The Marshall Islands Wants Money-making DAOs To Call It Home

A federal bill signed into law on Thursday builds upon the island country’s prior DAO courtship

article-image

KKKvintage/Shutterstock.com modified by Blockworks

share

The Marshall Islands is taking a notable step forward in terms of regulating DAOs: legally recognizing both nonprofit and for-profit versions of the autonomous organizations like limited liability companies (LLCs.)

It marks the latest move by the island nation to make a play for a slice of the big money behind DAOs. And it comes on the heels of the increased prospects for tighter scrutiny of digital asset operators by financial watchdogs. That’s perhaps especially true in the US, as politicians and regulators alike search for the best path forward after FTX’s bankruptcy. 

The bill behind the Decentralized Autonomous Organizations Act of 2022 became law on Wednesday, a government representative said in a statement. 

Here’s what the incoming legislation — which the government billed the first of its kind — does, according to the statement:

  • Establishes a DAO registry, overseen by the local DAO-focused firm MIDAO, to 
  • Allow any type or size of DAO to incorporate in the Marshall Islands under an LLC structure under the newly created designation of DAO LLC. Registrants must delineate their structure to MIDAO as either “member managed” or “algorithmically managed,” per the legislation.  
  • Potentially “reduce or eliminate fiduciary duties” for DAOs, according to the text. The measure may exempt decentralized entities, and their corresponding smart contracts, from certain stringent typical LLC requirements.
  • Permit, from a regulator perspective, the decentralized collectives to engage in their typical course of business, including the following: governance measures (such as voting on community proposals) and investment activities, such as tokenization .
  • Sets up a government-run investment fund to “continue education and training around DAOs and how to integrate them further into the economy.”

Earlier this year, the nation passed a law to set regulatory standards strictly for nonprofit DAOs — leaving many collectives in the business of making money in legal limbo. It wasn’t a crypto-specific measure, either, but rather an update to existing LLC rules to include DAOs. Yet it didn’t detail a legal standard for what a DAO actually is. 

Marshall Islands courting DAOs with laws

Bransen Wase, the Marshall Islands’ finance minister, said in a statement that the country is committing its “courts and resources to the burgeoning world of decentralization, and recognizes the unique place that decentralized autonomous organizations can hold not just in the blockchain space, but in the broader economy as well.”

The initial effort places the Marshall Islands in contention with a select number of jurisdictions worldwide that have already made a serious political push to recognize DAOs. The state of Wyoming is the prime example. 

Industry participants say regulatory first-movers are in prime position to capitalize, in terms of potential tax revenue that would balloon if the digital groups continue to multiply. Seeing those governmental dollar signs, of course, would not be on the table for nonprofits alone. 

That is, if those in power can figure out a comprehensive-but-fair framework for doing so.

How the DAO community reacts, in particular, to the up-and-coming know-your-customer mandates is still up in the air. There’s long been a spirit of anonymity, or pseudonymity, among decentralized proponents — as well as a distrust of governmental bodies, at least in certain circles.  

Adam Miller, MIDAO US-based chief executive who has worked closely with Marshall Island officials on the Decentralized Autonomous Organizations Act, told Blockworks that it’s crucial for DAO employees — and even members — to comply with those standards.

“What a lot of people don’t realize is that if you’re working as part of a DAO, or you’re a member of a DAO in any way, you can’t just say, ‘Well, we’re just gonna’ not be [subject to], in any way, the law, right?” Miller said. “You can’t just back out and say, ‘We’re just not going to be involved with the legal system.’”

The impetus for the legislation, according to Miller, stemmed from a series of conversations between vocal, and some local, DAO participants and government officials. It was an idea that came to mind when Miller and other industry participants were pushing for the government to roll out its own cryptocurrency in 2018. The initiative — ambitious, especially at the time — ultimately failed.

“We all started working on it together and thought, ‘OK we recognize that DAOs didn’t have a good way to incorporate at the time. And, so, we just started thinking, ‘Is this a problem we can help solve?’ And that’s what ended up leading to initially proposing an amendment to the nonprofit entities act last year, and then eventually drafting this new legislation this year.”


Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research Report Cover Vertex.jpg

Research

The proliferation of new perp DEXs has led to fragmented liquidity across various DEXs and chains. Vertex, known for its vertically-integrated DEX that includes spot, perpetual, and integrated money markets, is now tackling cross-chain liquidity fragmentation through horizontal integration with the launch of new Edge instances. Vertex's integrated offerings and cross-margined account structure amplify the benefits of new instances: native cross-chain spot trading, optimized cross-chain basis trading, consistent interest rates, reduced bridging friction, and more.

article-image

Partnering with EtherFi and Angle, the fully on-chain perp DEX features bespoke collateral

article-image

Sponsored

Gavin Wood introduced the next evolutionary step for the Polkadot network: the Join-Accumulate Machine, or JAM

article-image

The side events were the places to be at Consensus 2024, according to attendees

article-image

Also, who’s come out swinging in the spot ether ETF fee war — and who could undercut them

article-image

I know it is not in their nature, but US regulators could learn a lot by researching the digital asset frameworks that overseas regulators have already gotten right

article-image

Also, the ETF hype train can count out at least one member