Promoting Blockchain and Web3 Innovation: Introducing Florida’s DAO Bill | Montague Law

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

Sunshin3 is a Florida-based political non-profit organization 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 serve as a thought leader on proposed Web3 legislation. We intend to achieve our goals by (i) developing legislation that will support Web3 economic growth and innovation in Florida, (ii) directing campaign contributions to “Web3 Champion” political leaders, and (iii) holding events that will attract interest and investment. on the Florida 3 site. I think Samuel Armes has already done a great job on this.

As a Florida lawyer (and having watched Web-3 grow around the world), I think Florida is uniquely poised to provide a “laboratory for experimentation” and ignite the fire that unleashes true decentralized technology and infrastructure for humanity.

Meaning of DAO

In keeping with the purpose of our non-profit organization, I am introducing a bill that would properly recognize Decentralized Autonomous Organizations as legal entities in Florida and hopefully resolve some of the legal confusion facing many Web-3 Builders and core building entrepreneurs. 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 only served to divert resources from the United States/Florida and subsequently reduce the amount of revenue potentially collected by the government with associated registration/organization fees and potentially tax revenue. To be clear, I’ve always been in favor of encouraging Web-3 entrepreneurs to come up with a legal strategy and nexus in the US, but the prevailing view is that protocols can potentially avoid onerous regulations (or perhaps mitigate such nexus by the federal government) by incorporating off-shore or by excluding US citizens from participating in certain Web-3 projects. This is a sad state of affairs politically, and we are indirectly and (unknowingly through inaction) pushing Web-3 companies into other jurisdictions. Of course, I think the US has some of the best brains 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-government; allowing DAOs to register as LLCs or corporations and providing liability even when unincorporated will create a safe haven for open-source software innovators working for the public good.

Sunshin3 co-founder Gary Sheng, a Forbes 30 Under 30 entrepreneur and Web3 innovator, is a prime example of the community members we are working to recruit. Sheng is also the co-founder of Civics Unplugged, a nonprofit ecosystem that provides a new generation of leaders with the training, funding, and community needed to become civic innovators. Sheng reiterates the importance of this law: “DAOs are a new type of organization that will help people achieve goals and move society forward in ways that traditional organizational structures cannot. It is important that states understand this. I am encouraged by the openness of the legislators and regulators that I am with spoke in Florida.” We hope this bill will support other projects like Civics Unplugged and unlock more entrepreneurial potential that may be stifled by regulatory uncertainty.

Legislation Recommendations

Although the design is not complete, the five main concepts are now:

  1. Defining the DAO: “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 any given blockchain smart contract wallet.
  2. Responsibility: No member or participant of the DAO, smart contract, algorithm or wallet shall be liable to any other member or participant of the DAO, smart contract, algorithm or wallet.
  3. Entity structure: A DAO may register as a company or limited liability company, If the bylaws of a company or organization reflect a smart contract that grants the members, participants, smart contract, algorithm, or wallet the right to participate in and manage the DAO.
  4. Conflict: In the event of a conflict between Florida law and the DAO Governance Mechanisms, the procedures of the DAO Governance Mechanisms will supersede.
  5. Capital increase: The DAO can raise an unlimited amount of capital, If the governance of the DAO is reflected in a publicly identifiable manner and refers to open source software; provided, however, that any “off-chain” transactions conducted through traditional banks will require DAO registration in Florida as well as public financial disclosures. Such financial statements are subject to reasonable inspection rights by the Commissioner of the Florida Secretary of State.

While the law remains consistent with the Sunshine Law, it recognizes that a DAO can be unregistered while still receiving liability protection. Samuel Armes, co-founder of Sunshin3 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 an industry standard that represents both comprehensive understanding and forward thinking. At the very least, this bill will open up a good dialogue with the right stakeholders and legislators in Florida.

Cooperation

Sunshin3 is working closely with ATX DAO, an Austin, Texas-based DAO promoting Web3 and crypto-friendly innovation as they draft similar language for Texas DAO legislation.

“Over the past few years, DAOs have become the epicenter of blockchain innovation. Given the critical role that DAOs play in the crypto ecosystem, we believe that if our states and our nation are to remain at the forefront of blockchain innovation, they must explicitly recognize DAOs as legal entities within their jurisdictions. Some states are moving the needle in the right direction, although we believe the issue of DAO operations within a legal business entity has not yet been fully resolved. We’re leveraging Texas’ world-class expertise in DAO legislation and interstate partnerships with crypto legislative experts in Florida to find a pragmatic yet effective solution to this 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 of DAOs. The ATX DAO suggests that a first step toward this goal can be taken by amending the current Texas LLC bylaws to include DAOs and provide legal clarity for current and future organizations.

In coordination with the Texas Blockchain Council, they prepared a draft of proposed language changes to the LLC Articles of Incorporation for initial consideration. Central to their proposal is the idea that DAOs should be free to choose to operate unregistered (if such operations happen explicitly on-chain) or choose to incorporate as whatever entity best suits their needs. An organization’s ability to choose is reflected in the ATX DAO’s proposed definition of a “DAO” as a group of individuals rather than an entity in its own right. Proposed changes to the current bylaws include adding DAO language and DAO technology such as “electronic data system” and “computer code agreements” to legally support DAO operations. ATX believes that by integrating DAO language into current legislation, legal clarity and recognition will guide potential DAOs, encourage crypto-entrepreneurship, and make Texas a leader in crypto innovation.

“When asked about our DAO legislative work, I often joke that the last thing I expected as an engineer when I decided to move full-time into the space was to become an unofficial expert on the Code of Business Organization. But This is important work, and it needs to be done. And what better way to do it than with the academic expertise of legal scholars and the empirical wisdom of DAO operators across the state, all while listening to the crypto community as a whole.” – Sam Padilla.

The need for reform

I make this proposal during a prime and pivotal state of the digital asset industry. Now more than ever, policymakers are noticing the flaws in 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 it to issue a new regulatory framework for digital assets, stating: “Whatever the risks and benefits of these new assets, existing laws and regulations were not designed to address how digital assets are used in the marketplace.” In his letter, he recommends that the SEC clarify which digital assets qualify as securities and how to issue and register those that do, and introduce explicit guidance on disclosure requirements, registration for digital asset securities trading platforms and digital asset trading and custody. .

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 stakeholder feedback.” My DAO account is meant to serve the same purpose. Anessa Allen Santos, Managing Attorney at IntelliLaw and FBBA Board Member, reminds us that “DAOs that intend to operate outside of securities regulation must be carefully designed under the Howey test, which regulates securities issued by ordinary businesses,” so clear principles. for DAOs is essential for a suitable design, and a clear regulatory framework for digital assets as a whole is essential for the industry.

FBBS Summit

This weekend November 4thThursday 2022 I will join Samuel and Aness as panelists at the Florida Bitcoin and Blockchain Summit (“FBBS”) in Tampa, Florida. Organized by innovator and entrepreneur Chris Krimitsos, FBBS is tailored for curious beginners, potential stakeholders, and passionate supporters of Florida and the Web3 community. If you would like to learn more about cryptocurrency, blockchain technology and how Florida will continue to lead in Web3 innovation, you can find more information about the event on the FBBS website.

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