California bill to provide some clarity on DAOs

California bill to provide some clarity on DAOs

As the fight for regulatory clarification for crypto continues at the federal level, a bill has emerged this week aimed at providing some of that clarification at the state level.

The bill, AB 1229, proposed by California Assemblymember Matt Haney, would establish a business entity structure for DAOs. The structure, 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' debate on crypto has been dominated by government-led regulatory and enforcement actions. Last year, the Commodity Futures Trading Commission, brought an enforcement action against a DAO's tokenholders for 'illegally offering leveraged and margined commodity transactions in digital assets,' the press release said.

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

Although the debate over securities law and crypto has been highly contentious, Jennings thinks that passing AB 1229 will be more workable.

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

As investment groups built around a token on the blockchain, or other kinds of social clubs, AB 1229 would not be a fit, he said. Jennings also said traditional companies could't be considered a decentralized nonprofit either, though he added: traditional companies couldn't be considered a decentralized nonprofit either.

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

The general counsel suggested that a UNI token might make liquidity more profitable by providing liquidity to investors. Or using the token of Aave, a lending protocol, to backstop risk through something called the Safety Module.

California's AB 1229 went through California's Committee on Banking and Finance last week and will go through the Judiciary Committee next week. The bill would pass through California's lower branch of government and pass to the State Senate.

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