Advancing Blockchain & Web3 Innovation: Introducing the Florida DAO Bill | The Montague Law

As Web3 and blockchain technology continue to drive a booming new age industry, policy and practice leaders are seeking to champion Web3-friendly policy officials and policymakers who believe in unleashing the technology’s full potential.

Sunshin3 is a Florida-based political non-profit founded by Samuel Armes, Gary Sheng and myself: “three leaders passionate about freedom and Florida.” Sunshin3 is committed to making Florida the capital of Web3 and blockchain innovation, and our stated goal is to be an educational resource and act as a thought leader on proposed Web3 legislation. We intend to achieve our goals by (i) developing legislation that will support both economic growth and Web3 innovation in Florida, (ii) directing campaign contributions to “Web3 Champion” political leaders, and (iii) hosting events that will attract interest and investments in Florida web3. I think that Samuel Armes has already done a good job in this regard.

As a Florida attorney (and having seen Web-3 grow worldwide), I believe that Florida is uniquely poised to provide a “laboratory for experimentation” and spark a fire that unleashes true decentralized technology and infrastructure for humanity.

The importance of DAOs

In keeping with the purpose of our non-profit organization, I am proposing a bill to recognize decentralized autonomous organizations as legal entities in Florida, hopefully resolving some of the legal ambiguities created by many Web-3 builders and entrepreneurs focused on building core. technological infrastructure.

As of now, Web3 companies typically choose to register as non-profit organizations overseas due to the perceived risk of issuing tokens in connection with a “for profit” entity. This has only served to send resources out of the US/Florida and consequently lower the amount of revenue potentially collected by the government with relevant filing/organization fees and potentially even tax revenue. To be clear, I’ve always been a proponent of encouraging Web-3 entrepreneurs to come up with legal strategy and nexus in the US, but it remains the industry’s view that protocols can potentially avoid burdensome regulation (or perhaps reduce such nexus of the federal government) by incorporating offshore or altogether excluding US citizens from participating in certain Web-3 projects. This is a sad state of affairs from a political perspective, and we are indirectly and (unconsciously through inaction) pushing Web-3 companies to other jurisdictions. Of course, I think the US has some of the best minds in Web-3: Brian Armstrong, CEO of Coinbase and Sam Bankman-Fried, founder of FTX, have done a tremendous amount for the industry. However, we cannot expect them to do all the heavy lifting at the state and federal level.

We hope to create a jurisdiction where software innovation can flourish under self-governance; Allowing a DAO to register as an LLC or corporation and confer liability even in the absence of incorporation would create a safe haven for open source innovators working for the public good.

Sunshin3 co-founder Gary Sheng, a named Forbes’ 30 Under 30 entrepreneur and Web3 innovator, is a great example of the community members we work to attract. Sheng is also the co-founder of Civics Unplugged, a non-profit ecosystem that provides the next generation of leaders with the training, funding and community needed to become civic innovators. Sheng reflects the importance of this bill: “DAOs are a new type of organization that will help people achieve goals and advance society in ways that traditional organizational structures will not. It is important that states understand this. I am encouraged by the openness of legislators and regulators I’ve talked to in Florida.” We hope that this bill will encourage more projects like Civics Unplugged, unlocking other entrepreneurial potential that may be stifled by regulatory uncertainty.

Legislative recommendations

Although the draft is not complete, these are the five core concepts as of now:

1. Defining the DAO: A “decentralized autonomous organization” (“DAO”) is any “automated transaction” or “smart contract” consisting of two or more individuals, algorithms or smart contracts responsible for executing transactions from a given blockchain smart contract wallet.
2. Burden: No DAO Member or Participant, Smart Contract, Algorithm or Wallet shall be liable to any other DAO Member or Participant, Smart Contract, Algorithm or Wallet.
3. Unit structure: A DAO can register as a limited company or limited liability company, as long as The bylaws or organization reflect the smart contract that grants DAO participation and governance rights to the member, participant, smart contract, algorithm, or wallet.
4. Conflict: In the event of a conflict between Florida Law and the governing mechanics of the DAO, the governing mechanics procedures of the DAO will supersede.
5. Capital raising: A DAO can raise unlimited amounts of capital, as long as The DAO governance is reflected in a publicly identifiable manner and is related to open source software; provided that all “off-chain” transactions facilitated via traditional banks will require the registration of the DAO in Florida as well as the publication of public accounts. Such accounts shall be subject to reasonable inspection rights by the Commissioner of Secretary of State of Florida.

