Alabama has become the second U.S. state to formally recognize decentralized autonomous organizations (DAOs), signaling a growing effort to bring blockchain-based groups into the legal mainstream.
The change will come about through the Decentralized Unincorporated Nonprofit Association (DUNA) Act, which was proposed in February by Republican Senator Lance Bell. The legislation, which has garnered considerable backing from legislators, cleared the assembly with a vote of 82-7, alongside 16 abstentions, on March 17th. Governor Kay Ivey has since affixed her signature to the bill, making it law.
The new law provides something that has been lacking in DAOs for some time: much-needed clarity. It does this by recognizing them as legitimate entities, thus allowing members of the DAO to benefit from limited liability protections.
This is important because, traditionally, DAOs have functioned in code and voting within the community, rather than a more conventional management style.
This move also reflects the growth and expansion of the DAO system. Today, there are more than 13,000 DAOs in the world, and they manage assets worth over $24.5 billion. So, in a way, the state of Alabama, by undertaking this move, is opening its doors to blockchain technology and innovations, and regulators, businesses, and the judicial system will be able to understand the role and place of such organizations in the existing framework.
The DUNA Act
The proposed Decentralized Unincorporated Nonprofit Association (DUNA) Act, filed in February by Republican Senator Lance Bell, is a significant milestone in the development of a framework for decentralized autonomous organizations (DAOs).
The bill has advanced rapidly in the Alabama legislature, passing overwhelmingly with a vote of 82-7, with 16 abstentions, on March 17. It has since been signed into law by Governor Kay Ivey, providing official recognition for qualified DAOs and providing members of these organizations some protection from liability.
The essence of the bill is to solve a longstanding problem in the cryptocurrency world, which is how decentralized organizations fit into the traditional framework.
DAOs are organizations that control funds, projects, and make collective decisions through voting mechanisms provided by blockchain technology. Despite this, they have operated without official recognition as legal entities. Currently, according to CoinLaw, there are over 13,000 active DAOs worldwide, with a combined asset value of over $24.5 billion.
This new law will enable qualified DAOs to become full legal entities. This means that the DAO will be able to own property, contract with someone, or even sue someone in court.
But perhaps just as significant is the protection afforded the members of the organization from liability in case of issues or debts incurred in relation to the organization, similar to the protection afforded members of regular corporations and non-profit organizations.
Not all blockchain-based organizations will qualify, however. To qualify, there are certain requirements set by the law. For example, a qualified DAO will have at least 100 members working towards a unified nonprofit goal, such as controlling a blockchain protocol or a smart contract system.
The decentralized nature of the organization can be emphasized by executing internal processes, including proposals, voting, and consensus mechanisms, directly on a blockchain.
Is this shift advantageous?
The proponents of the legislation believe that it will instill confidence in the developers and communities, allowing them to develop and expand their projects within a defined framework.
As federal-level crypto market structure regulations are being developed, this kind of initiative is now being seen as a bridge in connecting decentralized technology with conventional laws.
Wyoming was the first to introduce this type of DAO recognition back in 2024, making Wyoming the first to blaze the trail and provide decentralized organizations with a formal legal status through the DUNA framework. Wyoming was thus an early adopter of crypto-friendly legislation to aid blockchain-based innovations.
However, other states have now begun to follow Wyoming’s lead. This month, lawmakers introduced a bill to provide DUNA status to DAOs through a bill introduced by Representative Tristan Leavitt.
This bill has already passed through the legislature and is now awaiting the governor’s approval. Should it pass, West Virginia will join the ranks of states actively establishing defined legal pathways for decentralized autonomous organizations to function and grow.