Is DUNA Right for Your Token Project?

Introduction

Choosing the right legal structure is one of the most important decisions a DAO or token project can make. It affects how your project engages with regulators, handles taxation, protects contributors, and secures long-term sustainability. Wyoming’s Decentralized Unincorporated Nonprofit Association (DUNA) offers DAOs a new legal entity designed to provide legal recognition while maintaining decentralization.

But is the DUNA the right choice for your project? To answer this question, you will need to have a detailed discussion with your legal counsel. This conversation will help you evaluate the benefits, limitations, and risks of adopting a DUNA based on your project’s goals, governance model, and regulatory obligations.

This guide will help you prepare for that discussion, including the key topics to cover, questions to ask, and how to make an informed decision about structuring your DAO.

Step 1: Define Your Project’s Legal Needs and Risks

Before meeting with your counsel, clarify what you want to achieve with a legal entity. Every DAO has different priorities, and understanding yours will help your legal team provide relevant advice.

Consider these key questions:

• Do you want to protect contributors from personal liability?
• Does your project need to sign contracts, open bank accounts, or manage assets?
• Will your DAO engage in profit-making activities, or is it structured as a nonprofit, public-benefit organization?
• Is your token primarily used for governance, or does it have investment characteristics that could trigger securities laws?
• Does your project have international members, and would a U.S.-based entity create jurisdictional challenges?

If liability protection and legal recognition are major concerns, a DUNA could be a good fit. However, if your project distributes profits to token holders or requires international flexibility, other structures like LLCs or offshore foundations may be preferable.

Step 2: Work with Legal Counsel Who Understands DUNAs

Not all attorneys are familiar with Wyoming’s new DUNA framework, as it was only introduced in 2024. It is critical to work with legal counsel who has deep expertise in DAOs, token projects, and regulatory compliance to ensure that your entity is structured correctly.

If your legal team is not already well-versed in DAOs and DUNAs, we strongly recommend working with attorneys who specialize in this area. If you need an introduction to experienced legal partners, reach out to Toku at team@toku.com. We can connect you with leading law firms all of whom have extensive knowledge of DAOs and the DUNA structure.

Do not work with counsel who lacks experience in decentralized organizations, token regulations, and Web3 legal frameworks. The risks of improper structuring, regulatory misclassification, or compliance failures are too high. Make sure you have the right legal team guiding you.

Step 3: Discuss Key Legal Considerations

Once you have the right counsel, you can begin a deeper conversation about how it aligns with your project. Here are the most important topics to cover:

Liability Protection

The DUNA offers limited liability to its members, meaning contributors and token holders are not personally responsible for lawsuits or regulatory actions against the DAO.

Questions to ask:

• How does DUNA’s liability protection compare to an LLC or an offshore foundation?
• Are there any scenarios where contributors could still face legal risks?
• If a DUNA is sued, how would legal claims be handled?

If your project is high-profile or operates in a regulated space like DeFi, liability protection may be essential.

Regulatory Risks (SEC, CFTC, and Global Laws)

The SEC has taken an aggressive stance on token projects, often classifying governance tokens as securities. The CFTC has also pursued enforcement actions against DAOs operating without clear legal structures.

Questions to ask:

• Does structuring as a DUNA reduce the risk of being classified as a general partnership?
• Will the DUNA help with SEC compliance, or do we still need to consider securities laws?
• If our DAO has international members, how will other jurisdictions treat a U.S.-based DUNA?

Your attorney may advise additional compliance measures, such as restricting token sales or avoiding profit-sharing mechanisms that could trigger securities laws.

Taxation and Treasury Management

Many DAOs struggle with tax uncertainty, particularly if they have large treasuries or generate protocol fees. A DUNA can elect to be taxed as a corporation, simplifying tax obligations.

Questions to ask:

• How will the DUNA be taxed under U.S. federal and state laws?
• Can a DUNA apply for tax-exempt status, and would our project qualify?
• How should we handle token-based compensation to avoid tax complications?

If your DAO intends to pay contributors or distribute funds from its treasury, having clear tax guidance is critical.

Governance and Compliance

The DUNA allows DAOs to be governed through smart contracts and token voting, but legal formalities may still be required.

Questions to ask:

• Will we need an off-chain operating agreement, or can governance be fully on-chain?
• How do we define “membership” for the 100-member requirement?
• Are there KYC/AML requirements we need to consider if we process payments or grants?

Understanding the legal mechanics of governance will help you avoid compliance pitfalls.

Step 4: Compare the DUNA to Other Legal Structures

Your attorney will likely suggest alternative structures to compare against the DUNA. It is important to understand the pros and cons of each option.

LLCs: A DAO could register as a limited liability company, which provides flexibility but may introduce ownership and profit-sharing issues that are inconsistent with decentralization.

Offshore Foundations (Cayman/BVI): Many DAOs have used offshore foundation companies to manage treasuries and intellectual property. These entities offer greater international flexibility but may have limited legal clarity in the U.S.

Traditional Nonprofits (501(c)(3)): A DAO could apply for tax-exempt status under the U.S. nonprofit framework, but this process is complex and restrictive in terms of permissible activities.

By weighing the advantages and disadvantages of each structure, your attorney can help you determine whether a DUNA is the best fit.

Step 5: Plan Next Steps and Implementation

If your attorney agrees that the DUNA is a good fit, the next step is to formally register the DAO as a DUNA in Wyoming. This process involves:

1. Drafting governing principles, which can be based on the DAO’s smart contract rules.
2. Filing paperwork with the Wyoming Secretary of State.
3. Establishing a legal representative for service of process.
4. Setting up banking, treasury management, and tax compliance procedures.

If the DUNA is not the right fit, your attorney may recommend a hybrid approach, such as using a DUNA for governance but incorporating a separate foundation or LLC for treasury management and operations.

Conclusion

Choosing the right legal structure is a major decision that will impact your DAO’s legal protection, tax status, and ability to operate effectively. By engaging your legal counsel in a structured discussion, you can determine whether the Wyoming DUNA provides the right balance of legal recognition, liability protection, and decentralization for your project.

The legal landscape for DAOs is still evolving, and the DUNA is an innovative but untested framework. However, for DAOs that align with its nonprofit mission and decentralized governance model, it may offer a clear path to legitimacy in the U.S. market.

By preparing for this conversation, you can ensure that your legal team has the information they need to provide informed guidance, helping your DAO navigate the complexities of Web3 regulation with confidence.

‍