Blockchain in Wyoming and the First Wyoming DAO
Outside of courting traditional industries onto Blockchain, a goal at BLOCKS is to be the gold standard in DAO structuring and operations. From our commitment to decentralization to our passion for blockchain legislation, the BLOCKS team has been deeply involved with creating the ideal environment for safe and scalable operations. As the first ever Wyoming DAO LLC, BLOCKS is demonstrating this commitment to compliance and security right out of the gate, and we are excited to share more about how we got here.
U.S. cryptocurrency businesses are riding out to the Wild West of Wyoming. The cowboy state has revamped financial rules to attract an array of crypto-currency startups, putting it ahead of the curve with respect to the Federal Reserve and Federal regulators.
Wyoming is the first state to explicitly articulate the legal status of decentralized autonomous organisations (DAOs). The state’s governor, Mark Gordon signed the state’s DAO-focused Bill 38 into law in April of 2021. That pivotal legislation allowed Wyoming to recognise DAOs as LLCs. This occurred shortly after Wyoming lawmakers voted in March to pass a bill allowing DAOs to be officially registered in the state. What makes this groundbreaking is that these entities are governed by smart contracts, are based on blockchain technology, and eschew the hierarchical control structure endemic to traditional companies. The law affords DAOs the same rights as any other limited liability company. The bill has been in effect since July 1, 2021.
Looking for the ideal way to structure our DAO, the BLOCKS team met with Wyoming lawmakers and concluded that the DAO LLC structure aligned perfectly with the BLOCKS organisational goals of compliance and transparency. Thus, BLOCKS became the first legally registered Wyoming DAO LLC.
An Overview of Wyoming’s LLC Act
Being as they are organisations that start off member managed and subsequently become governed by a series of smart contracts, DAOs were traditionally not recognized as unique legal entities. Consequently, LLC laws were not applicable to DAOs. In lieu of an LLC qualification, partnership principles governing DAOs subjected members to significant personal liability. The Wyoming Limited Liability Company Act—first enacted in 2010—changed all that. It provides the rules regarding LLCs formed in the state of Wyoming. An LLC is a legal entity distinct from its individual owners formed under—and governed by—the state’s law in which it is organised (ref. Wyo. Stat. Ann. § 17-29-106). The statute provides that a Wyoming LLC may have any lawful purpose, regardless of whether or not it is for-profit, except that it may not act as a financial institution or insurer (ref. Wyo. Stat. Ann. § 17-29-104). The Act grants LLCs a broad range of power, stating that a “limited liability company has the capacity to sue and be sued in its own name, and the power to do all things necessary or convenient to carry out its activities” (ref. Wyo. Stat. Ann. § 17-29-105). Thus: Effective July 1, 2021, DAOs formed in the state of Wyoming have been granted legal status as LLCs. We can only hope that more states will follow; but—as things currently stand—Wyoming will be our point of departure.
Wyoming's Blockchain Laws
Wyoming has enacted thirteen blockchain-enabling laws since 2019, making it the only state to provide a comprehensive, welcoming legal framework for DAOs. This legislation enables blockchain technology to flourish, both for individuals and companies.
Let’s look at four key features of Wyoming’s new blockchain laws
- It recognises direct property rights for individual owners of digital assets of all types (virtual currencies, digital securities, and utility tokens). It then applies the super negotiability rules of commercial law to virtual currencies; a measure that fosters their liquidity by applying the same rules that apply to money. Wyoming’s commercial law reflects the true nature of digital assets (as directly owned, peer-to-peer assets).
- It creates a fin-tech sandbox to provide regulatory relief to financial innovators (from existing laws) for up to 3 years. This is broadly reciprocal with fin-tech sandboxes in both the U.S. and globally.
- It authorises a new type of state-chartered depository institution to provide basic banking services to blockchain and other businesses. The bank is required to have 100% reserves. It cannot lend and is for business depositors only. FDIC insurance is optional.
- It authorises the first true “qualified custodian” (i.e. a bank) for digital assets.
Wyoming’s new law also ensures that digital asset owners have legal certainty about how their assets will be treated. They also adumbrate the specific nature of the custodial relationship—clearly specifying statutes that govern digital assets, and designating a Chancery Court that is exclusively devoted to fast resolution of business disputes. The result of all this is that Wyoming’s digital asset custodians will stand out above all others because they will respect the DIRECT ownership nature of digital assets.
Wyoming's Crypto Ambitions
The DAO law solidifies Wyoming’s reputation as the most crypto-friendly U.S. state. Wyoming is arguably the best location in the U.S. to register blockchain or digital currency business. The state is encouraging innovation within both industries. The latest legislation reflects this. Consequently, Wyoming has pulled out far ahead of the rest of the country in opening the door to new types of cryptocurrencies businesses.
The bill’s passage doesn’t mean the Wyoming legislature is finished with providing regulatory guidance around DAOs. Be that as it may, state lawmakers will continue to figure out where DAOs might come under regulatory scrutiny. DAOs aim to reach a state of sufficient decentralization to satisfy regulatory scrutiny.
In the long run, the LLC statute may not be the best fit for DAOs. Rothfuss said: “We look for feedback from the user community to understand any shortcomings of the LLC structure so that we can improve our existing DAO legislation and consider further DAO corporate supplements. Maybe we need a DAO C Corp next to address other challenges. We’re certainly not done yet.”
Is Wyoming the best place to create a DAO? Currently, Wyoming is the only place it makes sense to create a DAO as a distinct legal entity—that is: with the same legal protections as any other LLC. If one is looking to be involved in a new DAO, once the rules have been established and funding is secured, the next step is to start the process of forming the LLC. The DAO LLC will protect all stakeholders should the DAO become the subject of any legal dispute.
BLOCKS at Wyoming
BLOCKS is the first-ever Wyoming DAO LLC. The BLOCKS Network provides the foundation for industry-agnostic blockchain solutions. BLOCKS is committed to creating the optimal DAO infrastructure to minimise barriers for entry across non-traditional blockchain prospects (such as liability and compliance/regulatory exposure). This is why the BLOCKS DAO LLC has worked so closely with Wyoming lawmakers to ensure that every step was taken in formation to be optimally compliant.
More specifically, the BLOCKS DAO will focus on setting the standard for future DAO’s based out of the United States. To accomplish this, BLOCKS is working alongside the top legal firms who helped write the legislation for WY DAO LLC’s, with oversight from the secretary of state, to be in compliance with our operations.
As BLOCKS are released into the digital asset ecosystem, the organisation will be “member managed” until a series of smart contracts are deployed to complete the decentralization of on-chain governance and multisite wallets that allow for the DAO’s treasury to become managed by the entire member base algorithmically. The BLOCKS DAO will kick off as a “Member Managed” governed by our operating agreement. This will be the first publicly available Operating Agreement for a decentralized organisation. We will then become “Algorithmically Managed” through the series of smart contracts discussed above and position BLOCKS as the gold standard for operating procedures amongst DAO LLC’s.