While consistent with the Sunshine Law, the bill recognizes that a DAO can be unincorporated while still receiving liability protection. Samuel Armes, Sunshin3 co-founder and founder of the Florida Blockchain Business Association (“FBBA”) expressed his support for the bill, saying: “John Montague’s proposed bill is based on sound logic and industry standards that represent both comprehensive understanding and forward thinking. At a minimum, this bill will open up good dialogue with the right stakeholders and legislators in Florida.”

Cooperation

Sunshin3 has been working closely with ATX DAO, a DAO based in Austin Texas, to promote Web3 and crypto-friendly innovation, while drafting similar language for DAO legislation in Texas.

“Over the past few years, DAOs have become the epicenter of blockchain innovation. Given the critical role DAOs play in the crypto ecosystem, we strongly believe that if our states and nation want to remain at the forefront of blockchain innovation, must they explicitly recognize DAOs as legal entities within their jurisdictions. Some states have moved the needle in the right direction, although we believe the problem of DAO operations under a legal business entity framework has not been fully cracked yet. In Texas, we leverage world-class DAO legislative expertise and cross-state partnerships with crypto-law experts in Florida to find a pragmatic yet effective solution to the challenge.” – Sam Padilla, ATX DAO Contributor

In August 2022, ATX DAO testified before the Texas Work Group on Blockchain Matters on DAO legislation with the same goal as Sunshine3: legal recognition for DAOs. The ATX DAO suggests that a first step toward this goal can be taken by amending the current Texas LLC statute to include DAOs and provide legal clarity for current and future organizations.

In coordination with the Texas Blockchain Council, they have prepared a draft of proposed language changes to the LLC Articles of Incorporation for initial review. The focal point of their proposal is the idea that DAOs should be free to choose to operate without incorporation (if such operations happen explicitly on-chain) or to choose to incorporate as any entity that best suits their needs. The organization’s ability to choose is reflected in the ATX DAO’s proposed definition of “DAO” as a group of individuals rather than its own entity. Proposed changes to the current bylaws include the addition of DAO and DAO technology language such as “electronic computer system” and “computer code agreements” that would legally support the DAO’s operations. ATX believes that by integrating DAO language into current legislation, the legal clarity and recognition will guide potential DAOs, encourage crypto business, and make Texas a leader in crypto innovation.

“When asked about our work on the DAO legislation, I often joke that the last thing I expected when I decided to move into the industry full-time as an engineer was to become an unofficial expert on the business organization code. But this is important work, and it needs to be done. And what better way to get it done than to use both the academic expertise of legal scholars and the empirical wisdom of DAO operators across the state, all while listening to the crypto community at large.” – Sam Padilla.

A need for reform

I introduce this proposal under a prime and central condition in the digital asset industry. Now more than ever, policymakers are noticing the shortcomings of the current regulatory environment and calling for action. Most recently, Sen. John Hickenlooper (D-Colo.) sent a letter to the SEC on October 13, 2022 urging them to issue a new digital asset regulatory framework stating: “whatever the risks and benefits of these new assets may be, existing laws and regulations was not designed to address how digital assets are used in the marketplace.” In his letter, he recommends that the SEC must clarify which digital assets qualify as securities and how they should be issued and register those that do, and establish explicit guidelines for disclosure requirements, registration for securities trading platforms for digital assets, and the trading and custody of digital assets. .

Hickenlooper believes that “Clear rules foster an environment where investors are protected; responsible financial innovation is enabled by providing market participants with clear rules of the road; and investor confidence is built through feedback from stakeholders.” My DAO bill is intended to serve the same purpose. Anessa Allen Santos, managing attorney at IntelliLaw and board member of the FBBA, reminds us that “DAOs that intend to operate outside of securities regulations must be carefully designed around the Howey test that governs securities issued by regular entities,” and thus clear guidelines. for DAOs is necessary for appropriate design, and clear regulatory frameworks for digital assets as a whole are crucial for the industry.