¶ 5301
Overview
Scope of the chapter. A decentralized autonomous organization, or DAO, is an organization whose members coordinate through software deployed on a blockchain. The software, usually called a smart contract, holds assets, records the members' interests, counts their votes and carries out the decisions they reach. The members may never meet, may be identified only by the addresses of their digital wallets and may be scattered across many countries. Until 2021 no American statute provided a form of organization designed for such a group, and a DAO that did not adopt a recognized form was left to the default rules of the law of associations. This chapter examines the statutes that now provide such a form. Its principal subject is the Wyoming Decentralized Autonomous Organization Supplement, Wyo. Stat. Ann. §§ 17-31-101 to -116, which permits a Wyoming limited liability company to elect status as a DAO and which the legislature substantially rewrote in 2022 to permit management by the members together with smart contracts. The chapter also examines the Marshall Islands Decentralized Autonomous Organization Act 2022, the Utah Decentralized Autonomous Organizations Act, the Tennessee and Vermont statutes, and the Wyoming Decentralized Unincorporated Nonprofit Association Act.
The central question. The statutes answer two questions that the law of associations left open. The first is whether the members of a DAO have limited liability. The cases examined in ¶ 5310 show that, without a statutory form, a court may treat a DAO that carries on a business for profit as a general partnership, so that each member is jointly and severally liable for its obligations. The second is how the law should treat management that is carried out in part by software. A conventional LLC statute assumes that members or managers decide and that agents act. A DAO statute must say who decides when a smart contract executes a decision automatically, who may change the smart contract, and what happens when the code and the written documents disagree. The Wyoming statute, as amended in 2022, answers these questions by vesting management in the members, or in the members together with any applicable smart contracts, by requiring every smart contract to be capable of being upgraded, and by requiring the articles of organization to state to what extent management will be conducted algorithmically (¶ 5330).
Relation to other chapters. The securities-law characterization of DAO tokens and the SEC's 2017 report on The DAO are examined in Chapter 47 (¶ 4780). The federal tax classification of a DAO LLC is examined in Chapter 39 (¶ 3990.06). Wyoming's choice-of-jurisdiction features, including its 2016 veil-piercing statute, are examined in Chapters 5 (¶ 550) and 26. The recognition of foreign LLCs and the internal affairs doctrine are examined in Chapter 12, and beneficial-ownership reporting in Chapter 48. The Marshall Islands LLC Act on which the Marshall Islands DAO LLC is built is examined in Chapter 54 (¶ 5450).
Organization. The chapter proceeds as follows: the DAO and the liability of an unwrapped organization (¶ 5310); the Wyoming Supplement as enacted in 2021 (¶ 5320); the 2022 amendments and algorithmic management (¶ 5330); membership, voting, information, duties, withdrawal and dissolution under the Wyoming statute (¶ 5340); the Marshall Islands DAO LLC (¶ 5350); other statutes (¶ 5360); the liability shield, veil piercing and litigation (¶ 5370); securities, tax, banking and reporting (¶ 5380); and drafting the articles, the operating agreement and the smart contracts, with a comparison of the forms and a checklist (¶ 5390).