DAO Accounting

Abstract

In this paper, we propose and discuss an accounting framework for Decentralized Autonomous Organizations (DAOs). At the moment there is no framework on how transactions within DAOs should be structured and accounted for. DAOs tend to operate and manage the system of transactions according to their own framework and use the services of independent accountants. An accounting framework would be necessary to properly measure and report DAO activity in a form that is useful for stakeholders. Given that DAOs are an increasingly influential organizational form, we believe that introducing a standardized accounting framework would improve transparency, legitimacy, and mainstream adoption of DAOs. In order to ensure that the transactions within the DAO are handled in a balanced system, a framework according to double-entry accounting is proposed. While the proposed framework leans heavily on traditional double-entry bookkeeping, it brings innovation to the accounting cycle through the process of journalizing transactions and producing financial statements in a decentralized fashion. We define the accounting for some of the core transactions in DAOs which could be later expanded with other (niche) actions as the purpose of this paper is to discuss the accounting fundamentals relevant to the majority of DAOs. Furthermore, we discuss accounting relevant topics such as verification of transactions, asset valuation, and reporting. Finally, we present numerous implementation frameworks for DAO accounting.