What is the DAO regulatory inflection point? The introduction of the US law in the United States has caused controversy

Overview of Utah DAO Bill Highlights:

The Act gives the DAO a unique and new form of legal recognition. Utah decided not to adopt Wyoming's "old bottles of new wine" regulatory thinking and apply the limited liability company (LLC) model to regulate DAOs, but to make a clear distinction between DAOs and LLCs, and create a new type of legal entity for DAOs with groundbreaking legislative ideas;

The bill clarifies that DAO organizations are limited liability, resolving the dispute in the 2022 case of the US Commodity Futures Trading Commission (CFTC) v. bZx DAO (later renamed Ooki DAO) about whether DAO members need unlimited joint and several liability for personal assets;

Established the DAO's tax system;

It is clear that there are no implied fiduciary duties of the DAO participant, unless it has been expressly stated that these obligations apply to the Participant;

protect the anonymity of DAO participants;

Incorporate "technical gatekeeping" measures to ensure that the DAO is essentially a DAO.

Overview of the Utah DAO Act

As a new type of business entity that has emerged in recent years, DAO is obviously different from the existing business structure at various levels such as personnel composition, operation management, income distribution and taxation, so there has always been controversy over the legal nature and regulatory measures of DAO. This status quo is mainly due to Wyoming's precedent in the DAO Act issued in 2021: to supervise DAOs by analogy with established LLCs that are more similar to the real world, and even allow Wyoming's DAOs to convert between LLCs. In other words, under this regulatory approach, a DAO is an LLC, and an LLC is a DAO.

To be honest, in the face of new technology, analogy with old things for regulation is the most common strategy, but in essence, it is also a last resort compromise of legislatures and regulators: although analog regulation can solve urgent needs, it ignores the uniqueness of emerging things themselves, which is not conducive to long-term development.

Therefore, after careful consideration and heated discussion, Utah has taken a big step in the field of virtual asset regulation, expressing its sincerity in embracing virtual assets with practical legislative actions: the "Utah Decentralized Autonomous Organizations" Act, abbreviated as the "Utah DAO Act". Much of the content of this bill is largely based on the DAO Model Law template proposed by the crypto community COALA, so the Utah bill makes some very "innovative" provisions on the legal personality and limited liability of DAOs.

Second, Wyoming VS Utah, what are the similarities and differences in DAO regulation?

Wyoming and Utah, for most of their partners who are not familiar with the United States, have a very low presence, neither a big city to export, nor a good university with a global reputation, and even a few well-known souvenirs. In addition to popularity, Wyoming and Utah have many similarities: the same scenic scenery and rich mineral resources, but relatively backward economic development; Agriculture (animal husbandry) and mineral processing are also the main pillar industries; The same land is vast but sparsely populated; Also positive and welcoming to the virtual asset industry...

Today, we're going to talk about innovation in Utah based on comparison.

In general, Wyoming's DAO Act is relatively coarse, and does not provide for many technical characteristics of DAOs, but simply uses LLC as a reference for analogous supervision; Utah's DAO bill is more detailed, not only trying to give its own answers to the old problem of taxing virtual assets, but even providing for technologies such as hard forks. However, although Wyoming is lazy, its DAO bill is more grounded and highly compatible with the existing business system, and the Utah DAO bill is full of idealism, but the actual implementation effect, the team is difficult to predict.

Utah DAO Act, Compromise or Tolerance?

The team believes that although Utah's DAO Act provides a newer and more forward-looking regulatory framework for practitioners in the virtual asset industry, there are also many practical problems to be solved.

The first is the enforceability of the Act. Overly novel corporate innovation and limited liability provisions may not have sufficient regulatory supply under the current corporate law system in the United States, and law enforcement agencies do not necessarily have the regulatory capabilities required by the Act. In layman's terms, the noble ideals of the Utah DAO Act are difficult to find a fulcrum in the real world, because the overly cutting-edge institutional innovation does not match the existing business rules in the United States, which may destroy an established and relatively stable rule system. On the one hand, the provisions of the Utah DAO Act on taxation are different from previous practices and have certain differences from the federal tax system, and how to resolve the tax contradiction and create a tax calculation and taxation rule applicable to virtual assets and DAO organizations is the focus of future consideration; On the other hand, Utah, as a state with traditional livestock and manufacturing as its pillar industries, lacks experience in financial and commercial supervision, and relevant law enforcement agencies lack the relevant regulatory enforcement capabilities required by the Act.

Second, Utah's bill with reference to the Wyoming DAO Act and the COALA Model Act was too hasty and lacked the practice of relevant norms. Although the bill highlights the characteristics of blockchain technology in the specific provisions, and makes seemingly operable provisions on hard forks and blockchain upgrades, whether it is actually feasible remains to be investigated. At present, countries and regions around the world choose to suspend the legislation of NFT, DAO and other emerging things, not because of the lack of relevant legislative experience or technology, but because these emerging things are still in a period of rapid development, too hasty legislation is likely to unduly restrict the development of new technologies. Therefore, Utah's DAO bill is not so much a "tolerance" of the crypto industry under the existing system as a "compromise" that the state desperately wants to revitalize and grow through the crypto industry.

4. Write at the end

If an idealized bill not only fails to solve real-world problems, but even has a negative impact on financial security and social stability, it is better to return to the era of new wine in old bottles. However, we also recognize Utah's goodwill and tolerance of the virtual asset industry in the DAO Act, as well as the institutional innovation of making the DAO to the DAO and the LLC to the LLC. However, the human business system and dispute resolution mechanism have undergone thousands of years of evolution to form an established set of rules, and it is very difficult to make changes in the short term, during which time it is important for virtual asset practitioners to maintain sufficient patience and confidence.

Xiao Sa Lawyer Xiao Sa Legal Team, a team of LL.M. masters and doctoral students based on academic business. Vertically deeply engaged in the "finance + technology" industry, he has unique research advantages and front-line practical experience in innovative business. Write a public account every day, adhere to public welfare popularization for more than eight years, thank readers!