When decentralized organizations have legal status, will DUNA be the next corporate system?
Author: a16z crypto
Compiled by Deep Wave TechFlow
Original title: a16z: From company to DAO, DUNA may become the next generation of organizations
Deep Tide Guide: From Marco Polo's family trade to the Dutch East India Company, the essence of every commercial revolution is “how to get strangers to cooperate”. a16z's article combed through the 500-year history of organizational evolution and pointed out the legal difficulties faced by DAOs — not a technical issue, but an institutional vacuum. For practitioners who are thinking about how Web3 projects operate within a compliance framework, this is a background article worth reading carefully.
Over the centuries, the core challenge of business has remained the same: how do people with different roles, asymmetric information, and different interests collaborate for a common goal? The answer is almost always some kind of organizational innovation — a new structure that distributes risk, rewards, and responsibilities in a way that previous generations couldn't. Business history is also a history of collaboration.
The corporate system is the latest great organizational leap forward. It was created for the industrial age to specifically solve (and utilize) the collaboration problems of that era. But software and native Internet protocols are cutting back on the once-inevitable expenses of traditional enterprises — multiple layers of centralized management, bloated bureaucracy, and intermediation.
The current legal structure was not designed for this new world. Currently, the only one that is becoming a strong contender for the next organizational leap forward is DUNA — a relatively new entity and the only legal entity that is clearly recognized in the once-in-a-generation market structure legislation currently being promoted by the US Congress. It's arguably the only structure actually built for Internet-native organizations.
To understand why new forms of organization are emerging today, it is necessary to first think back to what problems the corporate system actually solved — and where we are headed.
How can traders manage risk
Before the company appeared, business was a private matter: imagine Marco Polo trading long distances with his father and uncle. With this kind of family business, they really risked their lives. If a contract goes wrong, personal property may be completely erased — or even lives not protected.
A merchant's adventure mainly relies on two types of protection, but neither is guaranteed. The first type is geopolitics: the relative peace brought about by the Mongolian Empire's “Mongol rule”. If you offend someone Mongolian likes, then you're in trouble. The second type is social: if you deceive someone, break a contract and lose trust, and violate the “Merchant Law” (Lex Mercatoria, a self-enforced code of honor for merchants, circa 1100—1600 AD), your reputation will be ruined, and you will be blacklisted in trade circles from Quanzhou to Timbuktu.
In the absence of a strong system, a word from a merchant is really worth more than gold. The Polo family is pretty relaxed because they are related by blood. Many other business partnerships haven't worked out that well.
In the absence of a strong system, a word from a merchant is really worth more than gold.
One of the major problems that businesses have faced for a long time is the tension between clients and agents; here, it is the relationship between investors and merchants. The medieval “commenda” (commenda) was an innovation that provided limited liability protection: investors only bear losses within their contribution amount, and merchants theoretically did the same. The partners distribute profits in proportion to the initial investment. Commenta was formed spontaneously and predates any formal regulations. However, every business still needs only a little bit of turbulence and may collapse. Nor can this model be scaled up: Kang Mengda disbanded at the end of a voyage, went bankrupt, or died.
Further innovation is the Florentine “compagnia” (compagnia) — think Medici Bank. This form is a more enduring and operationally complex legal entity than Commodore. The company can maintain long-term commercial relationships with multiple parties, but it is still based on the individual responsibilities of all partners. It was the most advanced pre-corporate tool in medieval history — the peak of medieval partnerships — yet it still exposed partners to risk. Churches and universities have long enjoyed legal personality derived from the Roman concept of “universitas” (treating groups as a single legal entity), yet commercial enterprises have always lacked a completely independent legal identity.
These flaws were not addressed until the 17th century, when early modern Europe invented something new. This innovation and its legal protections make it easier for companies to raise capital, distribute ownership through stock offerings, and protect owners from liability — that's the company. These companies were most famously granted powers to the Dutch East India Company (VOC: Vereenigde Oostindische Compagnie), as a revelation that quickly spread to the rest of Europe once people realized how good an idea the company was. (Although the British East India Company was founded a few years earlier than VOC, its system is far less mature than VOC; it only raises capital for specific voyages, and has no public offering mechanism.)
