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Decentralized Autonomous Organizations Receive Legal Recognition in the State of Wyoming

Wyoming legislature creates a legal framework for the governance of decentralized autonomous organizations

Wyoming has made a significant stride in blockchain and digital innovation by granting decentralized autonomous organizations (DAOs) legal status. Governor Mark Gordon's enactment of a bill, designed by the state’s special committee on blockchain, marks a pioneering move in recognizing decentralized unincorporated nonprofit associations (DUNAs) as legal entities. 

The new law, effective March 7, enables DAOs to establish contracts, open bank accounts, and fulfill tax obligations while providing essential liability protection for its members. This breakthrough positions Wyoming at the forefront of blockchain innovation, setting a precedent for how decentralized organizations can operate within a legal framework.

DUNA: a new legal identity for DAOs

The innovative legislation introduced by Wyoming provides a solid foundation for decentralized autonomous organizations (DAOs) by recognizing them as decentralized unincorporated nonprofit associations (DUNAs). This classification underlines a significant evolution in the legal recognition of DAOs, allowing them to operate with greater autonomy and legal clarity. Key aspects of the law outline the formation requirements for a DUNA, emphasize the role of smart contracts in managing operations, and clarify the legal responsibilities and protections afforded to members.

An important aspect of DUNA’s legal framework is the separation of the entity from its members, ensuring individual participants are not held liable for the DAO’s contracts or actions. This separation marks a critical step forward in protecting members while fostering an environment where decentralized entities can thrive. 

The law states, providing peace of mind and security for individuals involved in DAOs:

“A person is not liable for a breach of a decentralized unincorporated nonprofit association’s contract merely because the person is a member,” 

Beyond nonprofit: DAOs’ path to for-profit activities

Wyoming's groundbreaking law has sparked a conversation about the potential of decentralized autonomous organizations (DAOs) to engage in for-profit activities, despite being registered as decentralized unincorporated nonprofit associations (DUNAs). This aspect of the law addresses a common misconception about the limitations imposed by the "nonprofit" status. In reality, Wyoming's legal framework offers DAOs the flexibility to operate in various economic sectors, including those aimed at generating profit.

Venture capital firm a16zcrypto and experts like Miles Jennings and David Kerr have clarified that, under Wyoming law, both UNAs and DUNAs are permitted to undertake for-profit endeavors. 

“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, you name it.”

The law allows DAOs to compensate members for governance participation, aligning with the web3 ethos of rewarding community involvement and contributing to a sustainable economic model for DAOs.

This legislation not only legitimizes DAOs as entities capable of engaging in comprehensive economic activities but also paves the way for innovative business models in the digital asset space. Wyoming's approach supports the growth of the web3 ecosystem while ensuring that DAOs can generate and distribute cash flows to digital asset holders.