This article explores the changing legal landscape for decentralized autonomous organizations (DAOs), highlighting court cases, legislative breakthroughs, and new structural solutions.
The End of Entity-less DAOs?
The DAO experiment began as a challenge to corporate orthodoxy, inspired by the idea that smart contracts could coordinate behavior more transparently and equitably. However, in the past two years, courts have increasingly treated DAOs as 'general partnerships' or 'unincorporated associations,' which carry unlimited liability for members. This legal ambiguity came to a head in the case of 'Samuels v. Lido DAO,' where a federal judge allowed a lawsuit to proceed, arguing that Lido DAO token holders and VC investors were effectively general partners. The message from regulators was clear: 'The label “DAO” does not change the reality of who is behind a project.'
Jurisdictions Race to Adapt
In response to legal challenges, several jurisdictions have rolled out new types of legal entities for DAOs to address the need for legal personality, liability shields, and tax clarity. In the United States, Wyoming and Utah are leading the charge. For instance, Wyoming's 'Decentralized Unincorporated Non-profit Association' allows token holders to be members with limited liability without full corporate governance. Utah’s 'Limited Liability DAO' law requires public transparency and role documentation, making it an attractive place for DAOs.
Reimagining Legal Wrappers in a DAO Ecosystem
Legal wrappers are now seen as modular, composable components that enable decentralized coordination in the real world without undermining on-chain autonomy. This model consists of two layers: a non-profit legal entity recognizing all token holders as limited-liability members, and a set of SubDAOs or affiliated legal entities executing specific functions. Each layer serves a defined purpose, allowing for a flexible and resilient structure where the DAO can remain a non-custodial coordination layer on-chain.
Legal wrappers are not the end of the decentralization dream; they are its next evolution. Successful integration of legal frameworks is crucial for the survival and scaling of DAOs under scrutiny.
