DAO (Decentralized Autonomous Organization) in Wyoming

Introduction to DAO in Wyoming

DAO is a popular acronym for Decentralized Autonomous Organization, and it is an emerging type of organizational structure. This type of structure does not have any central governing body. The members of DAO comply with certain rules that help them to meet common goals, which are in the best interest of the said entity. Decision-making and processes in DAO entities are determined using a bottom-up management approach. This type of company is also known as a member-owned organization where blockchain technology plays a key role. There are certain core principles on which a Decentralized Autonomous Organization operates. They are:

• Decentralization – Decentralized Autonomous Organizations embody decentralization, which translates to the shifting of power from the central authorities. This helps promote unbiased decision-making.
• Transparency – Traditional businesses have limited transparency vis à vis DAOs. Since a Decentralized Autonomous Organization runs on blockchain technology, this leads to a higher degree of transparency in decision-making processes and financial transactions.
• Community-driven governance – One of the core principles of DAOs is Community-driven governance. This basically consists of a range of policies or approaches directed towards achieving community development. Decentralized Autonomous Organizations (DAOs) are redefining community-driven governance and decision-making.

What Are the Benefits of Using a DAO Structure in Wyoming?

Decentralized autonomous organizations (DAOs) are being considered as the new form of collective governance. This is because control of an entity by a single individual or a group is not allowed in DAOs. Instead, this control is distributed within a group of members or supporters of the organization. Decentralized autonomous organizations share a vision as well as a purpose, just like traditional entities, and this helps define their values, goals, and identity. There are several benefits of a DAO, like:

• Increased efficiency – A wasteful variable in most corporate structures is the redundancy of human tasks related to business processes. This is known as a problem of efficiency. Decentralized Autonomous Organizations help remove this redundancy and reduce information asymmetry, thus increasing efficiency.
• Reduced bureaucracy – As the name decentralized autonomous organizations suggest, power in terms of decision-making and operations shifts from the hands of a few members to the combined wisdom of all token holders. Smart contracts help streamline processes in DAOs, reducing bureaucracy while enabling participation and quick decision-making.
• Global participation – The DAO concept is flexible and encourages people from across the world to come together and seamlessly incorporate a single vision. DAOs also transcend geographical boundaries, thus driving resources and attracting talent globally.

Key Things to Know About Decentralized Autonomous Organization (DAO)

A decentralized autonomous organization (DAO) is an organization or business whose decisions are made electronically through written computer code or via the vote of its members. Basically, it is a system of hard-coded rules that would define all the actions that take place in the organization.

What is a Decentralized Autonomous Organization (DAO)?

To understand this, let us understand digital currencies, which are decentralized. This means that they are not controlled by a single government institution or bank. Rather, the control is divided among a variety of computers, nodes, and networks. With this, they also gain a lot of privacy and security that normal currencies and their transactions do not get. Inspired by this, in 2016, a group of developers got the idea to create a decentralized autonomous organization.

How does a Decentralized Autonomous Organization work?

In a decentralized autonomous organization, every vote or action that takes place is represented in the form of a transaction in the blockchain. The members who take action or place votes are represented by their address. These addresses can be owned by anyone, including an IOT device, a robot, a human, or even another DAO. And this is what makes it an automated system. Also, each member gets a token that acts as the shares of the DAO. These tokens can also be used to vote in the DAO to make a specific decision.

• Hire a lawyer
• Hire a vendor to get his/her service
• Fire the CEO
• Change the CEO
• Pay certain USD/ethers to someone as a bonus or salary
• Issue the share to an address since that address is adding more value

Decentralized Autonomous Organization Examples

With the DAO, we can now have companies that do not have a specific hierarchy or a CEO. This makes the structure one of the best ones to have in any kind of organization. In fact, if regulatory structures allow, then blockchain data could replace a lot of the public records such as missing persons, sex offenders, titles, mortgages, deeds, marriage certificates, and birth certificate records.

DAOs in Wyoming

DAOs in Wyoming are “decentralized” digital organizations that play a key role in providing a new way of funding ventures, splitting proceeds, and democratizing decisions. They are seen as autonomous entities as they employ smart contracts. The state’s legislation for decentralized autonomous organizations has made an increasing number of DAOs in Wyoming possible.

