The DAO (decentralized autonomous organization) economy has garnered serious interest from authorities at the state and regional levels for the last few years. However, the reactions vary. While major economies look somewhat reluctant to legalize DAOs for one reason or another, a group of relatively small countries shows enthusiasm to probably gain an early-mover advantage in the game. Let's take a look at how different jurisdictions are dealing with these structures that can one day take the ongoing blockchain craze to another level.
Wyoming is not the first state in the U.S. coming to mind when you think of high tech and finance industries. But the Cowboy State is determined to become the "blockchain state."
The authorities in Wyoming took a big step recently to introduce a regulatory framework for DAOs. The bill they passed allows DAOs to incorporate in the state and be founded as limited liability companies (LLCs). This bill cleared some of the doubts regarding the legal responsibility in DAOs by turning them into a legal entity.
The legislation brought structure to an expanding business segment. Yet, it stopped short of giving DAOs a carte blanche. The Secretary of the State of Wyoming retains the right to strip a DAO of its liability protection if it is involved in some kind of illegal activity.
The tiny Mediterranean island looks to diversify its economy, which is mainly dependent on tourism revenue. Becoming a crypto-friendly country is one of the steps to realize that goal.
In accordance with this goal, the University of Malta has already introduced a master's program on blockchain and distributed ledger technology (DLT). Malta also became the first country to legalize DAOs. The legislation introduced some form of corporate governance into DAOs. But it ended up placing too much responsibility on the executives of these organizations, which is incompatible with the spirit of DAOs.
In 2018, Delta Summit, the first government-backed event on crypto-banking, was held in Malta. Such enthusiastic initiatives did not amount to much at the end of the day, though. There are still concerns that cryptocurrencies could undermine anti-money laundering efforts, has slowed things down a little bit. Today, any DAO willing to conduct business in Malta should have a license, incorporate a limited liability company, and employ at least three employees.
California may have Silicon Valley, but it is the small Canton of Zug in Switzerland that's determined to become the Crypto Valley. Zug is a small town with a business-friendly environment and low corporate tax rate. Yet, it still has difficulty attracting venture capitalists. The town hopes to grow a blockchain ecosystem to compensate for the lack of investment.
The fact that Ethereum Foundation is based in Zug came to define the town in the last several years. Today Zug is home to many crypto companies like Monetas, Bitcoin Suisse, Xapo, ShapeShift, ConsenSys, and Tezos. Local authorities seem eager to get on with the times, too. As of the last quarter of 2021, Zug Department of Finance accepts tax payments in cryptocurrencies. The town also successfully ran a test of blockchain-based municipal voting in 2018.
Switzerland might be the best-positioned country to become the center of the crypto industry. It is home to some of the best financial institutions in the world. The fact that it has a population with a high disposable income per capita can be a boon for startups, too. It is no surprise that the country wants to have a say in the future of money.
However, the very success the Swiss have had in traditional finance practices may come back to haunt them when it comes to DAOs. The Swiss National Bank seems to be concerned that cryptocurrencies may increase volatility in the market. As smart contracts reduce friction in transactions, people will find it easier to complete transactions. Authorities fear that a sharp increase in the number of transactions will disrupt the finance sector.
The Swiss are playing a balancing game here. On the one hand, they are trying to attract crypto firms. On the other, they are doing their due diligence, taking as long as one year to issue crypto licenses. It will be quite an achievement if they manage to preserve their impeccable reputation for old money while leading the move toward an economy built around digital assets.
Another small European country that is trying to make a name for itself as digital-friendly is Estonia. The Baltic country introduced a crypto licensing plan in 2019 to attract crypto companies and give its economy a much-needed boost.
However, it did not take long before the Estonian government hit the brakes. Similar to what happened in Malta, Estonian authorities recognized the concerns over money laundering and shut down hundreds of crypto businesses recently. This move brought down their number from 1,234 at the end 2020 to 353 by the end of August 2021. Still, no other EU country seems as favorable to crypto businesses as Estonia today.
There seems to be a race among tiny states, cantons, or territories to be the crypto darling. Gibraltar, a British overseas territory, is in the hunt, too.
The administration in Gibraltar has for some time sought ways to make government services more efficient and effective. It has decided recently to integrate blockchain into its legacy systems. RSK, the smart contract platform that underpins Bitcoin, has become the platform of choice.
The Government of Gibraltar hopes that this change will enable its citizens to store their personal documents on a decentralized ledger. This will facilitate access to documents like IDs, driving licenses, or vehicle registration papers. The government has also given crypto licenses to 15 firms.
This by no means is an exhaustive list of countries showing interest in DAOs, cryptocurrencies, and blockchain technology in general. Countries like Iran and China had either cracked down on cryptocurrency transactions or outlawed them altogether in the past. Today, they seem to have come around to the idea. They are rumored to be mulling over plans to introduce their own state-owned cryptocurrencies.
It looks like governments and institutions like the European Union recognize the potential of blockchain technology. But they all have their reasons to remain hesitant:
- Repressive regimes wouldn't like it if their subjects conducted business, organized or financed political activism through DAOs. DAO participants want to evade the control of a central authority. Repressive regimes will do anything to stop that.
- The more liberal countries fear that DAOs and cryptocurrencies can spiral out of their control down the road. These technologies can be used to sidestep sanctions imposed on countries like Iran and North Korea. Worse still, they can make activities like money laundering or financing of terrorism almost impossible to detect.
Nevertheless, blockchain has become too big to ignore. Everybody is keeping an eye on attempts to legalize DAOs in different countries. As governments learn from these experiments, they will look to harness the power of blockchain for their own interests.