The Utah DAO The World's First DAO Act Built for True Decentralization Jason Hayward

Open Introduction

INTRODUCTION

A Roadmap for DAOs

This book is a roadmap for DAOs to achieve legal recognition through Utah’s groundbreaking DAO legislation—the first in the world designed specifically for the unique nature of decentralized organizations. Utah has done more than pass innovative laws; it has cultivated an ecosystem where entrepreneurs, industry leaders, and policymakers collaborate to turn Web3 aspirations into reality.

What Are DAOs?

DAOs, or Decentralized Autonomous Organizations, are member-managed groups operating on blockchain technology, governed by transparent rules encoded in smart contracts (discussed further in chapters 1 and 6). They represent a new paradigm for collaboration and governance, removing intermediaries and fostering trust through automation and decentralization.

Why Utah?

Ranked among the top states for economic growth, Utah’s low taxes, robust demographics, and strong work ethic have propelled it to national and global prominence. With the fastest-growi

Open Chapter 1: The Digital Co-Op

CHAPTER 1: THE DIGITAL CO-OP

What is a DAO, and Why Does it Matter?

Decentralized Autonomous Organizations, or DAOs, represent one of the most transformative developments to emerge from blockchain technology. A DAO is, at its core, a collective of individuals pooling resources—whether financial, intellectual, or both—to achieve a shared goal or purpose. This concept mirrors a traditional cooperative, or co-op, in the real world, where members voluntarily come together to pool resources and make decisions collectively for mutual benefit, such as running a grocery store, credit union, or housing initiative. DAOs take this familiar structure and digitize it, integrating blockchain technology for transparency and security. This collective operates through rules encoded in smart contracts, allowing for decentralized governance and automation of processes.

A smart contract is a self-executing program stored on a blockchain that automatically enforces the terms of an agreement when predefined condi

Open Chapter 2: DAO Nuts & Bolts

CHAPTER 2: DAO Nuts & Bolts

Decentralized Autonomous Organizations are as revolutionary in the organizational world as the internet was for communication. At their heart, DAOs are entities governed by rules written into code and executed through blockchain-based smart contracts. But to truly understand their value, one must first explore their defining characteristics and the limitations of traditional alternatives.

Definitions and Concepts

A DAO can be described as a virtual organization where decision-making is decentralized, resources are pooled, and operations are automated. This is achieved through smart contracts, which encode the rules and protocols by which the DAO operates. Unlike traditional organizations, which rely on managers and central authorities, DAOs operate transparently and autonomously.

Key characteristics of DAOs include:

Decentralization: No single entity has control; all members collectively govern the DAO.

Autonomy: Smart contracts handle operations, reducing

Open Chapter 3: DAO Use Cases

CHAPTER 3: DAO USE CASES

Decentralized Autonomous Organizations have been employed in a wide array of applications, from funding innovative ventures to facilitating charitable initiatives. Their use cases highlight their flexibility and potential to disrupt traditional models of organization.

How DAOs Have Been Used So Far

DAOs have been implemented across diverse domains:

For-Profit Ventures: MakerDAO (rebranded as "Sky" in August 2024), one of the most prominent DAOs, oversees a decentralized financial system providing stablecoins and lending protocols. It allows participants to influence governance decisions, such as altering interest rates or updating its protocols, via a token-based voting system. This model showcases how DAOs can manage complex financial ecosystems transparently and efficiently.

Non-Profit Organizations: Charity DAOs, like Giveth, provide platforms for transparent and democratic donation management. Contributors can track exactly how their funds are used, and comm

Open Chapter 4: What the Utah DAO Offers

CHAPTER 4: WHAT THE UTAH DAO OFFERS

The Utah DAO Act marks a pivotal moment in the evolution of decentralized organizations. Imagine a world where innovative collectives can operate as legally recognized entities, with clear protections and robust frameworks to guide them. The Utah DAO Act transforms this vision into reality, offering DAOs the tools they need to flourish while staying compliant with legal standards.

Take the example of a DAO formed to promote green energy initiatives. Without a formal framework, such a DAO might struggle with legal uncertainties, tax ambiguities, or liability risks for its members. Under the Utah DAO Act, these hurdles are addressed, allowing the DAO to focus on its mission while enjoying protections similar to traditional corporations.

