DAO legal wrappers: what the entity behind a protocol actually is

A protocol is code. The party that signs a term sheet, holds a bank account or gets sued is not. Somewhere between the governance forum and the contract sits a question token holders rarely settle before they need the answer: what entity, if any, stands behind this DAO, and who is liable if it goes wrong. Two US federal court rulings, from December 2022 and March 2023, suggest that a DAO which never chooses a legal form may have one chosen for it by a court.

This is not the question of who controls a protocol day to day, covered separately in who actually controls a protocol. It is the narrower question of legal form: does the DAO have a body that can hold property, sign a contract and cap what its participants owe, and if so, which one. None of what follows is legal, tax or accounting advice.

The structures in use

Four families of wrapper recur. Each handles member liability differently, and each brings its own tax and regulatory position.

Switzerland: association or foundation

Switzerland has no DAO-specific statute. Projects use two general forms from the Swiss Civil Code: the association (Verein, articles 60 to 79) and the foundation (Stiftung, articles 80 and following). An association with a non-economic purpose acquires legal personality once its statutes show the intention to exist as a corporate body, needs no minimum capital, and under article 75a answers for its debts with its own assets only, unless its statutes impose personal liability on members. A foundation has no members at all: it is a dedicated pool of assets run by a board bound to the founder's stated purpose, and practitioner guides cite a minimum endowment of CHF 50,000. Neither form was built for DAOs, so token voting has to be fitted into statutes and board rules that assume conventional membership. For the token itself, the reference point remains FINMA's ICO guidelines of 16 February 2018, which sort tokens into payment, utility and asset tokens; that is supervisory guidance on financial market law, not a DAO statute, and it applies whichever entity is chosen.

Cayman Islands: the foundation company

The Foundation Companies Act, 2017 created a company that can be ownerless: it may have no shareholders, and a supervisor acts, in Ogier's description, as a steward ensuring the directors observe their obligations. Legal personality without an owner is why practitioners such as Ogier present it as a wrapper for a DAO's treasury and contracting entity. Its constitution can designate beneficiaries by class, such as token holders, without a register of individuals. Cayman is tax neutral, and a foundation company limited by guarantee is excluded from the economic substance regime.

Wyoming: the DAO LLC and the DUNA

Wyoming has two DAO statutes, three years apart, for different kinds of DAO. The DAO Supplement, Wyo. Stat. §§ 17-31-101–116, took effect on 1 July 2021 and has been amended since, including in March 2022. It lets a DAO organise as a limited liability company whose name must include "DAO", "LAO" or "DAO LLC", and whose articles must give a publicly available identifier for any smart contract used to manage it; if the identifier is not filed, the organisation has thirty days to supply it before the Secretary of State must dissolve it. By default, members owe no fiduciary duties to the organisation or each other beyond the implied covenant of good faith and fair dealing.

The Decentralized Unincorporated Nonprofit Association Act, Wyo. Stat. §§ 17-32-101–129, was signed on 7 March 2024 and took effect on 1 July 2024. A DUNA needs at least 100 members joined for a common nonprofit purpose and converts to an ordinary unincorporated nonprofit association if it falls below that. It is separate from its members for rights, duties and liabilities in contract and tort; members owe each other no fiduciary duties; governance may run through smart contracts and enacted proposals; and profit distributions to members are generally barred. The Act is not a tax, securities or money-transmission safe harbour.

Marshall Islands: the DAO LLC

The Republic of the Marshall Islands adopted its Decentralized Autonomous Organization Act on 25 November 2022, letting a DAO register as an LLC with legal personality, and has since amended it and issued regulations. A registered agent is mandatory, and a beneficial ownership report is due at formation and annually between 1 January and 31 March. A smart contract can form part of the governing documents. A non-profit DAO LLC pays no corporate, capital gains or wealth tax; a for-profit DAO LLC pays a 3% tax on gross revenue, excluding dividends and capital gains.

What courts have held when there is no wrapper

Two US rulings addressed DAOs with no chosen wrapper. Both reached for an existing default category.

In CFTC v. Ooki DAO, the US District Court for the Northern District of California held on 20 December 2022 that a DAO could be an unincorporated association under California law, a group of two or more persons joined by mutual consent for a common purpose, which let the CFTC proceed against the DAO itself rather than naming token holders. Nobody appeared to defend it. On 8 June 2023 the court entered a default judgment finding that Ooki DAO had acted as an unregistered futures commission merchant, ordered a penalty of $643,542, and permanently enjoined it, including by ordering its website removed. The judgment ran against the DAO, not against token holders, though the court described the DAO as acting through token holders who voted their tokens to update code, pause trading and direct funds.

In Sarcuni v. bZx DAO, 2023 WL 2657633 (S.D. Cal. 27 March 2023), token holders were sued after a November 2021 phishing attack on a developer's key led to the theft of roughly $55 million. Ruling on a motion to dismiss, not a final judgment, the court found it plausible that the token holders had formed a general partnership under California's default rule, given their governance rights, their share in profits and losses, and their contributions. General partners face joint and several liability. The court observed that courts "do not countenance partnerships which attempt to afford all the advantages of commercial intercourse without corresponding liabilities". Negligence claims also survived the motion. As a pleading-stage ruling, it establishes a theory a plaintiff can plead, not a finding of liability.

The two cases reached for different labels, unincorporated association and general partnership. With no chosen wrapper, the label is decided by whichever court hears the claim, on facts the participants never wrote down.

What a counterparty or investor should confirm

Before treating a DAO's promises as binding on an entity, or a token holder's exposure as capped, confirm in writing:

• The exact legal name, registration number and jurisdiction of the entity that will sign, not the protocol's brand or forum handle.
• Whether a separate foundation, "labs" company or DAO LLC sits beside it, and which of them can be held to the deal.
• Whether public filings, such as Wyoming's smart-contract identifier or the Marshall Islands beneficial ownership report, match the governance contract and signers in use today.
• Whether a non-profit form, such as a DUNA or a non-profit Marshall Islands DAO LLC, can make the profit-bearing commitment being negotiated.
• Whether the registration is current, or the entity has been struck off, converted or dissolved, which no token balance will show.
• Where the DAO sits inside or beside a fund, how that structure handles custody and redemption, discussed in how fund domicile shapes custody and redemption.

A wrapper is a decision, made in advance and on paper, about who bears the loss when something goes wrong. The two rulings above show what can happen when a DAO never makes it.