Should You Think About Forming a Wyoming DAO LLC Out of Your DAO?
Wyoming has been a center of activity for cryptocurrency regulation for the past few years (in a good way). Because it has passed more than 24 pieces of legislation related to cryptocurrencies over the years, it is usually regarded as being among the states in the United States that are most crypto-friendly. Because of this, some of the most successful companies in the sector, such as Kraken and Ripple, decided to establish operations in the state and become registered there. The Wyoming DAO LLC legislation, in our opinion, is one of the most intriguing and consequential pieces of legislation available, even though it offers various structures and benefits for crypto firms to choose from. While undoubtedly true, this is also the case that this legislation is one of the most impactful pieces of legislation available. Even though it gives crypto firms a lot of options for structures and benefits (like not having to pay income tax as an individual or a business), we think the Wyoming DAO LLC law is one of the most interesting and important pieces of legislation.
What is a DAO?
DAO stands for “Decentralized Autonomous Organization.” It was an idea or structure that was first thought of in 2016, and in May of that year, the DAO (Genesis DAO) was created. A DAO is essentially a “decentralized” organization governed by “smart contracts.” These contracts allow the organization to operate independently without the necessity for a centralized organization or middleman. A smart contract is merely a set of computer codes that runs atop a blockchain and automatically executes predetermined transactions when certain conditions are met. It has a code that allows anonymous, independent individuals from all over the world to conduct business without having to trust each other. Moreover, once deployed, smart contracts on a blockchain are, by default, immutable, meaning they cannot be altered. Well, there are a few ways around this last restriction, but smart contracts are indeed immutable.
What is a Wyoming DAO LLC?
DAOs are decentralized organizations, meaning there is typically no centralized authority or entity that can register the organization and bring it under the jurisdiction of regulators. While this might sound badass, this can also pose operational difficulties for certain DAOs (depending on their organizational mission). Wyoming viewed this as a unique issue and introduced the Wyoming Decentralized Autonomous Organization Supplement to bridge the gap between decentralization and rule-following. The DAO supplement grants a recognized legal status to DAOs registered according to the legislation. Simply put, the DAO supplement extends the existing regulations for limited liability companies to DAOs by incorporating the necessary customizations into the supplement legislation. This allows registered DAOs to provide members with limited liability protection. Registered DAOs must contain “DAO LLC” or a mixture of both the DAO and LLC entity indicators, such as “DAO” or “LAO,” in their names. In addition, The Wyoming LLC Chapter is said to apply to DAOs to the extent that it is not inconsistent with the DAO Supplement and the secretary of state’s vested powers. Should there be a discrepancy between the two chapters, the DAO supplement prevails; however, the Wyoming LLC chapter applies to all topics not covered by covered in the DAO supplement.
What advantages do Wyoming DAO LLCs offer?
There are three main advantages:
- The personal risk to Wyoming DAO LLC members is capped at $100,000. This means that the DAO’s debts or legal liabilities will be discharged without their assets being at risk.
- There is no state income tax in Wyoming. This means that DAOs registering themselves in Wyoming can leverage its tax laws.
- Compared to other types of corporate structures, an LLC is easier to create and keep running.
To establish an LLC, you must pay the required fee and file articles of organization with the relevant secretary of state. The LLC’s name, business address, member names and addresses, business duration, and other legally required details are all included in the filing.
Wyoming DAO LLC types
Based on how they are managed, the DAO supplement distinguishes between two types of DAO LLCs
- A DAO LLC managed by members – The core functions of a member-managed DAO LLC are overseen and controlled by the members themselves, according to a predetermined set of rules. Under Wyoming’s DAO statute, member-managed DAOs are the norm.
- Algorithmically-managed DAO LLC – The fundamental business processes of a DAO LLC are administered utilizing a smart contract framework.
DAOs can only make a Wyoming DAO LLC with smart contracts that can be “updated, changed, or upgraded in some other way.” If you’ve been keeping up with the post, you’ll know I’ve mentioned that smart contracts deployed on the blockchain are immutable.
Therefore, no DAOs administered by algorithms ought to be eligible for registration under this chapter. As a result, “upgrading” or “modifying” smart contracts can be accomplished by using a few different workarounds. Developing a “wrapper” or “proxy” smart contract that is linked to a second “logic” smart contract would be the simplest method for accomplishing this goal. The main smart contract that users would employ is the “proxy” smart contract. Would interact with, and after that, the proxy would forward user requests to the smart logic contract. The user’s request is carried out by the smart logic contract, which also contains the actual framework on which the DAO is built.
In order to improve or change such a structure, all that the DAO would need to do is create a new “logic” contract with the changes that are desired and then make use of the “delegate call” function to direct user requests to the new logic contract rather than the old one. This would accomplish the upgrade or modification.
What conditions must be met in Wyoming in order to form a DAO LLC?
The Articles of Organization should include the following in order to register a DAO as a DAO LLC:
- A declaration that the group is a DAO
- The initially registered office address of the LLC and the initial registered agent at that address
- A “Notice of Restrictions on Duties and Transfers” stating that the DAO Supplement, underlying smart contracts, articles, and operating agreement, if applicable, of a DAO may define, scale back, or do away with fiduciary obligations as well as limit the transfer of ownership interests, leaving the DAO, receiving capital contributions back, and dissolving the DAO.
- A public identifier for every smart contract that is directly used to run, manage, or facilitate the DAO
You can start an LLC in American Samoa today, from your phone, tablet, or PC. It is easy! Just go to https://llc.as.gov/ to file your documentation and create your American Samoa LLC today.