Marshall Islands Enhances Legal Status for DAOs as Recognized Entities

The Republic of the Marshall Islands has taken a significant step in the global regulation of decentralized autonomous organizations (DAOs) by passing groundbreaking legislation. Led by Member of Parliament David Paul and Adam Miller, CEO & Co-Founder of MIDAO, a collaborative venture between the Marshall Islands and MIDAO Directory Services, this move represents a major milestone in shaping the legal framework for cutting-edge technology.

Playing a vital role as an extension of the registrar's office for DAOs and Web3 technologies, MIDAO has introduced the amended Decentralized Autonomous Organization Act of 2023. This latest iteration marks a substantial advancement from the previous Act of 2022. According to its architects, it now stands as the most comprehensive global law for regulating DAOs, potentially paving the way for other jurisdictions to follow suit.

In February 2022, the Marshall Islands, strategically positioned between Hawaii and Australia and a close U.S. ally, became the first nation to officially recognize DAOs as independent entities. Since then, nearly 100 DAOs have been established under the previous legislation.

The original law brought forth critical provisions for DAOs, including the elimination of the need for a traditional board of directors, allowance for digital records on the blockchain, and provision for anonymity for all DAO members except one individual, who was required to provide Know Your Customer (KYC) information.

The updated law further refines these provisions, streamlining the registration process with a reduced maximum timeframe of 30 days, down from 30-60 days. Additionally, it offers protections for DAOs using open-source software, shielding them from undue legal liabilities. The law also provides clarity regarding the status of most governance tokens, expressly stating that they do not constitute securities, provided they do not confer economic rights.

Establishing a DAO in the Marshall Islands is now a straightforward process. Interested parties can visit MIDAO.org and engage MIDAO as a registered agent to facilitate the process. This streamlined approach eliminates the need for DAOs or their designated members to establish a physical presence or engage a local law firm.

Moreover, this legislative stride positions the Marshall Islands as a pioneer in enacting laws for Series DAO LLCs. This practice, common within the DAO community, allows for the creation of sub-DAOs within larger DAO structures, each with distinct assets and liabilities.

According to Adam Miller, this groundbreaking crypto law comprehensively addresses the major legal concerns raised by professionals worldwide regarding Web 3 technologies, particularly DAOs.

It's crucial to note that the Marshall Islands, unlike individual U.S. states, operates with a unique legal status, not bound by U.S. federal laws while still enjoying access to essential services such as the U.S. Postal Services, Federal Aviation Administration (FAA), and the U.S. Military.

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