Wyoming's Decentralized Unincorporated Nonprofit Association (DUNA) Act

The Future of web3: Proprietary clients operating as ordinary internet businesses, but built on top of public infrastructure comprised of smart contract protocols and blockchain networks that are run by DAOs.

Wyoming just passed a law about nonprofits in cyberspace.  If you are younger than 65 you should drop everything and read it it now.  Right now.  If you are older than that, it prolly won't make a huge difference in your scholarship or practice but you should read it anyway so these damn meddling kids don't screw up everything.  That's my motivation.  I haven't read the new law yet because I still have questions about the whole concept.

Here's the thing about me and cryptocurrency, for example.  I just cannot wrap my brain around a currency that is not backed by governmental violence, and about which exists nothing to support initial demand.  Demand is what "value" is, ultimately. At first, demand is the expression of innate desire.  I want it and you want it, we were both just born that way.  We are greedy about it too and there isn't enough for both of us to be fat and happy.  I get that.  But what makes us innately desire cryptocurrency? Is it something meteorologically, biologically or genealogically rare and yet universally desirable? I can't wrap my brain around virtual reality.  

And then Decentralized Autonomous Organizations (DAO’s).  The three words themselves are oxymoronic.  How can an “organization” ever be “decentralized” and how can the members of that "organization" also be “autonomous?”  The word "organ" is necessary to "organization" and no organ is autonomous or decentralized.  Two of these things are neither like each other, nor like the other. 

If I can’t understand the underlying reality, I'm not likely to understand laws enacted to regulate the reality.  Wyoming, famous for being first in the nation about LLCs, is apparently the first in the nation to adopt a set of laws to regulate what it calls DUNAs.  The law passed about a week ago and here is some understandable and expert explanation.  DUNA stands for a “decentralized unincorporated nonprofit association” and I have the same objection.  A DUNA is the nonprofit analog to Decentralized Autonomous Organizations (DAOs) that Wyoming already regulates.  But isn’t the idea of legal regulation inconsistent with the whole invariably fair outcome DAO advocates conceive? Invariably and always fair, by the way, because computers eliminate human folly such as lies and discrimination. And sex. Control for sex and that's 90 percent of the problem.  Computers don't care sex or about none of that other stuff. Not private inurement or political activity. They are not human.  So why do we needs laws? I'm not faulting the conception, mind you, I am just trying to follow the reasoning.  Because doesn't the regulation of that thing prove the thing cannot exist in nature, is all I’m asking. We only regulate because of human folly. If the DAO concept eliminates human folly, why regulate it?

I recognize some basic concepts in the effort though.  In the real world, socialism supports capitalism by making misery (an inevitable consequence of "winner take all" capitalism) tolerable. Somebody has to be poor if anybody is gonna be rich.  So we encourage and support socialism via tax exemption (but not too much!) because socialist nonprofits makes capitalist for-profits tolerable.  That seems to be the same purpose of DUNA’s in the virtual world:

DAOs are made up of members of a community that governs the affairs of an open blockchain network. They are a critical tool for ensuring that the network remains open, that it does not discriminate and that it does not unfairly extract value. The DUNA helps DAOs accomplish this by solving three of the key challenges they face – it gives them legal existence, enabling them to contract with third parties and appear in court, it enables them to pay taxes and it provides them with limited liability from the actions of other members. All of these are commensurate with other legal entity forms and are table stakes for building in America.

The DUNA solves these challenges without exposing consumers to additional risks. A DUNA can be used for the decentralized governance of open blockchain networks, but anyone building a consumer-facing application like a social media app, car service, or music streaming app on top of these open networks would continue to use traditional entity forms, like the corporation or LLC. And even though this paradigm includes the use of corporations, the fundamental difference is that corporations no longer control the underlying networks, they only control user-facing apps. That difference greatly reduces their ability to extract value like web2 companies do.

The only way I can render the idea of organizations existing only in our shared minds -- autonomously and without central control -- consistent with the idea of legal regulation is to assume the virtual market concedes only to keep the virtual world out of it all.  Here is a little more analysis:

3. WHY SHOULD DAOs USE THE DUNA?

DAO membership and participation is currently fraught with peril. DAOs that fail to use a legal entity for their organization are deprived of legal existence, are unable to pay taxes and are exposed to potential liability. A lack of legal entity also threatens the privacy of DAO members. As a result of these risks, the failure to use a legal entity has impeded the decentralization of blockchain networks, limited their growth and stunted the development of economic models for such systems.

If DAOs fail to adopt legal entities, this problem is likely to get worse before it gets better. Regulatory actions and class action lawsuits in the United States have alleged that without a legal entity, a DAO is just a general partnership. While there are several viable arguments that challenge these allegations, that categorization would be catastrophic for DAO members, subjecting them to untenable tax risk and legal liability. Momentum is currently on the side of the regulators and plaintiffs firms. If their theory propagates and succeeds, it will likely be a death knell for decentralized governance.

The DUNA stops this vector of attack dead in its tracks, solving the key challenges DAOs face and substantially mitigating the risks facing DAO members. It provides DAOs with legal existence, enabling them to contract with third parties, open bank accounts and provide an easy vehicle for the service of process. It enables DAOs to pay taxes and meet their informational reporting requirements. It protects DAO member privacy from the federal government. And it provides DAO members with liability protections.

It accomplishes all of this without interfering with how DAOs are currently launched and operated – it safeguards decentralization and positions DAOs to effectively grow the ecosystems of their underlying blockchain networks.

Someone out there reading this is that rare business, tax, and computer geek who can make it all make sense.  Whoever you are, you should write about this.  Explain it to us in as plain American as possible, please.  None of that crypto language.

darryll k. jones