DUNA Legal Entity Solves DAO Liability Crisis in Three US States

Woofun AI reports that the emergence of DUNA (Decentralized Unincorporated Nonprofit Association) represents a pivotal shift in organizational structure, addressing the governance crisis inherent in decentralized autonomous organizations. Authored by Tim Sullivan and Robert Hackett of Andreessen Horowitz and compiled by Chopper for Foresight News, the analysis posits that this new legal entity resolves the historical tension between collaborative efficiency and risk isolation. For centuries, the core challenge of business has been aligning individuals with divergent interests and information asymmetries toward a common goal.

The solution has consistently relied on organizational innovation, creating structures to allocate risks and rewards in previously impossible ways. The history of business is essentially the evolution of human collaboration mechanisms. Corporations emerged from the Industrial Age to manage the complexities of industrialization, but software and native internet protocols are now drastically reducing the management costs associated with centralized hierarchies, bloated bureaucracies, and intermediary institutions. The existing legal framework was not designed for this new reality.

DUNA emerges as the only legal entity explicitly recognized by new-generation market legislation, with relevant bills advancing in Congress. It serves as a legal framework specifically engineered for internet-native organizations, promising to trigger another round of organizational transformation. To understand the necessity of this evolution, one must examine the problems corporations originally solved and the trajectory of future human organization.

Before the advent of the corporation, business operations were perilously dependent on individual actors, exposing participants to existential risks. Consider the journey of Marco Polo, who traveled with his father and uncle on long trade routes. Such family-based enterprises often involved risking one’s life, as broken contracts could lead to the total loss of personal wealth or even death. Merchants relied on two layers of protection for overseas trade, neither of which possessed mandatory legal force. The first layer depended on geopolitical order: the relatively peaceful 'Mongol Pax' under the Mongol Empire.

Those who offended merchants protected by the Mongols faced brutal retaliation, providing a deterrent through state power. The second layer relied on social credit. If an individual cheated partners or breached contracts, violating medieval merchant laws known as Lex Mercatoria—the private commercial standards in use from 1100 to 1600—their reputation would be irreparably damaged. The entire trading network, stretching from Quanzhou to Timbuktu, would exclude them. In an era lacking mature legal systems, a merchant’s verbal promise held more value than gold. The Polo family benefited from blood relationships, which provided a natural trust mechanism.

However, many other business partnerships faced significant uncertainty. One of the most thorny issues for early enterprises was the conflict between principals and agents, or more precisely, between investors and merchants. This dynamic created a fundamental misalignment of incentives that threatened the stability of trade.

To mitigate these risks, the commenda contract emerged in the Middle Ages, introducing the concept of limited liability for the first time. Under this arrangement, investors could lose only their initial capital, and theoretically, business operators faced similar caps on liability. The two parties shared profits according to their investment ratios. The commenda contract arose spontaneously, long before written laws codified such protections.

However, this business model exhibited extremely weak risk resistance; a single external shock could lead to its collapse, and it was difficult to scale. Once a voyage ended, bankruptcy occurred, or one party passed away, the partnership would terminate. This fragility limited the scope of commercial activity. Later, partnership firms known as compagnia appeared in Florence, with the Medici Bank serving as a typical example. Compared to the commenda contract, the compagnia was a more sustainable legal entity with a more complete operational system, capable of supporting long-term cooperation among multiple parties.

Yet, all partners still bore unlimited personal joint liability. This was the most advanced business organization model before the emergence of corporations, representing the peak of medieval partnership systems. Despite its sophistication, participants remained exposed to huge risks. Churches and universities had independent legal status based on the ancient Roman concept of 'corporate bodies' long ago, while business entities struggled to obtain independent legal identities. These systemic shortcomings persisted until the 17th century, when modern Europe developed a new institutional design.

Woofun AI data shows that the 17th century marked the rise of the corporation, a legal structure that allowed business projects to raise capital more easily through legal protection, split ownership by issuing shares, and isolate the personal risks of owners. The Dutch East India Company was the first iconic enterprise to receive legal approval as a corporation. Once implemented, this model demonstrated great value and spread rapidly across Europe.

Although the British East India Company was established slightly earlier, its institutional maturity was lower, allowing it to raise funds only for a single voyage without a public equity financing mechanism. The Dutch model, by contrast, enabled continuous capital accumulation and risk distribution. