Wyoming’s Groundbreaking Law: Decentralized Autonomous Organizations Gain Legal Status

In a landmark move that positions Wyoming as the pioneering state for cryptocurrency and blockchain innovation in North America, Governor Mark Gordon inked the Decentralized Unincorporated Nonprofit Association Act into law, marking the United States’ first legal recognition of a decentralized autonomous organization (DAO). Set to take effect on July 1, 2024, this groundbreaking legislation provides a structured legal framework allowing DAOs with a minimum membership of 100 to be recognized as unincorporated nonprofit associations.

The bill, which garnered bipartisan support, sailed through the Wyoming House with a decisive 50-10 vote, propelled forward by the backing of four Democratic Representatives. Similarly, the Senate passed the legislation last month in a 23-7 vote, with four Democrats lending their support. This act enables registered nonprofit DAOs to partake in profit-making endeavors, provided the proceeds funnel back into the nonprofit’s core mission. Moreover, these entities can acquire and transfer property, including digital tokens, thereby blurring traditional boundaries between digital assets and physical property.

Miles Jennings, a16z crypto’s general counsel, lauded Wyoming’s legal innovation, noting that it allows blockchain projects to navigate the legal landscape without sacrificing their foundational principle of decentralization. Jennings underscored the importance of the new law in keeping blockchain initiatives “permissionless” while operating within legal parameters.

The roots of Wyoming’s forward-thinking approach to blockchain and cryptocurrency trace back to 2021 with the passage of the Wyoming Decentralized Autonomous Organization Supplement Act. This legislation provided DAOs a legal framework under the state’s limited liability corporation (LLC) laws, a first of its kind. Subsequent amendments in 2022 refined the integration of DAOs into LLC policies, introducing flexibility in management and operational strategies, including the use of updatable smart contracts.

Preston Byrne, a partner at Brown Rudnick, highlighted the Decentralized Unincorporated Nonprofit Association Act (DUNA) as a significant advancement over previous legislations, which he argued were ill-suited for crypto-native entities. The DUNA introduces innovative concepts, such as automatic membership conferral aligning with an organization’s principles and the acknowledgment of token transfers as a means of acquiring membership interests.

This legislative milestone is not merely a regional development but a significant step forward in the global conversation about the integration of decentralized organizations into the existing financial and legal frameworks. It addresses the complex legal quandaries faced by DAOs, particularly in adapting to financial regulations while maintaining their decentralized ethos. According to Jennings, the act ensures DAOs can legally interact with third parties, participate in legal proceedings, and manage liabilities more effectively, thereby integrating these digital entities into the broader economic and legal system.

However, the success of Wyoming’s legal framework in attracting DAOs hinges on overcoming skepticism within the crypto community regarding regulatory oversight. Jennings admitted that persuading existing DAOs to embrace this new structure presents a challenge, yet he remains optimistic about its potential to provide legal protections and operational legitimacy for blockchain-based organizations.

As Wyoming leads the charge in legal innovation for the digital age, the Decentralized Unincorporated Nonprofit Association Act serves as a beacon for how governments can adapt to the rapidly evolving landscape of cryptocurrency and blockchain technology. This legislation not only cements Wyoming’s status as a crypto-friendly haven but also paves the way for other jurisdictions to consider how decentralized organizations can be integrated into their legal frameworks, promoting innovation while ensuring regulatory compliance and protection for all stakeholders involved.

Author: OXZO

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