California bill aims to clarify regulation of crypto organizations

California bill aims to clarify regulation of crypto organizations

As the fight for regulatory clarification for crypto continues at the federal level, a bill has been introduced this week aiming to provide some of that clarification at the state level.

California Assemblymember Matt Haney has introduced a new business entity structure for DAOs called AB 1229. The structure, called a decentralized nonprofit organization, would provide a framework for DAOs to establish a legal entity, pay taxes, and provide limited liability to their participants.

AB 1229 was heavily based on research by Miles Jennings, general counsel at the venture firm a16z, which sponsored the bill.

The United States has been dominated by regulatory and enforcement actions by government agencies, leading to a shift in the conversation on crypto. The Commodity Futures Trading Commission brought a enforcement action against a DAO's tokenholders last year for 'illegally offering leveraged and margined commodity transactions in digital assets ', the press release said.

The agency's actions caused an uproar in the cryptocurrency community, as those who had participated in governance elections began to wonder whether they would be held liable for the DAO's actions. AB 1229 may provide some of the clarification that DAO participants seek, and limit their liability based on their affiliate's actions.

While the debate over securities law and crypto has been contentious, Jennings contends that passing AB 1229 is more workable than the current debate surrounding the issue.

To be sure, Jennings said the new bill doesn't be a catch-all for all types of crypto organizations with a token. AB 1229 would be a good fit specifically for protocols and blockchain networks which aimed to control autonomous software through voting, he said. The court named the exchange Uniswap and the scaling solution Optimism, both of which a16z has invested in, as examples.

AB 1229 wouldn't be a fit for other organizations, such as investment groups built around a token on the blockchain, or other kinds of social clubs, he said. Jennings said traditional companies couldn't be considered a decentralized nonprofit either.

This doesn't mean that members of a DAO legally recognized by California can't expect to see a financial benefit from their token ownership. ''T look like dividends,'' Jennings said.

The attorney-general proposed a UNI token that could potentially make liquidity more profitable. Or using the token of Aave, a lending protocol, to backstop risk through something called the Safety Module.

The AB 1229 went through California's Committee on Banking and Finance this week and will go through the Judiciary Committee next week. The bill will be passed through California's lower branch of government and move to the state Senate.

Jennings says it's possible for California's governor, Gavin Newson, to sign the bill in less than a year. ''Re talking somewhere between six and eight months all told, all told,'' he said, assuming the bill passes through the California State Legislature.