A New Standard for DAOs

Legal Entity Status

Registered DAOs in Utah gain full legal recognition, enabling them to sign contracts, hold assets, and participate in lega

Open Chapter 5: Practical Requirements for Utah DAO Approval

CHAPTER 5: PRACTICAL REQUIREMENTS FOR UTAH DAO APPROVAL

The Utah DAO Act opens the door for decentralized organizations to gain legal recognition and protection, but it also establishes clear guidelines for DAOs seeking approval. This chapter outlines the practical steps needed to navigate the registration process, ensuring your DAO meets the necessary standards for compliance and operation.

Step 1: Filing the Application

The first step to register a DAO under the Utah DAO Act is to file an application with the Utah Division of Corporations and Commercial Code. The application must include:

• The DAO’s unique name and public blockchain address.

• Information about the organizer of record and legal representative.

• Details of the registered agent responsible for legal communications.

• Evidence of technical compliance, including links to smart contract repositories and blockch

Open Chapter 6: Smart Contracts and their Governance

CHAPTER 6: SMART CONTRACTS AND THEIR GOVERNANCE

The foundation of decentralized governance lies in the implementation of smart contracts. These self-executing agreements encode the rules and protocols of a DAO, ensuring that governance and operations function automatically and transparently. The Utah DAO Act embraces smart contract governance as a cornerstone of its framework, providing DAOs with the legal and technical tools to thrive.

What Are Smart Contracts?

Smart contracts are programmable agreements that execute predefined actions when certain conditions are met. Unlike traditional contracts, which require intermediaries to enforce terms, smart contracts operate independently on a blockchain, ensuring that rules are followed without manual intervention. They are the backbone of any DAO, automating governance and ensuring transparency. For example, a smart contract might automatically transfer funds from a DAO’s treasury to a project team once a majority of members vote to approve the al

Open Chapter 7: Comparitive Outlook: Utah DAO Act vs. Other US Jurisdictions

CHAPTER 7: COMPARITIVE OUTLOOK: UTAH DAO ACT VS. OTHER US JURISDICTIONS

The Utah DAO Act has set a new benchmark for DAO legislation, but how does it compare to frameworks in other U.S. states? Vermont, Tennessee, and Wyoming have also developed legal structures to address the unique needs of DAOs, offering varying degrees of recognition and protection. Among these, Wyoming’s DAO LLC framework has gained prominence as the most comprehensive "wrapper" for decentralized organizations, though it falls short in some areas compared to Utah’s innovative approach of structuring its statute upon the decentralized ethos of DAOs rather than on established LLC norms.

Liability and Legal Status

Vermont: Blockchain-Based LLCs

Vermont’s legislation introduced blockchain-based LLCs, integrating blockchain technology for record-keeping and governance. While this framework provides some recognition for decentralized entities, it lacks the explicit focus on DAOs and their unique needs. Vermont’s approach of

Open Chapter 8: Comparative Outlook: Utah DAO Act vs. International Jurisdictions

CHAPTER 8: COMPARATIVE OUTLOOK: UTAH DAO ACT VS. INTERNATIONAL JURISDICTIONS

Before Utah’s groundbreaking legislation, attempts to provide DAOs with legal standing were limited and commonly sought outside of the US. Let's review global alternatives outside of the US and how that stack up to the Utah DAO.

Swiss Foundation Model

Switzerland, particularly its Crypto Valley in Zug, has been a pioneering community in DAO formation. Crypto Valley DAOs often register as Swiss foundations to gain legal status. For example, the Web3 Foundation leveraged this model to fund and oversee projects like Polkadot. However, this structure requires traditional governance elements, such as a board, which can constrain decentralization.

Establishing a DAO as a Swiss foundation offers legal recognition, asset protection, and access to Switzerland's robust financial infrastructure. However, this approach involves regulatory requirements that include the necessity of appointing a local director, maintaining a re

Open Chapter 9: Case Study: IN8 Network DAO

CHAPTER 9: CASE STUDY: IN8 NETWORK DAO

The IN8 Network DAO is a trailblazing organization that exemplifies the potential of decentralized autonomous organizations under Utah’s progressive DAO legislation. Working hand-in-hand with IN8 Technologies LLC, the DAO and its partner company create a unique synergy, where each enhances the success of the other. IN8 Technologies LLC develops innovative products, while the IN8 Network DAO promotes, distributes, and governs their adoption, using blockchain-based systems to drive participation and trust.

This case study examines how the IN8 Network DAO functions according to its by-laws, serving as a reference point for other DAOs. It is important to note that each DAO is unique, and governance models will vary based on specific goals, community dynamics, and operational requirements. The founder of IN8 Network DAO graciously shared his experience forming the DAO, informing the writer's understanding of its structure.