Pioneering Legislation for DAOs

Wyoming adopted a new legal structure for DAOs and it is indeed being talked about. The legislation bill SF0038 allows Wyoming decentralized autonomous organizations to gain a proper legal entity status while operating within the extent of the applicable law. Wyoming Governor Mark Gordon signed this new legal framework on March 7, 2024 for DAO. This new legislation will allow DAOs to be recognized as “decentralized unincorporated nonprofit associations” (DUNAs). Some of the salient features of this act include:

• Recognition as separate legal entities
• Can use distributed ledger technology
• May enjoy Liability Protection
• The Act permits indemnification of its members
• DAOs can defend, participate, or intervene in a judicial or administrative proceeding
• Shall be able to appoint a registered agent in Wyoming for service of process
• They have been granted perpetual existence

Legal Structures for DAOs in Wyoming

A decentralized autonomous organization in the state of Wyoming can opt for two different legal structures as a part of the Decentralized Autonomous Organization Supplement or legislation. These structures are:

• DAO as a Limited Liability Company (LLC) – The Wyoming Limited Liability Company Act is applicable for decentralized autonomous organizations. This is governed by 2022 Wyoming Statutes, Title 17 – Corporations, Partnerships and Associations, Chapter 31 – Decentralized Autonomous Organization Supplement. You can form a DAO entity as an LLC by filing Articles of Organization pursuant to WY Stat § 17-31-106 (2022). Most laws and requirements pertaining to a traditional limited liability company will be applicable to a DAO LLC.
• DAO as a Decentralized Unincorporated Nonprofit Association (DUNA) – The legislation bill – SF0050, became law to accommodate the functioning of DAO as a Decentralized Unincorporated Nonprofit Association (DUNA). The formation, management, and operation of a DUNA are governed by Chapter 32 of Wyoming Decentralized Unincorporated Nonprofit Association Act. This type of organization can appoint a registered agent to receive service of process pursuant to WY Stat § 17-32-110. The DUNA is a unique legal entity structure designed specifically for decentralized organizations. It has been modeled on the lines of the existing Unincorporated Nonprofit Association Act of Wyoming. The DUNA provides Decentralized Autonomous Organizations a legal existence thus enabling DAOs to sign contracts with vendors or third parties and open bank accounts.

Why should you form a DAO in Wyoming?

Technology has been changing the way companies do business. Wyoming leads the way where changes in entity structures or types of entities are concerned. The progressive approach of the state towards blockchain regulation has made it a pioneer in establishing and bringing to prominence decentralized autonomous organizations (DAO). If you are new to DAO, then let’s start by looking at the various advantages of forming this type of organization in Wyoming:

• Clear legal framework – Decentralized Autonomous Organizations (DAOs) have a clear legal framework. Decisions and operational processes in these organizations have been automated through codes. This removes the need for a central authority or an intermediary to manage a DAO. Decision-making is done through a consensus, where DAO members enjoy voting rights, which can be exercised through tokens.
• Tax benefits – One of the top advantages in the state of Wyoming for Decentralized Autonomous Organizations is tax benefits. The state of Wyoming does not have any Corporate Income Tax, personal income tax, or franchise tax. This, along with tax exemption and abatement programs offered by the state, helps in minimizing the overall tax burden.
• Business-friendly environment – Wyoming is one of the most business-friendly states in the nation due to its low cost of doing business, including low maintenance fees, flexible regulations, asset protection, strong privacy laws, and no citizenship requirements.

How to Form a DAO in Wyoming?

If you are new to the concept of a Decentralized Autonomous Organization (DAO), you will probably have questions about how to form this type of entity structure. To form and operate a DAO, you will need to follow a process governed by the Wyoming Statutes. Let’s take a look at the various steps involved in making a DAO operational.

Step 1: Choose the legal structure as LLC

The first step would be to define an entity structure for your Decentralized Autonomous Organization. You need to choose the legal structure of a limited liability company. It is important to note that the Wyoming Limited Liability Company Act is applicable to DAOs. In order to register the DAO LLC, you will be required to file Articles of Organization pursuant to WY Stat § 17-31-106 (2022). This application has to be submitted to the Wyoming Secretary of State along with a filing fee of $100.

Step 2: Name your DAO LLC

The business name is integral to DAO LLC. The business name will be used for creating a connection with future customers, partners, or vendors. This is the most basic requirement, and without a proper DAO name, you will not be able to start a Decentralized Autonomous Organization. The name should be in compliance with Wyoming business name regulations. The naming guidelines in the state are:

• The chosen name should include, specifically, “DAO” or “LAO” pursuant to WY Stat § 17-31-104(d) (2022).
• A chosen name should contain words like “limited liability company,” “limited company,” or abbreviations like L.L.C or LLC pursuant to WY Stat § 17-29-108 (2022).
• The name should not be deceptively similar or the same as any service mark or trademark registered in this state.
• DAO LLC’s name should not contain any word or phrase that implies or indicates that such a company has been organized for any purpose other than the one mentioned in its articles of organization;
• Once you have chosen a name, it is important to conduct a name availability check. If the name is available, then you will be able to register it with the state.

