Marshall Islands makes waves with new DAO law
The Republic of the Marshall Islands has taken another step forward in the regulation of decentralised autonomous organizations (DAOs) by passing the "Decentralized Autonomous Organization Act of 2023". The bill's primary architects are Member of Parliament David Paul, and Adam Miler, CEO & Co-Founder of MIDAO (Marshall Islands DAO). MIDAO is a unique public private partnership between the Marshall Islands and MIDAO Directory Services, which acts as the DAO registrar's office and a leading player in the development of Web3 in the Marshall Islands.
The bill builds upon a 2022 law of the same name and is being touted as the "most comprehensive law for DAOs globally", according to a statement made to CoinDesk by Adam Miller, CEO and Co-Founder of MIDAO.
In 2022, the Marshall Islands became the first sovereign nation to recognise DAOs as a form of legal entity in their own right, rather than through an existing legal entity structure or so-called DAO wrapper.
Several US States have also taken steps to recognise DAOs in some form including Wyoming, Utah, Tenneseee and Vermont. An Australia Senate Committee recommended in 2021 that Australia take steps to recognise DAOs as a new form of legal entity.
The Marshall Island's 2022 law laid the groundwork by exempting DAOs from the need for a board of directors, allowing blockchain-based records and books (rather than paper records), and permitting almost complete anonymity for DAO members, only requiring one person to provide know-your-customer details to the registry. The latest bill purports to break new ground by allowing "Series DAO LLCs", enabling sub-DAOs with separate assets and liabilities.
The updated legislation accelerates the existing registration process, reducing it to a maximum of 30 days from the previous 30-60 days. Importantly, the proposed bill shields DAOs from being held responsible for any open-source software they create.
According to Miller, the bill also clarifies that the governance tokens of a DAO will not be treated as securities under Marshall Islands law when they lack economic rights (as distinct from the prospect of financial gain through ownership).
In the evolving blockchain landscape, regulatory developments like the Marshall Islands' DAO law signify meaningful legislative momentum toward providing a legal foundation which accommodates blockchain based systems and decentralised govnernace. This law also contributes to much-needed regulatory clarity by allocating legal risk to the DAO rather than underlying participants (much like regular corporate structures), promoting innovation and new forms of social coordination and entrepreneurship.
Written by Steven Pettigrove and Luke Higgins