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 founders. Despite the appealing concept of jurisdictional interoperability, the absence of legal precedents for DAOs means that selecting jurisdictions with strong traditions, robust infrastructure, and a commitment to the rule of law becomes paramount. Founders must evaluate environments with stable legal systems, reliable financial frameworks, and proximity to markets and customers to ensure their DAO’s success.

This chapter expands upon the case study of IN8 DAO, providing a framework for founders with similar goals to assess the strengths and weaknesses of these jurisdictions. Utah, Wyoming, and Switzerland offer distinct frameworks, each with varying degrees of decentralization, compliance requirements, and operational flexibility. Through this lens, readers can better understand how these jurisdictions align with the values and objectives of DAOs like IN8 DAO, enabling informed decisions about where to establish their organization.

Wyoming’s DAO Statute

From a founder’s perspective, establishing a DAO comes with many moving parts. In Wyoming, the lighter regulatory requirements offer simplicity and ease of registration, which can be appealing for teams seeking minimal interference. However, this flexibility comes with challenges, particularly for DAOs pursuing complex governance models.

For instance, the lack of mandated smart contract testing in Wyoming means there is less emphasis on ensuring technical reliability and operational security from the outset. While this helps DAOs to gain liability protection more quickly, founders might face vulnerabilities or inefficiencies later that could have been mitigated by early-stage vetting. In contrast, Utah’s requirement for smart contract validation by a DAO specialist not only enforces a higher standard of technical commitment but also fosters greater confidence among members and stakeholders.

Additionally, Wyoming’s minimal governance requirements may leave founders without clear operational guardrails, potentially leading to misalignment or inefficiencies. Utah’s emphasis on transparent bylaws and detailed governance structures helps founders establish a cohesive framework early on, ensuring their organization remains focused on its core mission. This structured approach encourages alignment and accountability, particularly useful for DAOs with IN8-like goals, which rely on dual-class governance tokens and detailed operational protocols. Having more defined requirements, as seen in Utah’s DAO Act, can be beneficial for teams that might otherwise get pulled in too many directions. Limited guardrails, like those in Utah, compel founders to focus on the core needs of their organization early on. This clarity helps align the group, fostering stronger cohesion and purpose sooner in the DAO’s lifecycle.

For example, Utah’s requirement that the DAO’s code be tested and vetted by the state’s DAO specialist encourages a higher standard of commitment from all involved parties. This process ensures that foundational elements like smart contracts meet quality assurance standards, which builds confidence among members and stakeholders. In contrast, Wyoming’s lighter requirements might appeal to DAOs seeking minimal interference, but they could inadvertently allow for shortcuts that may lead to future challenges.

Furthermore, Utah’s emphasis on transparent bylaws and operational compliance provides an added layer of structure that can prevent misunderstandings or misalignment among founding members. This framework is particularly useful for DAOs with IN8-like goals, which rely on dual-class governance tokens and detailed operational protocols. While Wyoming’s statute excels in simplicity and ease of registration, its lack of similar requirements might leave certain DAOs without the structural support needed for complex missions.

Ultimately, for founders seeking to establish a DAO with robust governance, serious technical oversight, and clear compliance mechanisms, Utah’s framework offers distinct advantages. It not only supports the operational needs of entities with goals similar to IN8 but also encourages a higher standard of execution from the outset.

Switzerland’s Foundation Model

For a group of founders in the European Union exploring a business model like IN8’s, Switzerland’s foundation model offers an intriguing alternative to Utah’s DAO framework. While Switzerland provides strong regulatory clarity and global credibility, the administrative processes involved in forming and maintaining a foundation differ significantly from Utah’s streamlined approach.

Swiss foundations require the appointment of a centralized board and must comply with detailed reporting obligations. This structure fosters accountability but may not align well with DAOs aiming for decentralized governance. By contrast, Utah’s model enables DAOs to operate with decentralized decision-making at their core, leveraging smart contracts to automate governance processes and reduce administrative overhead.

In Switzerland, the cost of maintaining a foundation and the complexity of meeting compliance requirements can present barriers for smaller or more agile projects. Utah’s framework mitigates these challenges by emphasizing flexibility and lowering entry costs, making it particularly attractive for startups focused on rapid growth. Ultimately, while Switzerland’s prestige and blockchain ecosystem offer distinct advantages, Utah’s tailored framework better supports DAOs prioritizing decentralization, efficiency, and technical innovation.

When establishing a Swiss foundation, certain physical presence requirements must be met:

Board Composition and Residency:

These requirements ensure that the foundation maintains a tangible connection to Switzerland, facilitating compliance with local regulations and effective governance.

Switzerland’s foundation model offers:

  1. Global Credibility: Renowned regulatory clarity and neutrality attract global partners.

  2. Established Blockchain Ecosystem: Crypto Valley fosters innovation and collaboration.

  3. Flexibility for Large-Scale Projects: Supports significant capital raising for ambitious endeavors.

Why Utah’s Model May Be Better for Founders with IN8-Like Goals

  1. Focus on Decentralization: The Utah model is designed for DAOs, emphasizing decentralized governance through smart contracts. For example, consider a scenario where a DAO must quickly implement member-driven decisions without centralized interference. In Utah, smart contracts allow for such decisions to be automated and enforced transparently, enabling efficiency and trust among participants. By contrast, the Swiss foundation model requires a centralized board to oversee and approve decisions, which can slow down processes and conflict with the principles of decentralization. This distinction makes Utah’s approach particularly advantageous for DAOs seeking to maintain agile and distributed governance.

  2. Lower Administrative Overhead: Establishing and maintaining a foundation in Switzerland involves significant administrative requirements and costs, including appointing a board and complying with detailed reporting obligations, as well as meeting physical presence requirements. Utah’s streamlined process allows founders to focus on building their community and product ecosystem without the need for a physical office or board residency obligations.

  3. Encouraging Early Alignment: Utah’s defined requirements, such as detailed bylaws and smart contract reviews, compel founders to align on governance and operational protocols early in the process. This clarity fosters cohesion and reduces potential conflicts later.

  4. Technical Vetting for Long-Term Stability: Utah’s requirement for smart contract testing and validation ensures that the DAO operates securely and reliably. This process promotes a higher standard of technical excellence from the outset, which may not be as rigorously enforced under the Swiss model.

  5. Community-Centric Governance: The dual-token structure enabled by Utah’s framework supports nuanced governance, allowing for more equitable representation among founders and broader community members. The Swiss model’s centralized governance structure may limit this flexibility.

In the next chapter, we'll explore whether a non-US business can have both the advantages of a Utah DAO and a registered corporation in their home jurisdiction.

Chapter 10 Key Takeaways:

  1. Utah’s emphasis on smart contract validation, decentralized governance, and early alignment makes it ideal for DAOs prioritizing transparency and scalability.

  2. Switzerland offers global credibility, but its centralized board structure and higher costs contrast with Utah’s streamlined, decentralized approach.