In 2022, DeFi may move to DAO governance to lessen legal threats

KuCoin Labs, the investment and research department of crypto exchange KuCoin, has issued its yearly report, forecasting that decentralized finance (DeFi) will continue to be a major wave in the crypto sector in 2022, and that governance will be managed by decentralized autonomous organizations (DAO).

The concerns of financial loss within the DeFi ecosystem have become more evident as the criminal entities continue to afflict the ecosystem. As a result, requests to regulate decentralized finance started circulating in 2021, and the industry has begun to face regulatory proceedings since last year.

As regulators tighten their grip on DeFi, KuCoin Labs expects that the industry will move to DAO governance to avoid regulatory threats:

“If DeFi aims to reduce regulatory risk, the form of DeFi governance will gradually become a DAO.”

A DAO that prioritizes community interests, according to KuCoin Labs, can conduct "true governance decentralization." Therefore the exchange predicts that the industry will witness a move in DeFi governance being managed through various methods.

KuCoin Labs also indicated that the core operating concepts of DAOs are strong enough to serve as the basis for the formation of legal entities. While the sector may not experience a revolution in DAO expansion in the upcoming year, the report states that improving their methods may pave the way for their acceptance by companies and organizations as well.

However, the blockchain-based protocol Syndicate lately revealed the creation of 450 new DAOs on its platform in just three weeks. It states that this accounts for 10% of all DAOs in operation.

Besides the Marshall Islands has acknowledged DAOs as legal entities, which means they can register and function legally within the jurisdiction of the Pacific island nation. Overall, this indicates that the DAO governance model is now becoming more widespread in the blockchain space.