Decentralized-Autonomous-Organizations (DAOs) are unquestionably popular for their innovative, collaborative and transparent nature. However, this same nature gives rise to one of the biggest problems with DAOs, related to the uncertainty as to how they would be juridically considered under the legal system in which they operate.
Even if in this blog we don’t usually focus on extra-EU legislation, since the State of Wyoming (US) positioned itself as one of the most friendly states for digital asset innovation, and their Select Committee on Blockchain, Financial Technology and Digital Innovation Technology has been the first to set up a proper “DAO legislation”, we thought it would make sense to start this thread of posts with it.
On April 21, 2021, Wyoming Governor signed Bill 38 into law allowing DAOs to form as LLCs. Doing so, a DAO will become “a limited liability company whose articles of organization contain a statement that the company is a decentralized autonomous organization”, and, furthermore, must maintain presence in the state through a registered agent and would need to include in its name a proper designation such as “DAO”, “DAO LLC” or “LAO”. The DAO can also have a dual nature: be a “member managed” DAO or an “algorithmically managed” DAO, as set forth in its articles of organization. Under the chapter “Formation” 17-31-105 of Bill 38 mentioned above, it’s clear that “an algorithmically managed decentralized autonomous organization may only form under this chapter if the underlying smart contracts are able to be updated, modified or otherwise upgraded”. But if the DAO is “algorithmically managed” who is responsible for updating the underlying smart contract? This can be only one of the problems that will be defined later and to which, with the right time, a solution will be found. We need to figure out a way to make DAOs legally more efficient and safer than vintage limited companies, and this target will be hard to accomplish.
