Utah DAO Act: A Bold Step Towards Building a Decentralized Future

The state of Utah has passed new legislation known as the “Utah Decentralized Autonomous Organizations” Act (the “Utah DAO Act”) on March 1, 2023, which gives legal recognition and limited liability to DAOs (decentralized autonomous organizations). The bill was passed unanimously by both the House and the Senate.

The Utah Legislature’s Blockchain and Digital Innovation Task Force led the effort, and the bill was created under the leadership of Co-Chairs Senator Kirk Cullimore and Representative Jordan Teuscher. The state sees DAOs as a priority, and the legislation reflects Utah’s status as a fast-rising technology hub. The Utah DAO Act is designed to provide DAOs with legal recognition unique to them, incorporating a technology gatekeeping function, quality assurance requirements for DAO protocols, and a nuanced tax treatment that is consistent with the current functionalities of DAOs.

There were some concerns that needed to be addressed before the bill was passed, including the potential for full anonymity for the DAO base, the original tax language being inconsistent with state and federal tax realities, and the lack of ramp-up time to assure the Utah Division of Corporation was prepared to handle new applications. To address these concerns, the bill was amended, with compromises being made on issues of accountability, tax language, and ramp-up time.

The Utah Department of Commerce, which oversees the Division of Corporations and the Division of Securities, will be crucial in the roll-out and adoption of the new legislation, and has been cooperative in the eventual adoption of the Utah DAO Act.

The Task Force will continue to work with the Utah Department of Commerce in 2024 to ensure that the new Utah DAO Act is implemented effectively. The Task Force will also spend the remainder of 2023 exploring any weaknesses in the legislation and working toward fixes, while at the same time preparing for administrative onboarding. The Task Force will be looking for opportunities to build and eventually pass complementary DAO legislation.

Despite the passage of the Utah DAO Act, there are still challenges in the current environment, including federal and judicial impediments associated with DAOs. The Task Force recognizes that there is no going back, and that the best technologies are being built in shared decentralized environments. It is hoped that other sovereign states will follow Utah’s lead in passing legislation that facilitates this movement.

In conclusion, the Utah DAO Act represents a significant step forward in recognizing and regulating DAOs, and will provide opportunities for innovation and growth in the state’s technology, finance, and legal industries.

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