A Legal Framework for Decentralized Autonomous Organizations - Part III: Model Decentralized Unincorporated Nonprofit Association Act

Abstract

The rapid evolution of blockchain technology and its offshoots like decentralized finance (DeFi) is redefining the internet's utility, paving the way for an infrastructure not bound by centralized control. This paper addresses the critical juncture at which the United States stands in the face of this global shift towards a web3 paradigm. It highlights the country’s current trajectory towards falling behind in the blockchain and web3 sector, primarily due to the migration of blockchain projects and decentralized autonomous organizations (DAOs) abroad, prompted by regulatory ambiguities and the inconsistent application of U.S. securities laws. Nevertheless, it underscores the U.S.'s unique position to lead the web3 revolution, given its stable legal system, a high number of developers, and a growing need for data sovereignty.

The paper examines congressional and executive efforts to embrace web3 growth and argues for the necessity of state-level legislative support to maintain the U.S. as a tech hub. It delves into the challenges DAOs face in legal entity formation, concluding that the unincorporated nonprofit association (UNA) offers the most viable solution to these challenges. It also discusses the limitations of existing UNA statutes and the hesitancy of DAOs to adopt this structure due to the lack of clarity and long-term certainty.

In response, Part III of this series proposes the Model Decentralized Unincorporated Nonprofit Association Act (Model DUNAA), designed to integrate into existing business organization codes and to cater specifically to the needs of decentralized organizations. The paper outlines the benefits for states adopting the Model DUNAA, such as fostering innovation, attracting economic growth, and having a hand in shaping consistent legal frameworks. The Model DUNAA is constructed based on principles that ensure minimal deviation from existing laws, avoidance of conflicts of law, technological neutrality, suitability for decentralized organizational structures, and maximal flexibility to accommodate future legal and technological developments.

This proposed legal framework aims to provide a stable, clear, and adaptable legal entity option for DAOs, which could solidify the U.S.’s position in the forefront of web3 innovation.

Keywords: decentralized autonomous organizations, unincorporated nonprofit associations, decentralized unincorporated nonprofit associations, DAOs, DUNAs, DAO, DUNA, blockchain, web3, decentralized finance, DeFi, Wyoming, California, Texas, Legal Framework for DAOs, RUNNAA, UUNAA