Step 3: Choose a registered agent

Each decentralized autonomous organization will be required to hire and continuously maintain a registered agent in Wyoming pursuant to W.S. 17-28-101 through 17-28-111. The Articles of Organization for a DAO LLC has a section called Consent to “Appointment by Registered Agent”. This will be filled and submitted along with the articles.

Step 4: Choose DAO organizers

A Decentralized Autonomous Organization is an organization of people or a collection of individuals often known as members. These members, also known as organizers, are chosen on certain parameters. In fact, admission to a DAO LLC will be limited to those individuals who possess confirmed ownership of governance tokens in cryptocurrency wallets. Memberships can be exchanged. These members have voting rights and possess tokens. The voting power is normally distributed across the members or users based on the number of tokens they possess. DAO organizers or management will be vested in its members and any applicable smart contracts as governed by WY Stat § 17-31-109 (2022). A smart contract that is being utilized by a decentralized autonomous organization or DAO LLC can be modified, updated, or even upgraded.

Step 5: Complete additional articles

A decentralized autonomous organization operating as an LLC will need to file Articles of organization. In addition to this, the articles of organization should also include a publicly available identifier of any type of smart contract. The smart contract should indicate whether it is being used to directly manage, operate, or facilitate the DAO LLC. If there is a change in the name of the DAO LLC, then an Amendment of articles of organization has to be filed by the organization. This also holds true if the smart contract has been changed or updated.

Register your DAO LLC in Wyoming today!

Step 6: Develop Governance Rules

We have seen for a long time that corporate governance paves the way for the concentration of power among a few groups of directors. However, a Decentralized autonomous organization uses an alternative model of governance where power is distributed amongst a broad base of stakeholders. This helps in fostering a democratic approach towards collective governance. Governance in a Decentralized Autonomous Organization is coordinated using tokens. These tokens are considered to be mintable, permissionless tokens that can be used by holders or members to trade on decentralized exchanges (DEXs). Governance tokens are also issued under other protocols especially when users participate in a network security project like Proof-of-Work (PoW) consensus mechanisms.

Convert Wyoming LLC to DAO

A Wyoming DAO LLC is a new entity that was introduced in March 2021 through the passage of legislation, also known as the DAO Supplement. An LLC must provide a statement within its articles of organization stating that the company is a Decentralized Autonomous Organization. The Wyoming Secretary of State will consider a DAO LLC under the DAO Supplement only if such a statement has been provided.

• One method is to register a new legal entity in the form of a DAO LLC.
• The second method is to convert your existing LLC to a Wyoming DAO LLC by amending the articles of organization. Here, amending refers to including a statement as required under the Wyoming Statutes, WY Stat § 17-31-106 (2022).

Do you want to convert your LLC to a Wyoming DAO?

Wyoming DAO FAQs

A Decentralized Autonomous Organization (DAO) or a DAO LLC is a relatively new entity structure in Wyoming. Whether you are looking to form a DAO or convert your existing LLC into a DAO, you may have several questions. This FAQs section will try and answer some of the most common and important questions that business owners have.

What are the naming requirements for Wyoming DAO?

The company name should have “DAO LLC” or a combination of both entity indicators (DAO and LLC) in the name. Here are the indicators you can choose from:

How much does it cost to form a DAO in Wyoming?

The initial fee to form the DAO in Wyoming is $100. After that, you will have to spend $60 as a minimum for the annual reports every year. The fee is calculated based on the assets employed and located in Wyoming. So, the tax is basically $60 or two-tenths of one mill on the dollar ($.0002), whichever is greater.

Do I need a Registered Agent for a DAO Company?

Yes. Although Decentralized Autonomous Organizations (DAOs) are mostly online-based companies, they are required to appoint a registered agent in the state of Wyoming. This is governed by the Wyoming Statutes, Title 17 – Corporations, Partnerships and Associations, Chapter 31 – Decentralized Autonomous Organization Supplement, Article 1 – Provisions, Section 17-31-105 – Formation.

What should you include in your organization’s articles for a DAO?

The Articles should include – a statement that the organization is a DAO, the name of the DAO LLC, the street address, the name of its registered agent, and their office address. Written consent should also be added to the appointment and signed by the registered agent. The Articles should define the structure and management of the DAO.

