Why Wyoming?
What we can learn from the proving ground for innovative business structures
Before we dive into business structures — since it happens to be Women’s History Month — a quick digression to applaud Wyoming to be the first US State (then territory) to recognize women’s legal right to vote in 1869 👏
Now, to the present day…
As of July 1, 2021 the state of Wyoming recognizes Decentralized Autonomous Organizations (DAOs) as limited liability companies (LLCs)for entities established and domiciled within the state. For a high-level introduction to DAOs, see previous post.
Why is this significant?
Wyoming is the first US state to create an easily navigable process for registering DAOs as legally-recognized entities. This creates a path for DAOs to signal their legitimacy to third-parties and potential members. Ideally, this will accelerate the adoption of the business structure.
Although the ultimate goal is decentralization, we are in an era of transition that requires DAOs to co-exist alongside or directly engage with established (centralized) institutions, such as banks, tax agencies, and various service providers. Having the legal status and liability of an LLC structure helps frame conversations and opportunities with such traditional players.
Such a seal of legitimacy from Wyoming also helps drive engagement with DAOs. Membership is still composed of individuals, or groups with individual decision-makers, who primarily earn fiat salaries, have traditional tax-liabilities, and operated most of their lives with the realm of FTC or SEC protection.
What we can learn from Wyoming?
Part I: Precedent from the Introduction of the LLC
The process of registering a DAO in Wyoming has been simplified to the ease with which one might register a new LLC for that cake-making side hustle or a new investment venture. A step by step overview can be found on the Wyoming Secretary of State website.
Keep in mind, today the concept of a Limited Liability Company (LLC) is mainstream, but it is a relatively recent model that was first introduced in 1977 — also in the state of Wyoming. As a refresher, “limited liability companies are hybrid entities that combine the characteristics of a corporation with those of a partnership or sole proprietorship”.
It was a bumpy ride for the adoption of this hybrid structure, which spurred debate from the IRS, tax attorneys, and established corporate entities. Eventually, LLCs became recognized by all 50 states by the mid ’90s.
The IRS did not factor LLCs into their annual reporting on Integrated Business Data until 1993, yet the number of entities has grown steadily in subsequent years.
If we consider the adoption of the LLC structure as precedent for DAOs, we should remind ourselves of the following — the time between Wyoming introducing the first LLC registration (1977) & the following key moments:
- ~15 years before IRS factored LLCs into annual reporting
- ~ 20 years before all 50 states had LLC legislation
- ~30 years before LLCs made up 5.0%+ of total US businesses
Part II: Innovation & Ideation, it takes a village…
Adoption of new business structures does not occur without the support of a critical mass of individuals. What we have witnessed in Wyoming that has been instrumental in making progress:
Leadership + Legislation
- The specially formed Wyoming Committee on Blockchain, Financial Technology and Digital Innovation Technology with support from government officials, university leaders, & local tech community.
- Support from traditional institutions embracing the web3 era like Wyoming-born Caitlin Long who returned home from Wall Street to spearhead the newly re-branded Custodia Bank
- Senator Cynthia Lummis and other legislators who are putting their full brand and support behind the future.
- Overall, Wyoming perspective on being Pro-Business, offering no corporate state income tax and numerous incentives to relocate businesses within the state.
Talent & Learning Development
- The University of Wyoming offers a Blockchain Minor and has setup a Center for Blockchain and Digital Innovation.
- State-supported Workforce Innovation and Opportunity Act (WIOA) to bolster exposure and development of tech workforce.
- Wyoming Innovation Partnership leveraging federal funding & state resources to “develop needed workforce and to engage the entrepreneurs of Wyoming so they can innovate and grow businesses and technologies”.
Events
Sources & Further Reading:
- State Lawmaker Explains Wyoming’s Newly Passed DAO LLC Law via Coindesk
- Wyoming’s State Stablecoin via Cointelegraph
- https://www.investopedia.com/terms/s/stablecoin.asp
- WYOMING AIMING FOR 5% OF THE U.S. BITCOIN MINING HASHRATE BY NEXT HALVENING via Bitcoin Magazine
- Limited Liability Company via Inc.
- Limited Liability Company via Investopedia
- The Complete History of the LLC via WyomingLLC
- DAOs Are Taking Over, With New Wyoming Law via Yahoo
- Wyoming Wants to Be the Crypto Capital of the U.S. via Slate
Teach Me DAO is a deep dive into the evolving landscape of decentralized autonomous organizations (DAOs). We’re learning as we go — all things Decentralized Autonomous Organizations (DAOs) including research, conversations, questions, & case studies 💥