By reducing operating risks and reducing coordination costs, corporate systems make large-scale, capital-intensive enterprises possible — and created more than half of the modern world.
The cost of scale
While the company solved a series of real problems, it also brought new ones. Its first achievement was to make participants care about each other's results: by binding shareholders, directors, and captains to the same legal entity and the same profit line, the company forces all parties to internalize costs that could have been unscrupulously passed on to others. But shared interests do not equal completely consistent incentives.
In the case of VOC, the legal form is familiar yet complex: shareholders include many Dutch citizens who want a return on their investment, but they are too busy with their lives to take into account VOC's day-to-day operations or macro-strategies. The board of directors “Heeren XVII” (Heeren XVII) is responsible for planning how to make money for everyone. Skippers and businessmen on the frontline in Southeast Asia need limited information and resources to make the best decisions for the company right now.
In theory, that's the case. In reality, the interests of these three parties are not entirely consistent; one party can gain more for itself at the expense of the other party's interests.
Common interests do not equal completely consistent incentives.
How to ensure that the captains do not loot other ships or abscond while far from the supervision and control of 17 gentlemen? Preventing merchants from accepting bribes or making bigger deals for themselves privately? Ensuring the Board makes the right decisions? What if you're a group of shareholders who also believe in Protestant values and are unhappy with VOC's sometimes predatory behavior? These problems have spawned various innovations in incentive design — options, dividends, auditing, supervision, and even so-called efficiency wages — and new legal protection mechanisms to ensure fair competition by the state. Of course, this has spawned countless abuses of power.
However! The corporate system that has evolved over time remains our best tool to coordinate incentives, reduce collaboration costs, generate profits, and protect all participants.
Shortly after the founding of the United States, corporate forms were recognized through special legislative mandates, but they were initially extremely rare. America's First Bank, chartered by Congress in 1791, is the earliest and most famous case. New York introduced its first ordinary company law in 1811. By the mid-19th century, more states allowed companies to be incorporated without special legislation, and the concept of “limited liability” was gradually standardized across states. Then, during a wave of industrialization in the late 19th century, the number of companies exploded, eventually becoming the landmark achievement of the Delaware General Corporation Act of 1899.
Cooperatives are another option that emerged in the 19th century. They have explored an alternative coordination scheme: member ownership and democratic governance. Farmers, consumers, workers, and credit unions use cooperatives to tie participants' interests more directly to the organization itself. Cooperatives have been successful in some fields, such as agriculture (such as Land O'Lakes), but are still generally more specialized. At the same time, corporate forms are becoming increasingly popular.
Another option is a limited liability company, or LLC. Although LLCs had earlier predecessors such as German GmbH or British Ltd. (Ltd.), LLCs themselves appeared quite late: Wyoming didn't enact them into law until 1977. Prior to that, the company provided limited liability, but the structure was rigid and faced double taxation, while the partnership system was flexible, left participants at personal risk. LLC's take the best of both — limited liability plus penetrating tax processing — making it more suitable for all types of small businesses. Today, it's the default form for many startups, small businesses, and investment vehicles.
Since then, there have been a series of minor variants: limited liability partnerships (LLP, 1991), low profit limited liability companies (L3C, 2008), public service companies (2010), etc. These are all certainly useful, refining the corporate form for specific uses. But every once in a while, technology changes the boundaries of what is possible, giving birth to new forms that can be called revolutionary in comparison.
DAOs and their dilemmas
Decentralization is such a revolutionary idea: large groups can coordinate without centralized management or trusted intermediaries.
Before the advent of the field of cryptography — especially before Satoshi Nakamoto invented blockchain — this possibility was more philosophical than realistic. One of the first great innovations in crypto was DAO, or decentralized autonomous organization. A DAO is an organization governed by software coding rules and managed collectively by participants rather than by a central authority. There is no centralized management team or board of directors, and no seventeen gentlemen.
But decentralized governance is difficult. Getting token holders to vote on important issues has proven to be more difficult than getting individual shareholders to vote for board members — the latter's turnout was already unbearably low, on par with the US municipal elections. Ensuring that power isn't concentrated in the hands of a few token holders is also challenging.
