REGULATION

Will DAO Become a Limited Liability Company? Wyoming in the United States has passed the initial review and proposed the "Token Classification Act."

share
Will DAO Become a Limited Liability Company? Wyoming in the United States has passed the initial review and proposed the "Token Classification Act."

The crypto-friendly state of Wyoming in the United States has taken another step forward. After two previous failed attempts, a new bill regarding decentralized autonomous organizations (DAOs) on the blockchain has been preliminarily approved, while also exempting cryptocurrencies from being classified as securities.

Advancing the Legitimacy of DAOs

A "Decentralized Autonomous Organization" (DAO) allows all stakeholders, namely the holders of governance tokens, to vote on protocol governance and development issues. It is a governance model followed by many DeFi protocols. In simple terms, it functions like a borderless shareholders' meeting, where decisions on various levels can be collectively made through the internet, embodying a more decentralized autonomous model.

The Wyoming Senate committee approved the proposed Senate File 38 bill on January 12th of this year. If enacted, DAOs would be able to establish themselves as Limited Liability Companies (LLCs) under state law.

Introduction of Token Classification Act for the Third Time

Previously, U.S. Congressman Warren Davidson attempted twice to exempt cryptocurrencies from the scope of securities laws, but to no avail. Therefore, on the 9th of this month, he once again introduced the Token Taxonomy Act.

This bill aims to amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to prevent cryptocurrencies from being classified as securities. If passed, it would lead the SEC to change its methods of taxation, securities definition, and trading profits regarding cryptocurrencies.

Davidson emphasized the urgency of this bill:

The patchwork of regulations has caused confusion and even hostility towards blockchain development. Many companies have moved overseas for development. If we do not take swift action, the U.S. will be left behind. By establishing an appropriate regulatory environment, we can ensure that the opportunities and advancements brought by blockchain startups will occur on American soil.

Crypto-Friendly States

If the Token Taxonomy Act is passed, it would be a significant benefit for the cryptocurrency industry and Ripple, which has recently been embroiled in lawsuits. Ripple faced allegations last December of selling $1.3 billion in unregistered securities and market manipulation. Interestingly, Ripple also officially registered a company, "Ripple Markets WY LLC," in Cheyenne, Wyoming.

In addition to Wyoming, Miami Mayor Francis Suarez, who has been frequently in the spotlight of the crypto community, is actively promoting crypto development. Apart from expressing his fondness for Bitcoin, he is planning a series of regulatory frameworks for Bitcoin taxation, government fee payments, and aims to surpass Wyoming in crypto-friendly regulations.

While this is favorable for investors, lawmakers find it challenging to strike a balance between protecting investors and fostering innovation. Preston Byrne, a partner at the law firm Anderson Kill, criticized DAOs on Twitter, stating that they are merely a small project used to issue junk coins and official justification for third-rate code projects.

The CEO of Coinbase found the proposal intriguing and speculated that Delaware, another crypto-friendly state, might follow suit.