Wyoming Governor Mark Gordon recently signed a bill into law that allows for the development of a complete legal framework for the establishment and management of so-called decentralized autonomous organizations or DAOs.
The latest bill has reportedly been sponsored by the legislature’s Select Committee focused on on Blockchain, Financial Technology and Digital Innovation Technology and provides a legal status for decentralized unincorporated nonprofit associations or DUNAs that would be based in the US state.
The official legal document, which became effective on March 7, 2024, specifies the guidelines for establishing a DUNA, addresses the roles/obligations of smart contracts. It also provides provisions regarding the legal duties of the association as well as its members.
As per the updated law, a DUNA is described as being a separate legal entity from its members. This basically means that the DAO may be held liable without having to implicate individual members of such an entity.
As explained in the update:
“A person is not liable for a breach of a decentralized unincorporated nonprofit association’s contract merely because the person is a member, administrator, authorized to participate in the management of the affairs of the nonprofit association or considered as a member by the nonprofit association.”
A DAO or decentralized autonomous organization is a type of an entity with no centralized management.
For most DAOs, the decision-making process can be described as being bottom-up with a community or group being governed or having to adhere to established rules that are enforced via a blockchain or distributed ledger tech (DLT) network.
Providing a DAO with legal status allows for a decentralized entity to manage contracts with third-parties, create new banking accounts, pay oustanding dues/applicable taxes and take care of various reporting requirements.
As part of a detaileo analysis on March 8, 2024, VC company a16z crypto stated that there’s a fundamental “misunderstanding” of the nonprofit status offered by the recent law.
Miles Jennings, general counsel at the VC firm, and David Kerr, principal at Cowrie law firm, say that a Wyoming-headquartered DAO isn’t prevented from participating in for-profit intiatives.
As stated in the documentation:
“Under Wyoming law, both the UNA and the DUNA are able to engage in for-profit activities. This would include the operation of a decentralized exchange protocol, a decentralized social media protocol.”
It’s worth noting that DAOs may be permitted to pay out compensation to members. This could include incentives or allowances in return for taking part in the so-called governance process, according to the analysis.
It also mentioned that Wyoming’s approach “supports the web3 ethos, while still enabling cash flows to digital asset holders.”
