Wyoming Opens its Doors to DAOs

The Cowboy State Sets Sights on Digital Frontier

Sean Cullen
BanklessDAO
7 min readJan 11, 2022

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A cowboy walks in a western-style metaverse towards a door opening to a modern cityscape
We may be heading west, but the west is also heading ETH. (Cover by Tim Balabuch)

Wyoming’s Secretary of State is turning heads after adding the option for DAOs to register as LLCs, paving the way for Web3 in the Cowboy State. While most government websites have a tenuous grasp on traditional web capabilities, and are rife with antiquated and confusing UX designs, Wyoming’s state government is blazing the trail by preparing itself for a new digital revolution.

Wyoming has gained widespread attention in recent months after becoming the first state to legally recognize DAOs in an unprecedented piece of legislation. The move by the Cowboy State may come as a surprise to outsiders, though it is far from the state’s first move in the transition to a more blockchain-friendly space. Wyoming has introduced a number of bills in recent years aimed at luring blockchain-based businesses to the state. The recent legislation will drive critical discussions regarding the United States’ adoption of cryptocurrencies and Web3, which has become a heated debate in recent years within the halls of Congress.

What are DAOs?

DAOs are the Web3 alternative to traditional, corporate organizations. DAOs allow individuals to work towards a common goal, with payment for services rendered guaranteed by smart contracts. This removes dependence upon fallible individuals or groups, such as executives or board members. By removing traditional corporate hierarchies, control is given to the users via governance tokens.

Governance tokens provide members far more power over their workplace than employees of traditional organizations. Governance tokens are purchased or awarded for participation and allow individuals to vote on a variety of issues, including projects they wish the DAO to take part in and how they wish the DAO to operate.

DAOs offer a solution to the pitfalls of the often predatory corporate workplace, where pay is often not commensurate with the labor provided and employees have little to no control over the company ethos and trajectory.

Importance of Registering DAOs

The move by Wyoming allows DAOs to be recognized as legal entities, which can result in tax benefits and liability protection for members of the givenDAO. DAOs have proven challenging to define within the U.S. legal system since their inception. This legal ambiguity has led to liability questions in instances such as the infamous hack of ‘The DAO’ in 2016.

Unlike traditional companies, DAOs have no centralized authority so it’s difficult to pinpoint where blame should lie when something goes wrong. Without the recognition of DAOs as unique legal entities, any investor runs the risk of being held liable should something go wrong with a project they joined or invested in, regardless of how active they were or the size of their stake. The Wyoming legislation frees DAOs and their investors from partnership principles, which hold all parties liable, by allowing them to register as Limited Liability Companies. The change could negate investor skepticism and lead to an increase in blockchain investments as the perceived threat by adverse parties is lowered by the protections of LLCs.

Some individuals worry registering under the Wyoming law may cause DAOs to spark the interest of federal bodies such as the SEC or CFTC. The news is most enticing to blockchain companies with ties to traditional finance. American CryptoFed, LLC, is the first DAO to be registered with the state. Their mission is to create a monetary system without inflation and deflation. This goal is only made possible by the bridge between traditional finance and cryptocurrency that Wyoming has provided.

Why Does Wyoming Care About DAOs?

It may seem unexpected that Wyoming is the first state to champion the cause of blockchain technology, but state legislators have long been welcoming to cryptocurrencies. The state first began encouraging the industry in 2018 after recognizing cryptocurrency in commercial trade.

Much of the push to integrate blockchain technologies in the state has come from former and current residents rather than legislators. Former state capitol mayor and CEO of American CryptoFed, Marian Orr, and financial executive and early bitcoin adopter, Caitlin Long, are two such residents. Long championed the cause of blockchain technology for the state after being unable to set up a scholarship using Bitcoin at her alma mater, the University of Wyoming.

Frustrated with the lack of adoption in her home state, Long left her Wall Street position in 2016 and began volunteering at the Wyoming Blockchain Taskforce to help provide the legal framework to allow commercial cryptocurrency exchange within the state. Through the legislation put forth by the task force, the state has become increasingly welcoming to blockchain companies. Due to the statutes passed in recent years, sections of Wyoming have been taken over by the blockchain industry.

