The Nouns Foundation Blog

Exploring a New Legal Framework for Nouns DAO | The Wyoming DUNA

The Nouns Foundation was established early in the history of the DAO to help it navigate the real-world legal consequences of its novel on-chain structure. When the Foundation was established, it wasn’t clear what the DAO would become, the kinds of proposals it might pass, or even where in the world its members would reside. The digital asset regulatory landscape was also in its infancy.

Three years later, the nature of the DAO is clearer: we better understand the types of proposals the DAO is willing to pass, the home jurisdictions of many DAO members, and the nature of various threats to the project’s survival. At the same time, the regulatory environment outside of the DAO has become increasingly difficult to navigate, and the consequences of an incompatible legal structure are higher than ever for the project and its members.

It is with this context that key DAO stakeholders—including founders, Foundation board members, large holders, and protocol developers—came together with the Foundation and its advisors to explore a new legal framework for Nouns DAO. The structure the Foundation is currently contemplating is known as the Wyoming DUNA (Decentralized Unincorporated Nonprofit Association).

What is a DUNA?

DUNA stands for Decentralized Unincorporated Nonprofit Association. You can read more about it here. A DUNA structure offers several potential benefits for Nouns DAO:

  • Liability protections for DAO members against the DAO’s debts, obligations, and liabilities
  • Reduced uncertainty with respect to global tax obligations
  • The legitimacy associated with U.S. jurisdiction
  • Extensive and unique flexibility to incorporate the DAO’s decentralized governance into the legal entity. The DUNA structure will support onchain voting as its governing principle
  • Unlike other legal entity structures, the DUNA doesn’t mandate a hierarchy of individuals responsible for managing the enterprise (e.g., directors, officers, or managers); the DUNA only provides for limited administrator roles with authority that can be flexibly circumscribed to carry out, where necessary, the directives of the DAO’s decentralized governance.

We believe that the above benefits could lead to increased interest in Nouns and greater access to partners and collaborators.

What would it take for Nouns DAO to adopt the DUNA structure?

Becoming a DUNA requires changes to how the DAO operates. DUNAs, like most other legal entity structures, have significant reporting and compliance obligations that must be met. The Nouns Foundation has been working with its advisors to determine how the DAO would have to be modified to comply with these obligations, as well as the ongoing expenses for the management and maintenance of this legal structure. Here are a few examples of our requirements under the DUNA structure and the reasons they exist:

Requirement A: Replace the current fork mechanism with a new refund mechanism.
Reason: The current fork mechanism, in addition to creating arbitrage opportunities that run counter to the DAO’s ethos and threaten its viability, is incompatible with the Wyoming DUNA legal structure. Additional details regarding the proposed refund mechanism can be found here.

Requirement B: Conduct KYC (limited to DAO grant recipients), and perform sanctions checks for wallets bidding on Nouns DAO auctions (using Chainalysis)
Reason: The DUNA would be required to comply with tax and AML/OFAC sanctions regulations.

Requirement C: File tax returns and remit taxes if owed
Reason: Most legal entity structures are required to report and pay taxes on their activities.

While these requirements may seem onerous, it’s the Foundation and its advisors’ assessment that the default state of the DAO is increasingly vulnerable to international regulatory uncertainty and that the DUNA may provide us with a clearer path forward to operate in a compliant manner. Further, legal developments over the past several years have indicated that members of a DAO can face liability for the actions of the DAO pursuant to their membership in an unincorporated association.

Next Steps

The Nouns Foundation is continuing to work with its advisors to thoroughly assess the DUNA structure and create a formal proposal to the DAO. The purpose of this blog post is to make the community aware of this ongoing work and to gather feedback, which we welcome you to provide using the following channels:

Thank you for reading. ⌐◨-◨