CHAPTER 9: CASE STUDY: IN8 NETWORK DAO

The IN8 Network DAO is a trailblazing organization that exemplifies the potential of decentralized autonomous organizations under Utah’s progressive DAO legislation. Working hand-in-hand with IN8 Technologies LLC, the DAO and its partner company create a unique synergy, where each enhances the success of the other. IN8 Technologies LLC develops innovative products, while the IN8 Network DAO promotes, distributes, and governs their adoption, using blockchain-based systems to drive participation and trust.

This case study examines how the IN8 Network DAO functions according to its by-laws, serving as a reference point for other DAOs. It is important to note that each DAO is unique, and governance models will vary based on specific goals, community dynamics, and operational requirements. The founder of IN8 Network DAO graciously shared his experience forming the DAO, informing the writer's understanding of its structure.

The Synergy Between IN8 Network DAO and IN8 Technologies

At the heart of this collaboration is a shared mission: empowering individuals through decentralized tools that prioritize privacy, ownership, and innovation. IN8 Technologies focuses on building products that solve real-world problems, like secure communication and independent data storage. The DAO ensures these products reach a global audience, using community-driven governance to guide decisions and promote adoption.

Here’s how this relationship works:

Together, these products represent a shift from Web2, where individuals rely heavily on centralized providers, to Web3, which emphasizes user ownership and control. IN8 refers to its current model as Web2.5—a transitional state acknowledging the complexity of moving entirely to Web3 while laying the groundwork for this transformative shift. By empowering users to be owners rather than renters in the online space, IN8 illustrates the practical applications of Web3 principles.

Governance as Defined by the Bylaws

The governance of IN8 Network DAO is structured to reflect its commitment to decentralization and transparency, as outlined in its bylaws. Key provisions include:

Stakeholder Meetings:

Decision-Making:

Board of Directors:

Membership, Token Structure, and Compliance with Securities Regulations

The by-laws define two classes of governance tokens:

Tokens are represented by non-fungible tokens (NFTs), ensuring secure and traceable ownership. Transfers of governance tokens are managed through smart contracts and restricted to the DAO’s ecosystem to maintain integrity.

This token structure appears designed to navigate securities regulations effectively. A critical issue for DAO founders is whether their tokens qualify as securities under the Howey Test. This legal standard, used by the U.S. Securities and Exchange Commission (SEC), determines whether a transaction qualifies as an investment contract by assessing the following:

  1. An Investment of Money: Membership fees are positioned as access costs for governance participation, not investments aimed at generating profits. This distinction shifts the fees away from being perceived as an investment in a common enterprise.

  2. In a Common Enterprise: By bifurcating responsibilities between IN8 Network and IN8 Tech, the DAO reduces the appearance of a unified enterprise solely reliant on token holders' contributions for success. The separation clarifies roles and mitigates regulatory risks.

  3. With an Expectation of Profits: The tokenomics emphasize utility—such as voting, staking, and accessing exclusive benefits—over profit generation. Membership fees grant governance access, while royalties are reinvested into operational improvements and community incentives, rather than distributed as direct profits.

  4. Derived from the Efforts of Others: The decentralized governance structure ensures that decisions and benefits are community-driven, not reliant on a central authority's efforts. This shared responsibility aligns with the DAO ethos and further distances the tokens from securities classifications.

By aligning tokens closer to governance or utility classifications, IN8 demonstrates a thoughtful approach to structuring its revenue mechanisms and tokenomics in a way that minimizes regulatory risks while fostering community participation and innovation.

Revenue Model and Tokenomics

The IN8 Network DAO generates revenue through:

The bifurcation of roles between IN8 Network and IN8 Tech plays a critical role. By separating decentralized governance from centralized operations, IN8 mitigates risks related to securities regulations. DAO membership fees are characterized as access costs for governance participation rather than investments with profit expectations, while royalties are structured to support operational sustainability and community incentives rather than direct profit sharing.

IN8 Tech’s centralized infrastructure ensures compliance with operational requirements like AML/KYC, while IN8 Network’s decentralized structure focuses on fostering community-driven governance. This strategic approach emphasizes utility and participation over profit, aligning tokens closer to governance or utility classifications rather than securities. Token issuance and utilization are crafted to reflect this intent:

By maintaining a clear separation of operational roles and ensuring tokens emphasize governance and utility functions, IN8 demonstrates how DAOs can effectively navigate regulatory uncertainties while fostering community engagement and innovation.

*Challenges and Lessons Learned *

Impact and Future Potential

IN8 Network DAO serves as a model for how DAOs can:

Chapter 9 Key Takeaways:

  1. IN8 Network DAO exemplifies DAO synergy with a partner company, utilizing smart contracts for governance and ensuring regulatory compliance.

  2. The tokenomics and revenue models of IN8 Network DAO are carefully designed to avoid securities classifications while fostering community participation.