US crypto regulation bill aims to bring greater clarity to DAOs

US crypto regulation bill aims to bring greater clarity to DAOs

The much-anticipated Responsible Financial Innovation Act was launched by Cynthia Lummis (USA) and Kirsten Gillibrand (USA). It contains a set of regulations that addresses some of the most pressing issues facing the sector of digital assets. The bill provides comprehensive guidance for the rapidly expanding industry and is a bipartisan response from President Biden to his call for a whole of government approach to crypto regulation.

Among the many proposals is the bill’s basic definitions. It also provides an exemption from digital currency transactions. The bill harmonizes roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission (CFTC). This creates regulatory swim lanes and grants a significant expansion of jurisdiction to the CFTC.

Perhaps the bill’s most useful function is to invite further dialogue. Its success or failure in the months ahead will depend on the strength of the discussions it generates. Already, it has prompted strong reactions from the sector. The legislation’s most controversial and potentially influential section is the one that addresses decentralized autonomous organisations (DAOs). Although the legislation clarifies some elements of DAO policy, it is not enough to address the legal status, applicable laws, and jurisdictional authority.

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What are DAOs? Why is it important to regulate them?

DAOs are organizations that use blockchains, digital asset and other technologies to collaborately allocate resources, manage operations, and make decisions. DAOs allow firms to be decentralized by making financial and operational information public. Members can also vote on, and directly ratify, changes by the organization. The Responsible Financial Innovation Act, a pioneering legislation, would address the basic questions regarding DAO policy. It would define DAOs and provide incentives for incorporation.

DAOs have seen a dramatic growth in recent years. DeepDAO data analytics site reports that in 2021, the total value for DAO treasuries jumped fortyfold from $400 million to $16 million and the number of participants soared 130x, from 13,000 to 1.5 million. DAOs are currently being created to accomplish a variety of goals, including managing financial services, facilitating networking, and managing philanthropic activity. DAOs can even be used to support war zones.

“2021: The (1st) year of DAO” Here is how the DAO ecosystem grew in last 12 months: DAOs’ treasuries listed on @DeepDAO_io went up 40x, from $400M in January to $16B by December 2021 Participants in DAOs went up 130x, from 13k in January to 1.6 Million by December 2021
— (@DeepDAO_io) December 30, 2021

Forecasters predict that DAOs will grow at a rapid pace and could have one trillion dollars worth of assets under management by 2032. This will impact many areas such as investment, research, and philanthropy. DAOs offer many benefits, including increased equity and less censorship.

A recent report by Wharton and the World Economic Forum suggests that DAOs could offer an alternative to traditional organisations like corporations. It is suggested that DAOs can help achieve greater transparency, adaptability trust, speed, and trust, as compared to traditional organizations such as corporations. DAOs allow for rapid experimentation and can be directed to a wide range of goals, including prosocial aims. However, DAOs today face challenges in voter engagement, governance and power concentration, as well as cybersecurity.

Similar: Decentralization and DAOs, current Web3 concerns

Most importantly, DAOs are subject to regulatory uncertainty and fragmentation. For example, in the United States, DAOs are confronted with a complex legislative landscape that is governed by multiple state-level frameworks. These legislative approaches may be optional for DAOs but they can also pose a compliance obstacle, and many have been criticised for their shortcomings. DAOs without a clear legal status face operational limitations, cannot tax and could be exposed to unlimited liability.

What will the Lummis-Gillibrand Act do to DAOs?

The Lummis-Gillibrand Act could have a significant impact on the new form due to the indeterminate nature DAO policy. The bill proposes to amend the 1986 Internal Revenue Code to include DAOs. It defines them as organizations that have been governed “[….. The bill proposes amending the Internal Revenue Code of 1986 to incorporate DAOs. They are properly incorporated and use smart contract — which automatically execute promissory codes — to generate collective action. Although this attempt to define DAOs may seem insignificant at first, the effects of it could be significant.

The bill also defines DAOs within the context of amending tax code. This new form could be given legitimacy by the development of taxation requirements. However, this could create new obligations such as incorporation in specific jurisdictions which may be a problem for DAOs with global footprints. Expert opinions on the bill’s significance to DAOs differ.

Similar: Tax considerations for decentralized autonomous organisations

Some argue that incorporation could impose requirements on DAOs. Others argue that the bill doesn’t mandate that all DAOs need to be incorporated, but rather makes incorporation an option for those who want to take advantage of tax opportunities. The bill’s final meaning for DAOs is not clear, as this debate shows. Many of the bill’s implications will be dependent on the outcome of a series review processes and votes.

Although the bill was brought to you by a bipartisan pair policymakers who have seats on key committees such as the Senate Agriculture and Banking Committees and the Senate Agriculture and Banking Committees respectively, Senators Lummis and Gillibrand stated that the legislation would be vested in up to four Senate Committees. The bill’s existence is admirable because it tries to clarify the emerging sector.

Senator Lummis stated in a recent comment that the bill was “an important step towards securing America’s financial leadership for generations ahead.” The legislation provides comprehensive guidance on digital assets and has already made significant progress.

It has started to address many of the same questions that builders have struggled with for years. For Senators’ visions to become a reality, DAO policy will have to be negotiated and ultimately implemented. It is now up to the industry leaders, policymakers, and other members of the ecosystem to collaborate to develop an effective policy that fits the needs of this emerging organizational structure.

This article is not intended to provide investment advice. Every trade and investment involves risk. Readers should do their research before making any decision.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Aiden Slavin, the Project Lead for the World Economic Forum’s Crypto Impact and Sustainability Accelerator, is a member of the World Economic Forum. He leads initiatives in both the private and public sectors at the Forum to promote the Web3 policy agenda and its impact. Before joining the World Economic Forum he was the leader of the policy and partnerships programs for ID2020, which was an alliance that aimed to realize the benefits of digital ID based on blockchain. He has a BA degree from Columbia University and a MSc from Oxford University.

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Amy Jimenez– Services My name is Amy Jimenez, and I am the main writer behind the"" for the ground-breaking and most fragile bits of knowledge into the most recent news in the services sector. I began my voyage of work as an autonomous investment advisor. I had around 4 years of involvement in this field. I am a free soul so; my energy for investigating the world has taken me to the countries over the globe and allowed me to report for a part of the best news affiliations. At present, I am a full-time manager as experienced in the account and began to utilize my capacities.

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