On Thursday, Wyoming's Republican Governor Mark Gordon signed the Decentralized Unincorporated Nonprofit Organization Act, a landmark bill that establishes a framework for recognizing DAOs as legal entities.
Wyoming has long positioned itself as one of the friendliest states to the crypto industry, similar to Delaware's stance on companies, but the new law is the latest in a series of steps to attract blockchain companies to the Cowboy State. Become something. The bill, backed by the a16z cryptocurrency, tackles one of the nascent sector's most vexing legal questions: how decentralized organizations fit into existing financial regulations.
In an exclusive interview with luckDemocratic state Sen. Chris Rothfuss, co-chair of the blockchain task force that proposed the bill, said the bill would advance Wyoming's nation-leading approach to digital asset regulation while the federal government remains stalled. He said that it would strengthen the system.
“This DUNA bill is just the latest piece of the puzzle,” he said. “We wanted to have the flexibility to figure out what best practices, policies and use cases are out there in Congress that is really responsive and adaptable.”
DAO problem
Decentralized Autonomous Organizations (DAOs) are unique structures born out of the blockchain industry. Rather than deploying a traditional corporate structure with a board of directors responsible for the interests of investor fiduciaries, DAOs generally rely on group-specific governance regarding how the organization is managed through holding his tokens. It is made up of community members who vote.
The concept may seem esoteric, but there have been high-profile cases in recent years, such as ConstitutionDAO, where people banded together to purchase the last remaining copies of the U.S. Constitution.
This new structure has also raised legal issues for both cryptocurrency believers and regulators, most notably an enforcement action against Ooki DAO by the Commodity Futures Trading Commission, which has accused Ooki DAO of illegal trading. The department filed charges against the company for operating the platform. In an unprecedented move, the CFTC held all token holders accountable for the organization's actions and provided services to members through a help chat box on the organization's website.
“DAOs could be the very worst thing. DAO tokens are similar enough to corporate stocks to be subject to securities laws, but different enough to subject holders to unlimited liability,” Bloomberg 's Matt Levine wrote at the time.
As Rothfuss said luck, Wyoming has a history of establishing new rules regarding corporate structure, including being the first state to adopt limited liability corporations (LLCs). In its approach to cryptocurrencies, Wyoming also created a digital asset-focused banking charter called a special purpose depository institution. The bank charter gained national prominence when one of the charter holders, Custodea Bank, led by Caitlin Long, sued the Federal Reserve over its denial of a master account. .
Wyoming previously attempted to address DAO oversight with a 2021 law creating an LLC structure for decentralized organizations.In an interview with luckMiles Jennings, a16z cryptocurrency general counsel, said this framework poses potential complications under securities laws because LLC member interests (in this case, tokens) are generally considered securities. explained. Additionally, the Corporate Transparency Act passed by Congress in 2021 required LLCs to report ownership, something that would be impossible for DAOs with hundreds of thousands of members spread across the globe. The 2021 bill ultimately failed to attract DAOs to Wyoming.
Duna
Instead of organizing DAOs as LLCs, the new law uses an unincorporated nonprofit organization model. That is, its purpose is not to generate profits for the owners, but it can still generate income and reward the members of the DAO.
Jennings explained why the new structure was needed. This gives the DAO a legal existence, allowing it to contract with third parties and appear in court, pay taxes, and assume limited liability for the actions of other members. become.
This structure does not impede regulatory enforcement even if the DAO violates the law. Instead, the DAO is allowed to hire lawyers and appear in court, and just as Enron shareholders are not held liable for fraud, all voting members of the organization are not necessarily liable for the DAO's actions. It turns out.
Mr Jennings said DUNA would be a “boon” for the government as it would introduce DAOs into the existing tax framework and generate revenue. The law seeks to avoid the thorny question of whether crypto tokens should be considered securities because DAOs do not have directors, officers, or a mandate to maximize profits. Still, Jennings acknowledged that this structure may not escape the attention of the Securities and Exchange Commission, which is seeking to establish oversight over large swathes of crypto assets.
Wyoming’s biggest challenge may be convincing existing DAOs, many of which reflect the rebellious “decadent” spirit endemic to the crypto industry, to adopt the new structure. Jennings said a16z Crypto plans to work with portfolio companies and make it a condition for future investments.
“Some people in the industry believe that if you don't follow a particular jurisdiction's regulatory regime, you're somehow not regulated,” Jennings said. luck. “In doing so, you are actually submitting to all jurisdictions.”
“For businesses in general, if you want to provide yourself with all the legal protection that exists, this is a much better way to achieve that,” he added.
