• House Bill 1784 (“HB 1784")(*1) would establish decentralized autonomous organizations (“DAOs") as a specific type of limited liability company (“LLC") in Virginia, as well as an exemption under Virginia securities law for DAOs that use “primarily consumptive" tokens as part of their operations.

• A DAO is a novel type of decentralized entity that operates by blockchain with self-executing rules to manage itself following its organization.

• Four states have enacted legislation providing for the legal existence of DAOs, while legislation did not become law in four other states. Two states other than Virginia currently are considering DAO legislation.

• In states that have not passed legislation concerning DAOs, “entity-less" DAOs lack legal recognition and limitation of liability for their members. Even among states that have passed legislation, however, there is no consensus on a “best" entity type for DAOs – with the states following different approaches.

• Proponents of DAOs believe that legal recognition of DAOs in Virginia would provide economic benefit to the Commonwealth and maintain Virginia’s position as a leader in digital technologies.

• Other stakeholders believe that legislation allowing for the legal recognition of DAOs (including HB 1784) raises difficult questions which, if unaddressed, would have unintended consequences both for DAOs and existing LLCs.

• Implementation of HB 1784 and treating DAOs as LLCs is expected to require significant changes to State Corporation Commission (“SCC") systems to allow for online business entity filings.

• Additionally, other stakeholders have urged that the breadth and effectiveness of the securities law exemption for DAOs in Virginia should be considered if federal securities law does not recognize a similar exemption.
_________________________________________________
(*1)  https://lis.virginia.gov/cgi-bin/legp604.exe?ses=231&typ=bil&val=hb1784