Mar 07, 2023

Utah Passes DAO Act, Legalizing Decentralized Autonomous Organizations

The Utah State Legislature has recently passed the Utah Decentralized Autonomous Organizations Act (Utah DAO Act), or Act HB 357, granting legal recognition and limited liability to DAOs, which are now officially referred to as “Utah LLDs.” This Act was the result of a joint effort between the Digital Innovation Taskforce and the Utah Blockchain Legislature, and was approved this past March 1st.

The Utah DAO Act seeks to provide the utmost flexibility for innovation, recognizing that DAOs are transnational entities. It also offers technological guarantees, which are equivalent to the protections that laws seek to provide through manual reporting processes. Furthermore, the Act defines ownership of DAOs and protects DAO-compliant anonymity through bylaws. Quality assurance DAO protocols are also included in order to ensure clear nuances in tax treatment and updated DAO functionalities.

Joni Pirovich, a blockchain and digital assets tax adviser who worked with the Digital Innovation Taskforce, expressed her excitement on Twitter, saying: “This is a huge step for DAO innovation as the Act is based on the @coalaglobal DAO Model Law, and will become effective from January 2024.”

The Utah Blockchain Legislature had some significant concerns regarding the Act, which were addressed through compromise. For instance, the anonymity and unaccountability of DAOs was a major issue, and a solution was found by requiring DAOs to divulge an incorporator while still maintaining anonymity. Additionally, the original tax language used was found to be incompatible with federal and state tax realities, so a compatible tax language was proposed by the Utah Tax Commissioner’s office. Lastly, the lack of ramp-up time for the Utah Division of Corporations to handle new applications was a concern, so the implementation date for the bill was set for 2024, giving more time to adjust and edit practical implementations.

The Republic of the Marshall Islands approved similar legislation last year, identifying DAOs as limited liability companies and ensuring formal DAO structure adoption in the state’s legal units.

The passing of the Utah DAO Act is a significant milestone for the web3 space. It provides a legal framework for the use of DAOs and NFTs, and opens up a wide range of possibilities for crypto-based businesses. This could mean a surge in NFT marketing and NFT promotion, as well as the emergence of new NFT marketing agencies and web3 agencies that specialize in selling NFTs. It also means that businesses will have more options for reaching their target audience through Twitter NFT marketing. The Utah DAO Act is an important step forward for the web3 space, and its implications will be felt for years to come.

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