Definition
Wyoming’s DAO LLC law, enacted as part of Wyoming Statute § 17-31 and effective July 1, 2021, was the first legislation in the United States to recognize a decentralized autonomous organization (DAO) as a legally chartered limited liability company. Prior to the Wyoming law, DAOs — organizations governed by smart contracts and token holder voting rather than by boards of directors and officers — existed in a legal gray zone: they could not enter contracts in their own name, could not own property directly, and their members faced potentially unlimited personal liability because the organization had no recognized legal form. Wyoming’s DAO LLC law resolves these problems by allowing any DAO to register as a Wyoming LLC with the Secretary of State, extending all the legal protections and capacities of LLC status to the DAO while accommodating its decentralized governance structure.
The law distinguishes between two types of DAO LLCs: member-managed DAOs (where human members collectively make governance decisions through token voting) and algorithmically managed DAOs (where governance is fully automated through smart contract logic, with no human management required). Both types must file an annual report with the Wyoming Secretary of State and pay an annual fee. The operating agreement may be expressed in code (smart contracts) rather than or in addition to a written document, and the smart contract code is given legal effect as part of the organization’s governance framework. Membership in a DAO LLC is determined by token holdings — owning governance tokens constitutes membership in the LLC, with associated voting rights and profit interests.
Key Facts
- The American CryptoFed DAO was the first entity to register as a Wyoming DAO LLC in July 2021, immediately following the law’s effective date, though it subsequently faced regulatory challenges from the SEC over its token offerings.
- Decentralized finance protocols that have incorporated as Wyoming DAO LLCs include several DeFi governance structures seeking to limit member liability following the CFTC’s enforcement action against the Ooki DAO (formerly bZeroX) in September 2022.
- The Ooki DAO enforcement action, in which the CFTC held DAO token holders personally liable for the DAO’s regulatory violations, dramatically increased interest in the Wyoming DAO LLC structure as a liability shield for protocol governance participants.
- Under the law, a Wyoming DAO LLC’s registered agent must maintain a physical Wyoming address and the DAO must identify a registered agent responsible for service of process — providing regulators a contact point for enforcement actions.
- Other US states that have enacted or proposed similar legislation include Tennessee (2022, blockchain-based LLC records), Vermont (blockchain-based records), and Utah (2023, DAO LLC legislation).
- The law does not preempt federal securities laws: if a DAO’s governance tokens are deemed investment contracts under the Howey Test, the Wyoming DAO LLC structure does not provide a federal securities law exemption.
- The IRS has not issued guidance on the tax treatment of Wyoming DAO LLCs, creating uncertainty about whether members are taxed as LLC members (partnership taxation) or whether automated algorithmic governance changes the analysis.
Relevance to Tokenization
The Wyoming DAO LLC structure is directly relevant to tokenized assets in two ways. First, for tokenized fund structures organized as DAOs — where smart contracts automatically execute investment decisions, distribute yield, and manage redemptions — the DAO LLC provides legal personality that allows the fund to hold real-world assets, enter custody arrangements, and enforce contracts in a way that a purely on-chain DAO cannot. This makes DAO LLC structure a viable governance layer for tokenized real estate investment clubs, decentralized lending protocols with real-world collateral, and community-owned infrastructure.
Second, the treatment of governance tokens as membership interests in a Wyoming DAO LLC provides a potential legal framework for distinguishing governance tokens from securities. If token holders’ rights are analogous to LLC member rights — governance voting, profit distribution, and economic participation in a legal entity — then the token may be characterized as a membership interest rather than an investment contract. This characterization could potentially place the token outside SEC securities regulation and treat it instead as a business interest subject to state LLC law. However, this analysis is contested: the SEC has not endorsed this characterization, and the Howey Test analysis focuses on economic substance and investor expectations rather than legal form alone.
The limitations of the Wyoming DAO LLC for tokenization are primarily federal in nature. A DAO LLC cannot escape federal securities law by state incorporation, cannot avoid FinCEN’s BSA requirements for money services businesses, and cannot circumvent the investment company act by structuring a fund as a DAO. The Wyoming law is therefore most valuable as a liability shield for protocol governance participants and as a legal personality mechanism for DAOs that need to interact with the traditional legal system — rather than as a regulatory escape hatch for token issuers.
Related entries: Wyoming SPDI, Security Token, The Howey Test