord, Telegram, Slack, and others to keep in touch with their employees and an interested public. These platforms often have their own terms of service with which users have to comply, and moderated channels often have their own guidelines.

However, in order to encourage participation, the rules are infrequently enforced, unless a specific behavior is brought to the attention of the channel or community manager. Enterprises interested in this space would do well to regularly monitor activity to ensure not only that users are in compliance with the guidance, but other laws as well. This especially includes IP laws, a violation of which may harm other users or damage the enterprise’s reputation and integrity. There are some well-regarded KM tools that can be trained to identify expressions and terms about which managers should be aware in order to guard against serious breaches. (See Tom Reamy’ s book Deep Text for a great overview of these tools and processes.)

4. Understand DAOs well enough to determine whether they would be a good match for helping your enterprise achieve its strategic goals. To illustrate, here are two examples of ambitious DAO projects that were ultimately proven unsuccessful.

The Spice DAO was created for the purpose of issuing NFTs to take advantage of a recently purchased rare derivative work of Frank Herbert’s Dune by Alejandro Jodorowsky. However, the purchaser did not seem to understand that purchasing the physical copy of this derivative work did not include conveyance of the copyright to the work.

Similarly, the Constitution DAO was organized to purchase one of four known copies of the United States Constitution being auctioned by Sotheby’s. In this case, several entities (people and organizations) pooled together the equivalent of $40 million to buy the document. But they were outbid by a single individual, Ken Griffin, founder of Citadel and unaffiliated with the DAO, for $43.2 million.

One way that KM can help reduce risk is by using tokens or NFTs in simi- lar products or services to suss out risks and flaws inherent in DAOs and smart contracts. With test NFTs supported by a knowledgebase, you can participate in someone else’s DAO as a means of testing and learning before launching your own.

A word of caution

There’ s a difference between “tokens” and “NFTs.” Tokens are most frequently used in DAOs precisely because they are fungible and interchangeable. NFTs, however, are allegedly unique and therefore not as fungible. Artist’s projects, for example, usually allow their own minted NFTs to vote in a DAO. But such an NFT may not be the equivalent of a voting token in another DAO.

Some DAOs issue millions of tokens. Such tokens can be compared conceptually to $1 bills that are currently in circulation—they are all pretty much the same and considered interchangeable. However, if you are a currency collector, you may only want a specific dollar printed in a particular place and with a specific serial number. That kind of unique dollar is not fungible. If you sell such a specific dollar on eBay with all the unique attributes, you could be committing fraud as well as breach of contract if you were to deliver a different dollar.

A token’ s nature can usually be discerned from the smart contract or token protocol. ERC-20 is the most common token protocol type/standard, whereas ERC-721 has been used almost exclusively for NFTs. Literally hundreds of such standards currently exist, with many more on the way. To learn more, check out https://ethereum.org/en/ developers/docs/standards/tokens.

In summary, virtual worlds can be both fun and profitable, as the more than $200 billion global online gaming market has shown. But as these same platforms and technologies begin working their way into more aspects of everyday life, so do the implications. Unlike a game where you can hit the reset button and start all over, wrong moves in the real-life version of the metaverse can be extremely costly.

Look before you leap. With several decades’ worth of experience in peeling back the onion layers and revealing hidden dots and connections, we KMers can help ourselves and others avoid falling into the many traps lurking out there, sometimes behind a single click of a mouse button. The more we’re able to identify inherent risks and how to mitigate them, the more we’ll be able to reap the rewards of this exciting new virtual world.

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