These challenges have been further exacerbated by the legal environment in recent years. Unfortunately, the previous administration's US Securities and Exchange Commission refused to provide clear rules for crypto projects while at the same time weaponizing this vagueness through aggressive enforcement actions against the industry. Entrepreneurship is difficult to grow in uncertainty; even when the rules are clear, running a business is difficult enough.
Entrepreneurship is difficult to grow in uncertainty; even when the rules are clear, running a business is difficult enough.
At the heart of the legality issue is one of the three criteria of the so-called “Howey Test” — used by the SEC to determine whether an instrument constitutes a security: (1) financial investment; (2) joint enterprise; and (3) profit comes entirely from the efforts of others. For listed companies, “the efforts of others” include the management of the operating company. For crypto projects and their DAOs, the SEC believes that continued development of the protocol — even done by a group of unrelated people who may or may not hold the token — will subject the relevant tokens to securities laws, making widespread participation and on-chain transactions impossible.
Equally important, since DAOs are not officially recognized by the country, project owners cannot receive any of the protections described above, such as limited liability. In other words, DAO members may face unlimited personal liability, which brings crypto governance almost back to medieval levels from a legal perspective.
As a result, the crypto project acted on the lawyer's opinion. They set up foundations overseas as independent entities to oversee the ongoing development of agreements to cut ties between those jobs and US business. Or set up an operating entity directly outside the US. Both “solutions” hurt America's ability to innovate, as well as American jobs and taxes.
Overseas crypto foundations, to put it bluntly, are twists and turns. These alternatives, created by lawyers, transfer power and ongoing development work to an “independent” entity in the hope of circumventing securities regulation. This strategy is justifiable in an age of regulatory hostility, but it also reveals deep flaws: foundations have weak incentive coordination mechanisms, limited ability to drive growth, and inevitably tend to consolidate centralized control.
But when the project is sandwiched between “being sued by the SEC” and “building a strange organizational structure that creates a misalignment of incentives,” what options do they have?
That's why DUNA — a decentralized unincorporated non-profit association — is so important. It draws on the long history of business structures and governance design, and pursues the common goal of all companies: to efficiently coordinate people around a common purpose. However, it is implemented in a way that does not rely on centralized management control, thereby reducing proxy problems and information asymmetries common in traditional companies. Because of this, DUNA deviates from one of the core assumptions of Howey's test: participants rely on the management efforts of others to create value. ³
groups have acquired their own form of law
Before the advent of DUNA, there were only three options for organizing and governing crypto projects: DAOs lacked legal recognition, and members faced potentially devastating liability risks; traditional corporate entities forced projects into an inappropriate hierarchy and faced regulatory action by the SEC; and offshore foundations were extremely cumbersome at the legal and practical levels, pushing the industry overseas in large numbers.
Until recently, there was no clear way for a group of users to govern a decentralized network while enjoying part of the company's protection—a form of organization that blockchain technology has only just made possible. It's there now.
Simply put, DUNA turns a group of people into a legal entity. Currently, three states — Alabama, West Virginia, and Wyoming — have passed laws authorizing this new commercial structure. It combines the legal advantages of existing forms of organization with the ability to decentralize control. It is very different from traditional companies, and it is something that no entity has actually achieved before.
Simply put, DUNA turns a group of people into a legal entity.
What specific protections does DUNA provide? Its powers include legal personality, limited liability, continued existence, and state government approval — these are also central elements of how modern companies operate. Recognition of the “legal personality” of a group allows entities to enter into contracts on behalf of participants; limited liability ensures that members are not personally liable for organizational obligations. Together, these characteristics enable large, loosely connected groups of people to collaborate — raise capital, hold assets, hire managers, pay taxes, and close deals — without putting members at excessive risk or exposure to destructive responsibilities.
Organizational forms don't take root overnight; they slowly spread as states compete, lawyers become familiar, and entrepreneurs begin to trust them. Before Delaware became the preferred location for company registration, New Jersey was the dominant state; Today, Texas and Nevada are catching up. LLCs were initially approved in Wyoming, and after tax treatment methods were clarified, they were extended to 50 states across the United States by 1997. As for DUNA, Wyoming once again acted as a pioneer, legislating it in March 2024. Crypto protocols and communities, including Uniswap Governance and Nouns DAO, have pioneered adoption.
