Marshall Islands declares DAOs as legal entities in pioneering move

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The Marshall Islands has passed a new law to confer legality on decentralized autonomous agencies (DAOs), making it the first in the world.

Titled the Decentralized Autonomous Organization Act of 2022, the law gives DAOs the right to be registered as corporate entities provided they identify as a DAO LLC (limited liability company). The legislation distinguishes between DAOs that are run to make a profit and those that are non-profit organizations.

By implication, the law recognizes the voting processes of DAOs and their unique governance structure, ending months of debate over their legality. The government has also established an investment fund to create a talent pool of individuals versed in the operations of DAOs.

“The Republic of the Marshall Islands is proud to be at the forefront of tech jurisprudence and compliance globally,” said Marshallese Finance Minister Bransen Wase.

“With this adoption of the DAO Act of 2022, The Marshall Islands commits its courts and its 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,” said Wase.

To ensure the efficient registration of DAOs, the new law authorizes local firm MIDAO to run the registry process. Adam Miller, MIDAO’s CEO, was effusive in his praise while assuring that his firm possesses the expertise required to attract leading DAOs to seek registration within the jurisdiction.

The wording of the new legislation has been hailed as comprehensive, given the extensive clauses on definitions, the use of smart contracts, and the in-depth provision on DAO formation.

DAOs changing the world

Miller argues that FTX’s collapse would have been prevented if the exchange was registered as a decentralized entity, giving control to the users rather than an intermediary.

“During this crypto reset moment following FTX, it is critical that people understand this event would not have happened if the exchange were decentralized – DAO structures could have prevented this from happening,” said Miller.

Proponents of DAOs argue that the transparency they offer surpasses traditional organizations by far, stemming from the use of blockchain technology. The ease of use and low entry barrier has been touted as a benefit that can revolutionize the concept of organizations.

However, there still are certain drawbacks to the activity of DAOs, like identifying the parties to a case or the proper mode of service in a lawsuit with a DAO.

Watch: The BSV Global Blockchain Convention panel, The Future of Financial Services on Blockchain: More Efficiency & Inclusion