DAOs Get Legal Recognition in Wyoming Through New Legislation

Wyoming's law for DAOs introduces a legal structure for decentralized autonomous organizations, allowing them to operate with more traditional financial rights and responsibilities.

There have been quite a few DAO developments over the past few days. Wyoming's recent legislation established a legal framework for decentralized autonomous organizations (DAOs) by introducing decentralized unincorporated nonprofit associations (DUNAs), allowing them to engage in contracts, banking, and fulfill legal obligations very similar to traditional entities.

Meanwhile, the Arbitrum DAO withdrew a proposal to fund the legal defense of Tornado Cash developers. Additionally, MakerDAO implemented fee adjustments in response to market volatility, in an effort to ensure the stability of its Dai stablecoin as concerns have been brought up about liquidity.

Wyoming Governor Mark Gordon recently signed into law a bill that paves the way for the establishment and management of decentralized autonomous organizations (DAOs) in the state. The legislation, sponsored by the legislature’s Select Committee on Blockchain, Financial Technology and Digital Innovation Technology, introduces the concept of decentralized unincorporated nonprofit associations (DUNAs) as a new legal entity.

The bill was enacted on Mar. 7, and the law meticulously outlines the requirements for forming a DUNA, detailing the role of smart contracts and setting out the legal responsibilities of the association and its members. The law recognizes DUNAs as separate legal entities from their members, ensuring that individual participants are not held liable for the DAO’s contractual breaches. This distinction allows DAOs to function without central leadership, which allows for a community-driven approach to decision-making, grounded in blockchain-enforced rules.

The law's enactment is particularly groundbreaking in how it allows DAOs to interact with traditional financial and legal frameworks. By granting legal existence to DAOs, these decentralized entities can now engage in contracts, open bank accounts, pay taxes, and fulfill informational reporting requirements, just like other legal entities.

However, the legislation has sparked some discussions about its interpretation, especially concerning nonprofit status. Venture capital firm a16z crypto highlighted a "fundamental misunderstanding" when it comes to the nonprofit designation by the law. According to a16z’s analysis, despite being called nonprofit entities, Wyoming-based DAOs are not barred from participating in for-profit activities. This clarification opens the door for DAOs to be involved in various commercial endeavors, like running decentralized exchanges or social media protocols, and compensating members for governance participation.

In other DAO news, the Arbitrum DAO recently took down a proposal that planned to use community funds to support the legal defense of Tornado Cash developers Roman Storm and Alexey Pertsev. The initial request, which was submitted on Mar. 7 by the pseudonymous delegate DK, aimed to give around $1.3 million in ARB tokens for this purpose. The funds were intended not only for legal fees but also for public relations and advocacy efforts in favor of privacy-preserving technologies. However, at the request of DK, the proposal was later removed, a decision that was confirmed by an Arbitrum spokesperson without any more detail about the possible reasons behind this move.

Tornado Cash has been under scrutiny, with allegations that it facilitated the laundering of more than $1 billion in illicit funds, including transactions linked to the notorious hacking group, Lazarus Group. The U.S. government has charged its developers with a number of offenses, including money laundering, sanctions violations, and operating an unlicensed money transfer business. Pertsev was arrested in the Netherlands in August of 2022, and Storm was taken into custody by the FBI in August of 2023. The third co-founder, Roman Semenov, is still at large.

On the other hand, supporters of Tornado Cash argue that the platform simply provides software for decentralized money transmission without directly engaging in the transmission itself. They see the legal actions against the platform and its developers as a broader threat to people working on privacy-focused applications.

To make things worse, a crowdfunding effort on GoFundMe to raise money for Storm and Pertsev’s legal defense was also terminated on Feb. 16. GoFundMe stated that this effort was a breach of its terms of service that posed potential harm or liability to the platform, its employees, or its users.

MakerDAO Implements Fee Adjustments

MakerDAO, the organization behind the development of the Maker (MKR) token, recently passed an "Executive Vote" to implement temporary fee adjustments in response to market volatility and bullish sentiment, which have led to a decrease in reserves for its Dai (DAI) stablecoin. This decision comes after the Dai supply dropped from $5 billion to $4.4 billion in just a week.

The proposal plans to safeguard the protocol by allowing for the expedited approval of a stablecoin stability measure, should there be a need to redeem a part of the $1.1 billion in real-world assets (RWA) available on the protocol. Despite Dai being overcollateralized, the reliance on RWAs as collateral introduces some potential liquidity issues if the selling pressure on Dai continues. The proposal also revealed some concerns about liquidity crunches due to the use of stablecoins through RWAs, despite the protocol's sufficient reserves to handle the pressure from a bullish market.

To address these concerns, MakerDAO decided to adjust a few aspects of its ecosystem. These adjustments include raising the stability fees on different collateral assets from 15% to 17.25%, and increasing the SparkLend DAI Borrow annual percentage yield from 6.7% to 16%. Other changes involve adjusting the Peg Stability Module (PSM) to halve the cooldown for debt ceiling increases from 24 to 12 hours, increasing the Dai Savings Rate to 15%, and reducing the Governance Security Module (GSM) Pause Delay from 48 hours to 16 hours. These changes have been effective from Mar. 10.

Despite these adjustments being temporary, MakerDAO has not shared plans for reverting the fees to their original rates just yet. The proposal has received some feedback from GFX Labs, a blockchain research and development company, who believes that the changes are a step in the right direction. However, concerns have also been raised about the magnitude of these changes, suggesting they could lead to market dislocations and disruptions.