Cheyenne, the state capital, is now bustling with career opportunities in cryptocurrency. The surge in cryptocurrency careers comes as a result of large companies such as Ripple, valued at 10 billion $USD, and Kraken, valued at over 4 billion $USD, moving their operations into the state. Having such giants move into the state offers Wyomingites a glimpse of the future, which comes as a welcome change for a state largely dependent on the fossil fuel industry, according to State Senator, Chris Rothfuss.

It’s become hard to ignore how bullish much of the Wyoming legislative body is for the blockchain industry. Cynthia Lummis made headlines last year as the first bitcoin holder to serve on the US Senate. State Governor, Mark Gordon, who pushed forth the state’s 60 billion USD broadband expansion network aimed at attracting blockchain companies and investors, recently revealed his ownership of digital assets.

Though the Cowboy State may seem a strange frontrunner in the digital race, much of Wyoming’s ethos is predicated upon the same beliefs that permeate throughout the cryptocurrency realm; emphasizing self-sufficiency while maintaining the integral nature of community.

News of the DAO registry also opened up new revenue streams for industries outside of tech and finance; lawyers across the state have begun revising their websites to include DAO registration information and the local housing market is set to explode (already up 11.3% from last year). Individuals from across the country and the globe are moving to the sleepy capital of less than 65k residents.

What Does This Mean Outside of Wyoming?

While being an exhilarating time for Wyoming, it also raises a couple of questions for those outside the Cowboy State:

How long until other states follow suit?

Traditional finance hubs, such as New York, Connecticut, and Deleware may follow suit to maintain their role in the financial realm. Other states may view this as an opportunity to welcome new industry and reinvigorate their economy. For example, Texas recently recognized blockchain and cryptocurrency in commercial transactions.

Will this prompt legislatures in other countries to adopt similar laws to attract industry?

We’ve seen El Salvador go all-in on crypto with their bitcoin city and Interest being spun up across Europe. Given the pace of the blockchain industry, we likely won’t have to wait long for answers that could shift the way the U.S. (and the world as a whole) is populated as people move away from overpriced, congested cities to greener, more DAO-friendly pastures.

To DAO or Not to DAO?

Given the current vibe of DeFi it seems somewhat doubtful existing DAOs will be lining up to register. Many DAOs transcend typical demarcations such as national borders, which could spell administrative nightmares following registration. It is still unclear whether such liability protections would extend across borders and how international politics may complicate the transnational DAOs.

To those more active in the blockchain culture where users are constantly reminded to conduct their own research, take shillings with a heap of salt, and be wary of all propositions, the protections offered by the Wyoming legislation seem misplaced. The cryptocurrency community values trustlessness over trustworthiness; many would rather verify the code of a smart contract than rely upon external safety nets. However, the protections offered may ease prospective investors’ worries and make them more confident in their decision to ‘put some skin in the crypto game’ by using a seemingly traditional service, such as American Crypto Fed, the first DAO to be registered in the state.

Though the legislation isn’t quite as groundbreaking as the headlines would have you believe, it is an important step in broader adoption by legacy bodies. The news also highlights the secondary effects of cryptocurrency adoption as a sparsely populated region attempts to bootstrap itself to prepare for the next technological revolution.

TL;DR

Wyoming’s recognition of DAOs in an unprecedented piece of legislation. While this legislation stands as a crucial bridge between the metaverse and the outside world, it seems mostly of benefit to those just entering the digital space. Much of the current blockchain community is wary of external governance. Yet this legislation largely works to open the doors for more mainstream companies and other states to begin the adoption process.

Wyoming’s history has been preparing the state for the digital gold rush since the end of the American gold rush. As the first state to authorize the creation of LLCs, it’s only fitting they be the first to retrofit them for the future through the inclusion of DAOs. As one of the final outposts of the American western frontier, Wyoming stands ready to welcome caravans exploring the digital western frontier.

Author Bio:

Funkyculley is a marketer and content writer exploring Web3.

BanklessDAO is an education and media engine dedicated to helping the individuals achieve financial independence.

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