State Lawmaker Explains Wyoming's Newly Passed DAO LLC Law

Wyoming has become the first state to clarify the legal status of decentralized autonomous organizations (DAOs).

On Wednesday, Wyoming Gov. Mark Gordon signed the state’s DAO-focused Bill 38 into law, allowing Wyoming to recognize DAOs as limited liability corporations (LLCs), effective July 1.

LLCs are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship. DAOs are online collectives of like-minded investors relying on Ethereum’s underlying smart-contract technology to make shared decisions.

Notably, Wyoming DAO LLCs have to be domiciled in the state, which could be a point of confusion for denizens of the decentralized web. DAOs can use a registered agent to maintain a presence in the state, the law states.

The law doesn’t do what a tech-savvy contract attorney couldn’t have already done, said Wyoming Sen. Chris Rothfuss (D-Laramie), but it does make the process of a DAO becoming an LLC easier and cheaper. Rothfuss is the co-chair of the Select Committee on Blockchain and Financial Technology that sponsored the legislation.

Read more: Wyoming Bill to Recognize DAOs as Companies Approved by Senate Committee

Proponents of the law say that it will protect DAOs from being sued as general partnerships in court and makes the rights of DAOs as legal persons enforceable in court.

“A lot of our work in Wyoming on blockchain and fintech governance has been focused on providing legal clarity where ambiguity exists before​ the court needs to decisively weigh in,” Rothfuss said, adding:

“Digital asset stakeholders made it clear to us they were concerned about facing general partnership liability in the absence of a well-defined corporate structure. Our DAO LLC legislation should dispel that concern.”

Read more: NFTs, DAOs and the New Creator Economy

The bill’s passage doesn’t mean the Wyoming legislature is finished with providing regulatory guidance around DAOs, but state lawmakers will continue to figure out where DAOs might come under regulatory scrutiny, Rothfuss added.

In the long run, the LLC statute may not be the best fit for DAOs, Rothfuss granted.

“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,” Rothfuss said. “Maybe we need a DAO C Corp next to address other challenges. We're certainly not done yet.”