The legal adoption of DAOs as LLCs will evolve as the acceptance and relevance of crypto products grow.
Recently, there was news about the possibility of full-fledged registration of decentralized autonomous organizations (DAOs) as legal entities in the Republic of the Marshall Islands. To better understand the current state of affairs regarding the legal registration of DAOs, we asked experts for comments.
Nino Rokhvadze, corporate lawyer, partner of law firm Rokhvadze & Partners, described the situation in detail:
“Undoubtedly, some of the key innovations in regulating the application of modern technologies in the incorporation of structural type DAOs are the positions that the states have recently approved, implementing legislation, which:
- regulates the general rights of such entities;
- allows them to scale the level of interaction with state regulators;
- makes it possible to build an internal, corporate working system.
All this greatly simplifies the paperwork and makes the transparency characteristic of DAOs more legitimate and global.
Registration of DAOs as legal entities provides the same opportunities, which are traditionally available to the subjects of economic activity:
- availability of organizational unity;
- creation of its own statutory fund;
- independent property responsibility.
Earlier, the U.S. states of Wyoming and Delaware, which are considered leading jurisdictions in information technology and blockchain, have developed a regulatory framework for incorporating DAOs as LLCs or limited liability companies. The regulatory framework, involving the registration of the company’s articles of incorporation, governs such matters as:
- definition, reduction and elimination of fiduciary duties;
- limitation of ownership transfer;
- entry and exit to the DAO;
- return of capital investments;
- dissolution of the DAO.
Regulatory corporate acts, including statutes, partnership agreements, and smart contracts, enable simplified and rapid modeling of DAO-type organizations.
We believe that regulating DAOs legislatively will irreversibly increase the range of opportunities for the broader adoption of digital assets. The entire history of the blockchain industry can be divided into periods when digital assets have been subject to restrictions by government regulators or, conversely, welcomed by large financial institutions such as VISA.
It seems that the attitude of regulators to the possibility of using DAO in the form of LLC will be consistent with current trends, and as the demand for cryptocurrency products and their relevance grow, so will the processes of transforming DAOs into complete LLCs.”
Zurab Shavlidze, Co-Founder and Chief Administrative Officer of the multi-chain constructor of decentralized autonomous organizations XDAO, added:
“The possibility of registering DAOs as legal entities in the Marshall Islands is great news for the whole industry. Previously, there was an industry perception that DAOs were regulated in certain U.S. states. XDAO has consulted with U.S. attorneys who have indicated that Delaware DAOs are regulated only on the bill level, while all Wyoming-registered DAOs do not comply with classic LLCs and raise many questions to the SEC.
Our project has a very active international community, including legal professionals, and we are interested in working towards the legalization of DAOs in different regions of the world. XDAO service is now the best way to run your organization on blockchain. For the foreseeable future, XDAO will be helping its users with the formalization of the DAO as well.”
