DAO Graphic

Tennessee, a state typically behind the curve when it comes to forward-thinking legislation, is ahead for once. Today, Tennessee became the second state to pass legislation — HB2645 and SB2854 — to recognize and allow LLC registration of decentralized autonomous organizations, more commonly known as DAOs (pronounced “dows”). Wyoming was the first state to pass similar legislation. DAOs are blockchain-based companies run by computer code rather than human leaders. Think of a DAO as a corporation, but instead of voting shareholders, it uses blockchain to automate decisions on behalf of its users according to a predetermined set of rules. They’re designed to allow strangers to safely, transparently and efficiently collaborate over the internet. 

State House Rep. Jason Powell (D-Nashville), the bill’s sponsor, says the newly passed legislation — which now needs only Gov. Bill Lee's signature to become law — will make “Tennessee the Delaware of DAOs.” “With this new business structure, Tennessee will be a beacon for blockchain investment, new jobs and investment,” he says. “Just as Delaware became a hub for traditional LLCs or South Dakota for credit card companies.”

Members of the business and tech communities have applauded the bipartisan bill, which passed unanimously in both the House and Senate. Ron Shultis, the director of policy and research for the Beacon Center of Tennessee, calls the legislation “groundbreaking.”

“This legislation is creating a forward-thinking regulatory environment and will signal investors and innovators that Tennessee is the place to be and invest,” says Shultis.

Mike Audi is the founder of TIKI, a tech company headquartered in downtown Nashville. He believes this legislation will add fuel to the fire of growing tech companies in Tennessee.

“Nashville is quickly becoming a hotbed for Web3 companies,” Audi says. “With supportive legislation, expect to see more of it. Founders will flock here, build here and stay here.”

Audi says many businesses, if not most, who have registered DAOs in Wyoming aren’t actually located or operating in Wyoming. For many, Wyoming is just a means of registration. But tech companies — including his own, which relocated to Nashville last year — are moving to Nashville for what they see as a business-friendly environment and budding tech ecosystem. 

“At TIKI, we're building a world where you can have both the internet and privacy,” Audi explains. “It all starts by putting power back in the hands of people.  We're excited to become one of the first legal DAOs in Tennessee.”

Derek Brown is the founder and CEO of Bunches, another Nashville-based tech company. Brown testified on behalf of the bill and echoes Audi, adding that the “landmark legislation” democratizes business. He, like Audi, says his company intends to become one of the first legal DAOs in Tennessee.

Brown says people hear words like “decentralization” and “blockchain” and get uncomfortable, largely because they don’t understand the technology — but he and other DAO supporters say they create an unparalleled level of transparency and efficiency. A DAO’s financial transactions and rules are recorded on the blockchain, which Brown explains eliminates the need to involve a third party in a financial transaction.

“No one can edit the rules without people noticing, because DAOs are transparent and public,” says Brown.

“Unlike traditional companies, DAOs  democratize an organization,” Rep. Powell tells the Scene. “All the members of a DAO need to vote for any changes to be implemented, instead of implemented changes by a sole party [depending on the company’s structure].”

Audi says that unlike traditional companies — whose governance is mostly based on executives, a board of directors or investors — DAOs’ governance is based on community. “Traditional companies’ operations are private — only the organization knows what is happening,” he says. “DAOs’ operations are fully transparent and global.”

Brown says it's important to note that DAOs and blockchain processes can also be used to automate mundane centralized processes. For example, DAO technology can manage and process subscriptions or payout quarterly, predetermined dividends that investors have already agreed upon and established rules for.

“There is no shortage of use cases for DAOs,” says Powell. “Sen. Bailey and I proposed this legislation — and ultimately it passed — because we believe that it will attract new business to our state and allow existing companies to leverage a new business structure to grow.”

This newly passed piece of legislation builds upon legislation Powell proposed in 2018 that allowed for blockchain transactions to be conducted in Tennessee.

“In 2018, we passed legislation that established technological parameters for how blockchain transactions could be conducted in Tennessee,” says Sen. Paul Bailey (R-Sparta), who sponsored the Senate bill allowing DAOs and chairs the Commerce and Labor Committee. “This legislation establishes a management structure for those systems effectively including virtual entities in Tennessee commerce. This is a bold step forward for Tennessee technology, and we are appreciative of the outcome.”

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