Understanding Web3.0 Legal Issues - DAO Legal - Issue #3

GM from a snowy landscape! DAOs are more fascinating than any coins or NFTs to me! In this issue, I will try to explain DAOs’ legal status and Wyoming DAO Law.

DAOs are mesmerizing! They are probably one of the main reasons why I started this newsletter. It was such a lovely summer day and I was at a beach making a zoom call about a new project. Han told me the upcoming law for DAOs in Wyoming. I believe I incorporated 300+ Wyoming companies because of Clemta and that was an important moment for me. I think I read everything I could find about DAOs in that week or so. It also motivated me to have the Certified Blockchain Expert certificate as well. Huge shoutout to Han!

Before starting with DAOs, I want to thank you for the lovely messages about the newsletter. I had really good comments from people in the ecosystem. I also decided to host co-authors in some issues. Sena will help me to dive even deeper into SAFTs probably in the next issue. Thanks in advance for her enthusiasm!

DAOs are basically the new way to collaborate to achieve a greater good. They are the ideal version of an organization. It is transparent, controlled by its members, and rule-based. Mümtaz in 2016 would die for such an organization. (I had a conversation with my partners where I offered to try to manage our company in a holacratic way!)

It is obviously not regulated but since every DeFi needs a DAO to operate, we will keep seeing DAOs. They were almost buying a copy of the US Constitution as ConstitutionDAO! There are some DAOs lack basic legal knowledge as well:

If something happens in a member-managed DAO, probably we will consider them as general partnerships or joint ventures depending on the jurisdiction. If it is an algorithmically managed DAO, it will be a tough question! (It will probably be the same discussion as the legal liability of artificial intelligence.) When it is a general partnership, we are also talking about unlimited liability! That’s why what Wyoming brought matters that much.

Key Takeaways From Wyoming Limited Liability Company Act - Bill on DAO

Best of my knowledge, Wyoming is the only jurisdiction where DAOs are recognized expressly. You can register your DAO as an LLC or more correctly “Limited Liability Autonomous Organization (LAO)”!

In order to achieve that, you have to say explicitly it is a DAO in your articles or organization. (You can either incorporate as DAO or convert your company into a DAO.)

You can define, reduce or eliminate fiduciary duties with articles of incorporation, smart contract, or operating agreement. (Post-incorporation is always important but it is even more crucial for DAOs.)

You can incorporate algorithmically managed DAOs in Wyoming!

You can not register a foreign DAO in Wyoming. You have to incorporate it in Wyoming.

Wyoming is the pioneer, I hope more will come!

Thanks for being with me in this episode as well. Please drop me DMs about your comments, let’s grab a virtual coffee and discuss further.