**The Synergy Between IN8 Network DAO an

Open Chapter 10: Applied Case Study: Jurisdictional Comparative Analysis

CHAPTER 10: APPLIED CASE STUDY: COMPARING UTAH'S DAO FRAMEWORK TO WYOMING AND SWITZERLAND

This chapter places the reader in the shoes of DAO founders who are evaluating the pros and cons of different jurisdictions for establishing their decentralized organization. Using the same goals as those outlined for the IN8 DAO in the previous chapter, this analysis focuses on how Utah, Wyoming, and Switzerland align with the needs of DAOs seeking robust governance, scalability, and regulatory clarity.

While many jurisdictions could be considered, this chapter narrows the focus to one domestic and one international option for comparative analysis. Wyoming was selected for its strong promotional efforts and reputation as a domestic leader in DAO legislation. Similarly, Switzerland was chosen for its international credibility and trustworthiness, particularly in the blockchain space.

Jurisdictional arbitrage—choosing locations based on favorable legal and regulatory conditions—is a critical factor for DAO fo

Open Chapter 11: The Best of Both Worlds?

CHAPTER 11: THE BEST OF BOTH WORLDS?

Balancing the Utah DAO with a Swiss Corporate Entity

Imagine a group of DAO founders based in Switzerland, eager to build an organization that aligns with their decentralized vision while enjoying liability protection for members. However, they wish to avoid the high costs and administrative complexity of establishing a Swiss foundation. Instead, they explore combining the innovative Utah DAO LLC framework with a traditional Swiss corporate entity, achieving liability protection and operational synergy within their home country.

This section examines how Swiss founders can leverage Utah’s DAO LLC structure for decentralized governance and liability protection while incorporating a Swiss GmbH or AG to manage non-DAO functions, such as treasury operations, compliance with local regulations, and regional partnerships.

What the Utah DAO Brings to the Arrangement

1. Decentralized Governance: Utah's DAO LLC framework enables governance through smart co

Open Chapter 12: The Future of DAOs: Turning Point for U.S. Leadership

CHAPTER 12: THE FUTURE OF DAOs: TURNING POINT FOR U.S. LEADERSHIP

As Decentralized Autonomous Organizations (DAOs) continue to grow in prominence, their potential to reshape governance and commerce is undeniable. Yet, founders establishing DAOs under Utah’s innovative framework must also navigate a complex federal landscape. Key challenges such as securities classification, tax compliance, and regulatory requirements demand careful consideration. Recent statements from the incoming administration, with its pro-crypto sentiment, hint at a potentially more favorable federal environment for DAOs, but many uncertainties remain.

Federal Challenges Facing DAOs

DAOs operating in the United States face several critical federal issues:

1. Securities Regulations: DAO founders must address whether their tokens qualify as securities under U.S. law. The Howey Test evaluates factors such as investment, common enterprise, profit expectations, and reliance on others. Federal guidance remains unclear, crea

Open About the Author

ABOUT THE AUTHOR

Jason Hayward, Esq.

Digital Asset & Web3 Attorney | Legal and Business Consultant

With 20 years of extensive legal experience, Jason Hayward has cultivated a reputation as a trusted advisor to businesses and entrepreneurs tackling complex legal and operational challenges. As an attorney, mediator, and arbitrator with judge pro tem experience, Jason combines rigorous legal acumen with practical problem-solving to deliver tailored solutions.

Jason’s global perspective has been honed through collaborations with lawyers, economists, and consultants across the US, UK, and the EU, as well as his professional experiences in multicultural environments in London and Milan. His work includes advising on innovative frameworks for payments and settlement systems with the Gillmore Centre for Financial Technology at Warwick Business School, located in Coventry, England, where he also earned his MBA. Graduating in the top 10% of his class, Jason demonstrated exceptional insight into fina

Open Copyright, Disclosures and Waivers

COPYRIGHT, DISCLOSURES AND WAIVERS

Copyright © 2024 by Jason Hayward. All rights reserved. Pursuant to applicable state, federal and international laws, no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, including on web2, web3 and metaverse platforms, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, and all amendments thereto, without either the prior written permission of the publisher or authors.

1. Comprehensive Legal Disclaimer

This document sets forth the terms and conditions governing the use of this digital book, website, services, and all resources and links directly or indirectly referenced in this book (herein referenced as "book," "website," "services" or as otherwise referred to). By accessing or engaging with this book, website or any of our services, which may include traditional web offerings as well as