DUNA 101: A Founder’s Guide to Wyoming’s DAO Legal Framework

Introduction: Why Every US DAO Founder Should Consider the DUNA

For years, decentralized autonomous organizations (DAOs) and blockchain-based projects have operated in a legal gray area. Many DAOs have avoided forming legal entities to maintain decentralization, but this has left contributors exposed to personal liability, tax uncertainty, and regulatory risks. Without a legal structure, DAOs are often considered general partnerships, making every token holder potentially liable for lawsuits and regulatory enforcement.

To address these challenges, Wyoming introduced the Decentralized Unincorporated Nonprofit Association (DUNA), a legal structure specifically designed for DAOs and decentralized blockchain networks. The DUNA law, which took effect on July 1, 2024, allows DAOs to gain legal recognition while preserving decentralization. This guide explains what the DUNA is, how it works, and whether it is the right choice for your DAO or token project.

What is the Wyoming DUNA?

The DUNA is a new type of legal entity based on Wyoming’s existing Unincorporated Nonprofit Association (UNA) Act, but modified to fit the needs of blockchain-based governance structures. It gives DAOs legal standing, allowing them to contract, own assets, sue and be sued, and pay taxes like any other legal entity.

Unlike traditional corporations, the DUNA does not have shareholders, a board of directors, or centralized management. Instead, it is designed to be governed by decentralized decision-making, including smart contract-based governance. The law explicitly allows DAOs to manage their operations through blockchain-based voting and governance mechanisms.

The key feature of the DUNA is that it is a nonprofit entity. This means that while the organization can generate revenue and engage in business activities, it cannot distribute profits to members or token holders. Instead, all funds must be reinvested in the DAO’s mission, such as funding protocol development, governance operations, or community grants.

Why Should a DAO or Token Project Consider a DUNA?

Many DAOs have operated without a legal entity, believing that this preserves their decentralized nature. However, remaining unincorporated comes with serious risks.

Regulators, such as the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have argued that DAOs without legal status function as general partnerships. This means that all members—whether developers, token holders, or contributors—could be held personally liable for the DAO’s actions, including regulatory violations or lawsuits. The Ooki DAO case, where a U.S. federal court ruled that DAO members could be personally responsible for legal violations, has made it clear that operating without legal protection is dangerous.

By forming a DUNA, a DAO can avoid this risk by creating a legal separation between the entity and its members. This shields contributors from personal liability, making participation in the DAO safer. The DUNA also allows DAOs to enter contracts, pay for services, and open bank accounts, which are essential for real-world operations.

Does the DUNA Fit Your Token Project?

The DUNA is not a one-size-fits-all solution. It is best suited for DAOs and blockchain projects that are designed to function as public infrastructure, rather than businesses seeking to generate profit for token holders.

If your project is a governance DAO, decentralized protocol, or community-driven network, the DUNA may be an ideal structure. It ensures legal protection while allowing the network to remain decentralized.

However, if your token project is a for-profit venture that aims to distribute revenues to token holders, a limited liability company (LLC) or an offshore foundation may be a better choice. Alternatively, Toku can introduce you to DUNA experts to help you think through potential alternatives. The DUNA does not allow profit distributions, meaning it is not suitable for DAOs that wish to function like traditional investment vehicles.

How the DUNA Handles Key Legal and Tax Issues

Liability Protection for DAO Members

One of the biggest advantages of the DUNA is that it shields DAO members from personal liability. Under Wyoming law, members of a DUNA are not responsible for the debts, obligations, or legal liabilities of the organization. This means that if the DAO is sued or fined by regulators, individual contributors and token holders will not be personally liable.

This protection is crucial because many unregistered DAOs are at risk of being treated as general partnerships, where every member shares liability. By forming a DUNA, the DAO itself becomes the legal entity, rather than its individual contributors.

Tax Treatment and Treasury Management

Without a legal entity, a DAO’s financial activities can create tax headaches. If a DAO is seen as a partnership, token holders may be required to report a share of the DAO’s income on their personal tax returns, which is impractical for large, decentralized communities.

A DUNA solves this by allowing the DAO to pay taxes as an entity, rather than passing tax liabilities to individual members. The DUNA can elect to be taxed as a corporation, making it easier to manage financial obligations and treasury funds.

Additionally, a DUNA may apply for tax-exempt status if it qualifies as a charitable or nonprofit organization under IRS guidelines. If approved, the DUNA would not be subject to federal income tax, allowing it to reinvest more funds into its mission. However, securing tax-exempt status is not automatic and would require the DAO to demonstrate that it serves a public benefit.

SEC and Regulatory Compliance

One of the biggest concerns for DAOs is whether their tokens are considered securities under U.S. law. The SEC has taken action against several token projects, arguing that they violated securities laws by offering investments without registration. Although the SEC has recently withdrawn many of it’s cases against projects in the last several weeks, this does not mean there is clear regulation. 

The DUNA does not automatically exempt a DAO from securities laws, but it does provide legal arguments that strengthen a DAO’s position. Because a DUNA has no shareholders and no profit distributions, it reduces the risk that a governance token will be seen as an investment contract under the Howey Test.

However, DAOs should still be cautious when designing token models. If a DUNA issues tokens with an expectation of profit based on the efforts of a central team, it could still be subject to SEC enforcement. Legal experts recommend structuring governance tokens to emphasize utility and decentralized governance, rather than profit-sharing.

Challenges and Considerations for Adopting a DUNA

While the DUNA offers many benefits, there are challenges and unanswered questions that founders should consider.

First, the DUNA requires at least 100 members to qualify under Wyoming law. This means that smaller DAOs or early-stage projects may not be eligible. Additionally, it is unclear how courts will interpret membership requirements, especially for pseudonymous token holders.

Second, although the DUNA is designed for decentralization, it still requires some degree of real-world compliance. For example, if the DAO engages in financial transactions or hires service providers, it may need to conduct Know Your Customer (KYC) checks and comply with anti-money laundering (AML) regulations. This could create friction for DAOs that prefer to operate pseudonymously.

Finally, the DUNA is a new legal structure with no court-tested precedents. While it provides strong protections on paper, it remains to be seen how courts and regulators will interpret its provisions in practice. Some DAOs may prefer to wait and see how early adopters navigate the legal landscape before committing to a DUNA.

Conclusion: Should Your DAO Use a DUNA?

The Wyoming DUNA is a groundbreaking legal structure that offers DAOs legal recognition, liability protection, and tax clarity, while maintaining a decentralized governance model. For DAOs that operate as public infrastructure, governance communities, or open-source networks, the DUNA is a compelling choice.

However, DAOs that aim to generate profits for token holders or operate as investment vehicles may find that the DUNA’s nonprofit model does not align with their goals. For these projects, alternatives such as LLCs or offshore foundations may be more appropriate.

Before adopting a DUNA, DAO founders should consult legal and tax professionals to ensure that it aligns with their project’s mission and regulatory obligations. While the DUNA represents a major step forward for decentralized governance, its success will depend on how effectively DAOs implement it and how regulators respond in the coming years.

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