Wyoming now offers two distinct legal wrappers for decentralized projects, and founders keep conflating them. The DAO LLC, created in 2021, and the DUNA (Decentralized Unincorporated Nonprofit Association), effective July 1, 2024, solve different problems. Picking the wrong one affects your tax obligations, your governance model, and your token holders’ personal liability.
Part of our guide: Wyoming Crypto LLC.
The DAO LLC: built for the business layer
The Wyoming DAO LLC is a standard limited liability company modified to recognize blockchain-based governance. It’s best suited to dev shops, centralized service providers, and investment clubs: projects that operate like a business rather than public infrastructure.
Like any LLC, it’s a pass-through entity by default, meaning profits flow through to members and get taxed at the individual level. That works fine with a small, known group of owners. It breaks down at scale: a DAO LLC with 10,000 governance token holders would theoretically need to issue a Schedule K-1 to every single one of them. For a permissionless protocol with pseudonymous participants, that’s both administratively impossible and a privacy problem. Use the DAO LLC for the entity building the frontend application or generating revenue for a known cap table, not for the protocol itself.
The DUNA: built for the protocol layer
The DUNA was purpose-built to solve that scaling problem. It’s a nonprofit entity, which doesn’t mean it can’t generate revenue, it can collect protocol fees like any business, but those profits have to serve the common purpose of the DAO (development, ecosystem grants) rather than get distributed as dividends to members.
Unlike an LLC, a DUNA doesn’t require a board of directors or officers. The statute explicitly allows the administration of the entity to remain decentralized, with smart contracts standing in as a form of governance. That preserves the thing that makes a DAO a DAO, without leaving it as an unstructured, liability-exposed collection of anonymous wallets.
Solving the K-1 problem through tax election
Because a DUNA is a legal entity, it can elect to be taxed as a corporation. That’s the mechanism that makes it work for large protocols: the DUNA pays tax on its own revenue and acts as a blocker, so tax liability never passes through to individual token holders. No K-1s, no need to KYC 10,000 anonymous wallet addresses. The community stays pseudonymous while the entity handles compliance at the entity level.
Liability: the DUNA versus the default outcome
The obvious question is why bother forming any entity at all. The answer sits in a body of case law that predates the DUNA. Court rulings, most notably in the Ooki DAO case, have treated DAOs with no legal wrapper as general partnerships. In a general partnership, every partner, meaning every token holder, acts as an agent for the others, and if the DAO is sued, individual holders can be personally liable for the entire judgment.
The DUNA statute grants its members limited liability. If the entity is sued, the treasury is at risk, but personal assets like homes and savings are protected, the same basic protection an LLC gives its members, extended to a governance structure that doesn’t require centralized management.
Which one fits your project
If you’re building a proprietary application meant to generate returns for a defined group of owners, form a DAO LLC. If you’re launching a decentralized protocol meant to function as public infrastructure, governed by a broad and often pseudonymous community, the DUNA is the structure that offers liability protection and tax compliance without forcing you to sacrifice decentralization. Consult the IRS guidance on digital assets and a qualified attorney before you file either.
Educational only, not tax, legal, or investment advice. Check primary sources and speak with a qualified professional before making financial decisions.
