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 often relies on traditional governance elements, which can limit the flexibility DAOs require to remain truly decentralized.
Tennessee: Expanding DAO Recognition
Tennessee allows DAOs to register as decentralized organizations, borrowing elements from Wyoming’s DAO LLC model. However, Tennessee’s framework places less emphasis on operational transparency and decentralization, making it a simpler but less robust option. It caters to DAOs prioritizing ease of registration but does not fully address the complexities of DAO governance.
Wyoming: The First LLC Wrapper
Wyoming pioneered DAO-specific legislation with the introduction of the DAO LLC. This framework provides limited liability protections, shielding members from personal financial risks and granting legal recognition to DAOs. Wyoming’s legislation requires DAOs to provide a public identifier for their smart contracts but does not mandate the same level of operational transparency or blockchain integration as Utah.
Wyoming’s DAO LLC remains a popular choice for DAOs due to its simplicity and early adoption. However, its reliance on traditional LLC structures can limit the decentralized ethos that many DAOs strive for, making Utah’s framework more attractive for organizations seeking advanced governance options that are more native to the DAO ethos. Nonetheless, Wyoming is commended for the strides taken to launch the US forward on DAO legislation.
Utah vs. Wyoming: A Matter of Preferences
Both Utah and Wyoming offer valuable frameworks for DAOs, but the right choice often depends on the specific needs and priorities of the organization.
Why Choose Wyoming?
Wyoming’s DAO LLC is ideal for DAOs that:
Prioritize simplicity and speed of registration.
Operate with minimal governance requirements.
Prefer a straightforward approach with fewer operational mandates.
Its structure allows smaller DAOs or those just starting to quickly gain limited liability protections without needing extensive by-laws or technical compliance.
Why Choose Utah?
Utah’s DAO framework is better suited for DAOs that:
Value transparency and operational accountability.
Require robust governance structures to support complex decision-making.
Seek flexibility in taxation, particularly those with international members or intricate revenue models.
With its emphasis on decentralization and permissionless blockchain deployment, Utah provides a forward-thinking legal environment that aligns closely with the oft-cited values of Web3 creators.
Conclusion
For DAOs seeking rapid setup with minimal requirements, Wyoming’s DAO LLC remains a strong choice. However, for organizations aiming to embrace decentralization fully and operate with a higher degree of transparency and accountability, Utah’s DAO Act offers a more comprehensive and adaptable framework. By understanding these distinctions, DAOs can select the jurisdiction that best aligns with their goals and governance philosophy.
Chapter 7 Takeaways:
Utah’s native DAO framework is more comprehensive than the LLC wrappers of Wyoming, Tennessee, or Vermont, focusing on operational transparency and decentralization.
While Wyoming offers simplicity, Utah’s structured approach better supports DAOs with complex governance and international ambitions.