Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
Decentralized Autonomous Organisations (DAO) are touted as future of blockchain, but could the new Wyoming DUNA Act create a bleak future for DAOs?
The beauty of blockchains is that they are never static. To illustrate, the Bitcoin network enabled peer-to-peer transfers. Then, Ethereum developed a smart contracts platform, a game changer.
The crypto scene has seen the launch of self-governing bodies known as Decentralized Autonomous Organizations (DAOs) powered by smart contracts.
Innovative and decentralizing as they are, events, especially in 2023, show that DAO operators are not immune to the law.
The United States Securities and Exchange Commission (SEC) pressed charges against BarnBridge DAO and won, in another incident, the CFTC did the same and emerged on top of the Ooki DAO – in what many labelled a blow to innovation.
Now, the recent introduction of the Wyoming Decentralized Unincorporated Nonprofit Association (DUNA) Act aims to regulate DAOs and protect the underlying blockchain.
DUNA is not just another legal framework; it gives DAOs legal existence, allowing them to contract with third parties, appear in court, pay taxes, and even protect them against actions done by some members.
Nothing is being taken from DUNA. If anything, it is a welcomed legal framework that offers potential benefits for some DAOs.
However, a16z analysts have raised concerns about DUNA, suggesting that it should be a “condition for investment” whenever they are engaged. Some analysts argue that this condition could be detrimental to the DAO ecosystem.
Is Wyoming’s DUNA Act a Cause for Concern?
If you are new, a16z is one of the top crypto venture capitals in the world. They are deeply invested in the scene and behind some leading protocols, including Uniswap and many others.
As it turns out, the venture capital enthusiastically promotes DUNA as the “industry standard” for DAOs. While promising, some pertinent questions must be answered, not just embracing what a16z says.
Opposers argue that other legal frameworks should exist besides DUNA. They believe that relying on a one-size-fits-all approach, as proposed by the Wyoming legislation, disregards the diverse needs and goals of different DAOs.
This includes those launched outside the United States, which may have different legal and regulatory environments.
This absence of diversity is not just a theoretical concern; it can have real-world implications. For instance, DUNA is centered on DAOs deployed in the United States, which means it may not consider the needs of similar organizations outside the country.
Beyond this, DUNA is a legal framework proposed by lawmakers, often driving the interests of the United States. Overemphasizing the need for external legal structures for DAOs goes against the core principles of decentralization and the “code is law” behind their autonomy.
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Need For Decentralized Governance In DAOs
DUNA is a positive step toward regulating DAOs in light of the above. However, the main argument is that DAOs should be allowed to choose legal frameworks that best suit their needs.
This position is rooted in the belief that DAOs should maintain autonomy and community focus.
Therefore, VCs and analysts should not rush to endorse frameworks pushing for a one-size-fits-all solution.
DAOs are designed to be self-governing, driven by smart contracts, and community-centric: this should not change.
These characteristics are fundamental for true decentralization and should not be compromised by external legal structures. Therefore, DUNA must be considered an option, not a mandate, when structuring DAOs.
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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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