Web3 founders are known for moving fast. That speed is often celebrated as a competitive advantage: rapid iteration, aggressive launches, communities that form overnight, capital raised on momentum rather than paperwork. In the early days, this approach seemed justifiable enough. Code works, users arrive, and the market seems receptive. But when a Web3 project reaches the point of serious scrutiny - particularly institutional investment, strategic partnerships, or acquisition talks - speed stops being an asset and starts exposing structural weaknesses. This is where many otherwise promising projects stall, not because the technology is flawed, but because intellectual property ownership is unclear, fragmented, or legally indefensible. Across the Web3 ecosystem, IP due diligence has become one of the most common silent deal‑killers. Investors increasingly understand that tokens, smart contracts, and decentralized governance do not replace legal ownership. They supplement it - and when that foundation is missing, value erodes quickly. This article examines why IP due diligence fails so often in Web3 projects, how investors actually assess these risks, and what founders can do early to avoid expensive and reputation‑damaging corrections later. THE CORE IP MYTH IN WEB3 THE CORE IP MYTH IN WEB3 One of the most persistent assumptions in Web3 is deceptively simple: “If it’s on the blockchain, ownership is clear.” From a technical standpoint, blockchains provide transparency, immutability, and traceability. From a legal standpoint, they do none of these things automatically. A blockchain records transactions, not rights. A smart contract can automate the execution of predefined logic, but it does not transfer intellectual property rights unless there is a valid legal agreement accompanying it. An NFT can demonstrate provenance or access, but without explicit licensing terms, it does not grant commercial rights, exclusivity, or enforceable ownership of the underlying content. This misunderstanding has already produced high‑profile consequences. One of the most cited examples is Spice DAO, which purchased a rare “Dune” storyboard book for millions of dollars under the mistaken belief that ownership of the physical item conveyed adaptation rights. It did not. The DAO owned the book - not the intellectual property embedded within it. The resulting public fallout became an early case study in how easily blockchain enthusiasm can override basic IP principles. DAOs further complicate this landscape. Many operate with sophisticated governance systems while ignoring a fundamental question: who, legally, owns the code, brand, and creative output? When disputes arise, courts and regulators do not analyze token mechanics. They analyze contracts, ownership chains, and jurisdiction. A smart contract can automate transactions, but it does not automatically transfer intellectual property rights. An NFT can prove provenance, but it does not grant commercial usage unless explicitly stated. WHERE WEB3 IP DUE DILIGENCE FAILS MOST OFTEN WHERE WEB3 IP DUE DILIGENCE FAILS MOST OFTEN Investors do not expect early‑stage projects to be perfect. What they do expect is clarity, risk awareness, and a coherent structure that can scale. In Web3 due diligence reviews, the same failure points appear repeatedly. 1. UNCLEAR OWNERSHIP OF CORE ASSETS 1. UNCLEAR OWNERSHIP OF CORE ASSETS The most basic diligence question is often the most difficult to answer: Who legally owns the code, the brand, and the content? In many Web3 projects, ownership is fragmented across founders, contractors, early contributors, and pre‑incorporation entities. Common red flags include smart contracts written by independent developers without assignment agreements, repositories created before incorporation and never transferred, founders retaining personal ownership of critical components, and brands used publicly without any trademark filings. In one publicly discussed DeFi investment delay, investor counsel discovered that the core protocol had been developed by an external contractor who retained copyright. Resolving the issue required renegotiation, retroactive IP assignments, and amendments to transaction documents - delaying the round and weakening the founders’ negotiating position. Unclear ownership does not always terminate deals, but it almost always affects valuation and trust. 2. NFTs WITHOUT ENFORCEABLE RIGHTS 2. NFTs WITHOUT ENFORCEABLE RIGHTS NFT projects frequently promise “utility,” “access,” or “community ownership” without defining what those terms mean legally. In practice, many NFT drops operate without clear licensing frameworks. Common issues include implied commercial use that is never granted, resale assumptions that are unenforceable, and brand usage tolerated rather than authorized. The legal consequence is predictable: enforcement becomes difficult or impossible, partners hesitate to integrate, and secondary markets grow cautious. The dispute between Quentin Tarantino and Miramax over Pulp Fiction NFTs illustrates this problem clearly. The conflict did not hinge on blockchain mechanics, but on traditional IP contract interpretation. The case underscored a core principle: NFTs do not override pre‑existing intellectual property rights. An NFT is not a license. It is evidence of a transaction - nothing more - unless rights are explicitly defined. 3. DAOS WITHOUT LEGAL WRAPPERS 3. DAOS WITHOUT LEGAL WRAPPERS DAOs are often treated as replacements for legal entities. In reality, they function best as governance layers on top of legal structures. Without a wrapper, intellectual property may belong to no one, contributors may retain individual rights, and jurisdictional questions become nearly impossible to resolve. Enforcement stalls not because claims lack merit, but because there is no recognized rights holder. Regulatory actions against unincorporated DAOs, including the CFTC’s case involving Ooki DAO, have demonstrated that decentralization does not eliminate liability. In some cases, it expands it - exposing token holders to partnership‑style responsibility. For IP purposes, the absence of a legal entity often means that valuable assets are effectively orphaned. 4. OPEN SOURCE WITHOUT STRATEGY 4. OPEN SOURCE WITHOUT STRATEGY Open source is foundational to Web3 innovation, but misuse carries real consequences. Many projects incorporate open‑source code without fully understanding license compatibility or downstream obligations. Common diligence issues include copyleft licenses embedded in proprietary systems, incompatible license combinations, and unclear boundaries between open and closed components. Once exclusivity is compromised, valuation adjusts immediately. Investors do not fear open source. They fear uncertainty about what can be protected, licensed, and enforced. WHAT INVESTORS ACTUALLY LOOK FOR WHAT INVESTORS ACTUALLY LOOK FOR During IP due diligence, sophisticated investors evaluate risk through three practical pillars. These are not theoretical concepts - they are decision filters. OWNERSHIP OWNERSHIP Investors ask who created the core assets, where assignment agreements are stored, and whether any critical IP was developed before incorporation. Missing invention assignments, contractor‑built repositories, and founder‑controlled IP raise immediate concerns. TRANSFERABILITY TRANSFERABILITY Investors assess whether IP can be licensed, sold, or transferred cleanly. Prior grants, unclear NFT licenses, and platform‑imposed restrictions can block transactions entirely. DEFENSIBILITY DEFENSIBILITY Investors examine whether IP can be enforced and whether conflicts exist. Absent trademark filings, open‑source contamination, and overlapping brand names weaken defensibility. If founders cannot address these areas clearly, diligence becomes the story - not the product. HOW TO FIX IP DUE DILIGENCE EARLY HOW TO FIX IP DUE DILIGENCE EARLY The solution is not bureaucracy. It is early structure. Projects that scale successfully treat IP as infrastructure: invisible when built correctly, catastrophic when ignored. Effective early steps include clear assignment agreements for all contributors, defined NFT and digital asset licenses, a conscious open‑source policy, early brand protection aligned with growth plans, and jurisdiction‑aware structuring for DAOs and global teams. None of these steps slow innovation. They prevent costly corrections later. WHY IT MATTERS WHY IT MATTERS Web3 promised decentralization - not legal chaos. Projects that endure will not be those that move fastest, but those that understand a simple truth: technology scales quickly, but ownership sustains value over time.

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Why Web3 Projects Fail IP Due Diligence

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