How the Marshall Islands Is Trying to Become a Global Hub for DAO Incorporation

In a bid to become a global hub for the incorporation of DAOs, the Republic of the Marshall Islands has recognized decentralized autonomous organizations as legal entities, becoming the first sovereign nation to do so.

The new law essentially grants DAOs the same privileges as limited liability corporations (LLC), allowing them corporate personhood and the ability to hold real estate, done through a modification to the nation’s Non-Profit Entity Act.

DAOs having to register separate LLCs to fully operate is an issue for the sector’s crowdfunding genre (think ConstitutionDAO, LinksDAO, BlimpDAO, etc.) because registration makes it difficult to keep business decisions truly decentralized.

Read more: LinksDAO NFT Sale Books First $10M Toward Buying an Actual Golf Course

What's new

Under the Marshall Islands’ new law, however, DAOs incorporated within its territory would not have to register separate LLCs.

The Central Pacific island nation is hoping to become a hotbed for DAOs in the same way that Delaware has become a mainstay for U.S. business incorporation, David Paul, one of its Parliament members, told CoinDesk.

“Our laws have actually been tailored all of these years to be able to cater to this kind of service,” Paul told CoinDesk in an interview. “So making an amendment to the existing framework to include DAOs didn’t take much for us. Of course, we still have a long way to go, but we are excited to keep expanding.”

The first DAO putting the new legislation to the test is Admiral DAO, which has registered its company Shipyard Software, a decentralized exchange software developer, under Marshall Island jurisdiction (despite its name, Shipyard Software is unrelated to any maritime venture).

“We think of [decentralized exchanges] and DAOs as ships. They live in international waters, right?” Mark Lurie, CEO of Shipyard Software, told CoinDesk in an interview. “So when trying to figure out where to incorporate [Shipyard Software], we realized, Oh, let’s look at ships. And it turns out ships are all registered in the Marshall Islands. And that’s what led us here.”

The islands’ advantages

The islands have several advantages over individual U.S. states as a potential DAO domicile, namely not being subject to U.S. federal laws while still having access to the U.S. Postal Services, Federal Aviation Administration (FAA) and the U.S. Military, according to a press release.

MIDAO Directory Services has been tapped by the Marshall Islands to help prospective DAOs with the registration process, led by Adam Miller.

The Marshall Islands’ initial foray into cryptocurrency came in 2019 when it passed the Sovereign Currency Act to make its legal tender digital. The movement never got off the ground, however, due to what Paul called “regulatory obstacles.”

The Marshall Islands is not the first island nation to enact legislation to advance its crypto ambitions – the Republic of Palau, also located in the Pacific Ocean, launched the first digital residency program in January, allowing anyone from around the world to apply to become a digital resident of the country. The Republic is also working on launching its own stablecoin later in the year.