In brief

  • Wyoming has recognized DAOs as a new type of limited liability company.
  • The state bill is set to come in force from July 1, 2021.

The state of Wyoming has officially recognized decentralized autonomous organizations (DAOs) as a new type of limited liability company, or LLC. DAOs are governed by the terms of smart contracts, without the hierarchical control structure seen in traditional companies.

The news was shared by Caitlin Long, founder and CEO of digital asset bank Avanti, who praised Wyoming’s legislators and the state 33rd governor Mark Gordon for "building on the state’s history of inventing the LLC, which all other states followed roughly a decade later."

The bill, sponsored by Wyoming’s Select Committee on Blockchain, Financial Technology and Digital Innovation Technology, was passed by the State Senate in March and subsequently submitted to the Wyoming House of Representatives for the final stamp of approval.

According to Long, the new law solves several important legal issues, such as joint-and-several liability for all participants in a DAO, provided it is considered a partnership by court.

Long added that crucially, unlike regular LLCs, Wyoming's Secretary of State can "yank the liability protection" from a DAO which is found to be involved in fraud and other illegal activities. This means that only legitimate projects will be welcome to Wyoming.

DAOs have faced intense scrutiny following the 2016 hack of The DAO, which resulted in Ethereum devs rolling back the networks’ blockchain in order to save some $50 million in stolen ETH.

Professor Aaron Wright of Cardozo Law School, who helped to draft the bill and co-founded the OpenLaw digital contract platform, stated earlier this year that "well-intentioned DAO creators will have tremendous freedom to structure their affairs using any mix of statutory filings, legal agreements, or smart contracts to organize."

Wyoming's bill should also reduce costs for DAOs, Wright explained. "Setting up a legally recognized DAO could cost hundreds of dollars instead of tens of thousands of dollars (at least in the US)," he said.

Up until the present, there were no laws–on a global level–that would recognize and define a DAO the same way business structures like LLCs are defined (although there were attempts to give a DAO a legal status in Malta).

With Wyoming's new bill, it's once again staking its claim as the "blockchain state," with Wright anticipating “millions (if not billions)” of DAOs emerging as a result of the legislation.