Blockchain in Wyoming and the First Wyoming DAO  

Why Wyoming?  

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 decentralised  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 decentralisation 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.”  

Final Takeaway

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 decentralisation 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 decentralised 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.