• Pursuant to W.S. 17-31-104(c), a Notice of Restrictions on Duties and Transfers if it will not appear in the operating agreement;
• Pursuant to W.S. 17-31-106(b), a publicly available identifier of any smart contract directly used to facilitate, manage, or operate the DAO;
• Pursuant to W.S. 17-31-106(a), a statement that the entity is a decentralized autonomous organization; and
• If the Notice of Restrictions on Duties and Transfers will appear or appear in the operating agreement, a statement of such.

Do DAOs in Wyoming require Annual Reports?

The company needs to file the annual reports that are due every year on the first day of the anniversary month of the formation of the company. If the company does not file for and pay within 60 days of the due date, the entity will be subjected to dissolution.

Wyoming Decentralized Autonomous Organization Advantages

Decentralized Autonomous Organizations (DAO) is a new age entity that may change the way we operate businesses today. There are several aspects of a DAO entity that give it quite the advantage over traditional corporations and LLCs. Some of the top advantages are:

• Transparency – One of the greatest advantages of operating a DAO is the element of transparency. Decentralized autonomous organizations are being driven by blockchain technology and this provides a secure and immutable way of recording and managing data. Since it lives on a public blockchain, each and every transaction is completely visible to all members.
• DAO development and collective interest – One of the salient aspects of DAO development is that it brings together entities on a single platform to help achieve their collective interests. The participants in this environment may not know each other and don’t need to. This is because the rules of engagement have been embedded deep inside a safe, transparent, open-source blockchain record. This blockchain record or ledger is considered to be tamper-proof, and no one will be able to change these practices without getting a majority vote.
• Innovation – DAOs are driven by innovative and cutting-edge technologies. This is not all, Decentralized Autonomous Organizations utilize the collective intelligence and ideas of a diverse group of members or stakeholders. This provides DAOs with the prospect of driving unprecedented innovation that is replete with fresh perspectives, which lead to better solutions.
• Operating using Computer Code – One of the distinct advantages of a Decentralized Autonomous Organization is that this type of entity is operated using computer code. As a comparative analysis, traditional businesses are run by specific individuals. Since DAOs operate under blockchain-based governance, this ensures that the control over the entity doesn’t lie with a single individual. Hence, quick decisions can be made transparently. This also helps in incorporating intelligent contracts into the processes for faster operation.
• Cost-Efficiency – A salient highlight of any DAO is cost efficiency. Traditional organizations have multiple people operating on multiple levels handling a variety of projects or processes. In a Decentralized Autonomous Organization, most organizational processes are automated through smart contracts. As a result, the need for intermediaries is reduced while bureaucratic processes are eliminated or streamlined. This ensures that DAOs can reduce their overall operational costs significantly.

Risks in Decentralized Autonomous Organization

A decentralized Autonomous Organization is a democratic group of people responsible for making decisions and changes driven by the votes of each member. This type of entity exists in the world of web3. There are many advantages of a DAO but there are a few risks attached to operating this entity. Let’s take a look at some of the projected risks.

• Coordinating Challenges – The first type of risk associated with operating a DAO is coordinating across the various challenges. These are in terms of consistency of operations and alignment of goals. Since there is no central authority, ensuring harmony and uniformity within the various levels can be quite challenging and intricate.
• Share of Tokens – Governance in a DAO relies mostly on DAO tokens. Those who possess these tokens can participate in voting and decision-making. There is a possibility that a specific group of individuals can accumulate a large share of DAO tokens. In such a scenario, they will have higher voting power and this can pose a risk towards seamless and unbiased governance.
• Vulnerability of Code – One of the key risks to a decentralized autonomous organization is the vulnerability in the computer code. The premise for DAO’s focus most of the time is that their smart contract code is capable of taking care of everything, but codes can have bugs and be manipulated. Every code is vulnerable! Developers of these codes can never fully ensure the security and flawlessness of the code, which is at the core of any DAO entity.
• Regulatory concerns – One area that has been overlooked is the regulatory implications. A Decentralized Autonomous Organization can become a regulatory nightmare. This is especially so because there are no definite rules and regulations regarding the management and taxation of DAOs.

Do You Need Help in Incorporating a DAO in Wyoming?

If you are thinking of starting your company and want to choose the decentralized autonomous organization structure, then we can help you with it. IncParadise can also help you to restructure your LLC into the DAO. We can also help you to register and incorporate your company whenever and however you want to.