Wyoming Governor Mark Gordon has signed a bill that establishes a legal framework for decentralized autonomous organizations (DAOs). The bill, sponsored by the legislature’s special committee on blockchain, financial technology, and digital innovation, introduces a legal status for decentralized unincorporated nonprofit associations (DUNAs) based in the state.
The enacted document, which came into effect on March 7, outlines the requirements for forming a DUNA and covers the roles of smart contracts. It also provides provisions regarding the legal responsibilities of the association and its members. Under the new law, a DUNA is considered a separate legal entity from its members, which means that the DAO itself can be held liable without implicating its individual members.
A DAO is an entity that operates without central leadership. Its decision-making process is bottom-up, with a community governed by a set of rules enforced by a blockchain. By giving a DAO legal existence, it can establish contracts with third parties, open bank accounts, pay taxes, and meet informational reporting requirements.
Regarding nonprofit status, venture capital firm a16zcrypto analyzed the new law and stated that there is a “fundamental misunderstanding of the ‘nonprofit’ designation.” According to a16z’s general counsel, Miles Jennings, and David Kerr, principal at Cowrie LLC, a Wyoming-based DAO is not prohibited from engaging in for-profit activities. The analysis also states that DAOs are allowed to compensate their members, including in exchange for participation in the governance process. This approach by Wyoming supports the web3 ethos while still enabling cash flows to digital asset holders, marking a significant breakthrough.
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