Just as the corporate system gave large-scale enterprises their first native form, DUNA is giving open, internet-scale decentralized networks their own form of law.
A New Era of Organizational Design
Think of DUNA as a legal shell that allows the decentralized network's governance mechanism to conduct business without introducing traditional centralized management. It is based on an unincorporated non-profit association (UNA) — a legal framework that has been adopted by 17 states and Washington, D.C., to help groups such as owners' councils, civic associations, leisure and sports leagues, religious congregations, and interest clubs organize according to law. UNA provides lightweight governance without the heavy structure of a company or LLC, allowing these groups to hold property, sign contracts, and file lawsuits (or be sued) in the name of an entity. 305
Just as the corporate system has not replaced all partnerships, DUNA will not replace everything that has existed before.
DUNA is similar: it allows a group of token holders or contributors to govern through on-chain rules or token-based voting without depending on a board or management team. Members enjoy limited liability protection, which separates physical obligations from personal assets; organizations can also be understood and interacted with courts, regulators, and counterparties.
But DUNA doesn't solve all problems. It doesn't eliminate governance challenges, doesn't guarantee decentralization (although DAOs must have at least 100 active members to qualify for DUNA), and can't magically bypass securities laws. What it really does is fill a specific gap: make decentralized organizations legally recognized organizations.
From informal merchant networks, to partnerships, to companies, to LLCs, to today's DAOs, every new organizational technology comes as people need new coordination models. DUNA may mark the beginning of a new era in the evolution of organizational design. But just as the corporate system has not replaced all partnerships, DUNA will not replace everything that has existed before. It just expands the options menu. And for the first time, it allows decentralized networks to be represented by fully identifiable legal entities.
For most of human history, large organizations — even small ones — meant taking huge personal risks. Bold entrepreneurs like the Polo family rely on family, reputation, and weak practices to keep everything together, and could be destroyed by a shipwreck at any moment. The corporate system changed this formula, separating the fate of starting a business from the fate of the people behind it. DUNA extends this separation to a new field: community governance for blockchain-based decentralized networks.
Now, even a group of strangers loosely organized on the internet can act as a single entity — sign agreements, hold assets, take risks — without any of the participants betting on their own livelihoods. In this sense, it's a new answer to one of the oldest questions in commercial history.
Acknowledgements: Thanks to Aiden Slavin, Alejandro Flores, Miles Jennings, Scott Duke Kominers, Sonal Chokshi, and Steph Zinn for their valuable comments and suggestions for revisions. If there are any errors in the article, the author is solely responsible for it.
Cooperatives seem to fit in spirit with native internet organizations like DAOs, but cooperatives presuppose a relatively stable and identifiable set of member groups and hierarchical leadership structures, and many decentralized networks do not have these conditions.
Interestingly, another major US contribution — corporate bankruptcy laws — hasn't been widely promoted globally for quite some time. This set of laws codifies the idea that “one can take risks, fail, reorganize, and try again”, and is an engine of America's vitality.
Wyoming tried to solve this problem in 2021 by allowing DAOs to organize in the form of LLCs. However, the LLC still assumes a clear list of members, K-1 tax returns, and for-profit purposes. While it's suitable for some small investment clubs, it's awkward for a network driven by a non-profit mission, with no permission, and anonymous members, and of little help in solving the Howey question — whether members' rights themselves constitute securities.
In other words, it wasn't until then-New Jersey Governor Woodrow Wilson cracked down on the state's business-friendly registration laws that he inadvertently helped Delaware.
On the surface, trusts may seem like natural carriers for decentralized groups, but in reality, they are not suitable. Trusts are designed around identifiable relationships between trustees and beneficiaries, and are an awkward choice for organizations that deliberately pursue decentralized governance.
Incidentally, Marco Polo once commanded a Venetian battleship in a war between rival trade powers, and was later captured and imprisoned in a Genoese prison. It was in prison that he dictated that famous travel story.
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