CDEZ DAO Regulation
What are DAOs for the CDEZ?
the Zone Authority of the CDEZ, we saw the need to allow for the registration of Decentralized Autonomous Organizations, to serve those internet-formed groups, and teams with organizational structures resembling more a network than a traditional corporate pyramid.
A CDEZ DAO legal wrapper is ideal for decentralized organizations that use smart contracts to conduct activities or that use tokens to vote, incentivize and pay members.
CDEZ DAOs lawfully allow for membership shares, voting rights, and contributions.
Our DAO regulations take the best from DAO frameworks of Wyoming, Tennessee, Idaho and New Jersey.
Types of Catawba DAOS
DAO LLC
Attractive for for-profit and investments DAOs that want to have standard rules for interacting with the traditional financial world.
DAO UNA
Attractive option for certain types of DAOS that may wish to generate profit, but not necessarily be interested in a pro-rata distribution of said profits.
Definitions
LLC
A traditional limited liability company (LLC) is a legal entity distinct from its individual members or owners. It is a creature of state law, meaning when you form an LLC, you form it under the laws of a particular state. (Tribes have the same legal status of a state according to the US Constitution).
There are many advantages to structuring a company as an LLC— Limiting personal liability, avoiding double taxation, having pass-through deductiond and less administrative ureaucracy than corporations.
UNA
UNAs “are analogous to partnerships, and yet not partnerships; analogous to corporations; and yet not corporations; analogous to joint tenancies, and yet not joint tenancies; analogous to mutual agencies; and yet not mutual agencies.” Texas Court in 1992.
The figure of the UNA was initially designed by the Uniform Law Commission (ULC) and has been adapted to fit into the original LLC structure for DAOs adopted and amended by Wyoming, with additional requirements unique to its structure and applicable provisions. Additionally, the regulation was complemented by the Tennessee DAO Regulation, particularly regarding the definition of smart contracts.
Incorporating
How to form a Catawba DAO UNA?
Any person may form a DAO LLC by signing and delivering one original and one exact or conformed copy of DAO Governing Principles to the Zone Authority to the email contact@zoneauthority.io
CDEZ DAO Regulations Background
Key Sources Considered
The following documents were the main sources considered when drafting the Catawba Zone’s DAO Regulation:
Overview of the CDEZ DAO Regulation and it's most relevant topics
DAOs can be incorporated either as an LLC or as a UNA, providing greater flexibility for different organizational needs.
The certificate of organization, governing principles, smart contracts, or operating agreement provide the rules and regulations guiding the DAO. However, members are allowed to agree differently, offering flexibility and autonomy.
The Zone Authority Commission controls the application and issuance of DIDs for the DAO’s management smart contracts.
The definition of “smart contract” is clear, and it is based on the Tennessee DAO Law.
The regulation allows members to agree on an on-chain alternative dispute resolution mechanism.
UNAs can establish their own policies on payments and compensations for potential staking and risks associated with staking a token used for DAO governance.
DAO LLCs, Taxes and Legal Matters
DAO LLCs are treated just like any other LLC for tax purposes.
DAO LLCs can protect members from being sued as general partnerships and also solidify the rights of DAOs as legal persons and provide clarity and structure to many DAO projects.
The underlying smart contracts can be updated, modified, or otherwise upgraded.
How did the Zone include the work of A16z in the DAO Regulation?
Miles Jennings and David Kerr published with a16z a series on Legal Framework for DAOs, where they proposed a novel approach for DAOs to be capable of registering as Unincorporated Nonprofit Associations (“UNA”) in states that recognize this entity form.
Through their papers, they drew attention to the potential of UNAs and their unique characteristics that are well suited for DAOs, including simple formation and flexible governance requirements capable of being satisfied and scaled without jeopardizing any of the innovative benefits that DAOs make possible, as well as being able to own property and open bank accounts.
For the CDEZ DAO Regulation, the work presented by a16z was crucial for the inclusion of the UNA entity form as an option for incorporation in the CDEZ. Considering that distribution of profit is prohibited for UNAs, a provision was included to clarify that, pursuant to the law, and considering that DAO UNAs may determine how to compensate its members, payments and compensations for potential staking and the assumption of risk regarding staking of a governance token shall not be construed as paying a dividend or making a distribution
Comparison to Wyoming DAO Regulation
The CDEZ DAO Regulation draws heavily from Wyoming’s DAO Supplement, especially the 2022 amendment. However, there are significant improvements and adaptations.
Entity Types
While both regulations allow DAOs to form as an LLC, the CDEZ further includes the option for DAOs to incorporate as an UNA.
Adaptation To Local Legislation
The CDEZ DAO Regulation has been adapted to align with the institutions and legislations of the Green Earth Zone.
Changes To Smart Contracts
Wyoming allows for the modification of smart contracts in DAOs, a feature not explicitly addressed in the CDEZ regulation.
Management Types
While Wyoming's DAO Supplement distinguishes between member-managed and algorithmically-managed DAOs, the CDEZ does not make this distinction.
Voting Rights
The Wyoming amendment applies a pro-rata rule to all DAOs, not just member-managed ones. The CDEZ regulation does not explicitly state its stance on voting rights.
Quorum Definition
Wyoming leaves the definition of a quorum to the DAO's articles of organization or operating agreement. Catawba, however, defines, "majority of the members" as more than fifty percent (50%) of the membership interests eligible to participate in a vote or any membership interests according to each DAO's governing principles or operating agreement.
Dispute Resolution
While the Wyoming amendment requires the inclusion of dispute resolution mechanisms in the articles of organization or smart contracts, the CDEZ regulation permits on-chain alternative dispute resolution mechanisms.
Agile Regulator
Unlike Wyoming that meets every 2 years to vote on new regulations, Catawba Zone regulators meet every 2 weeks or less.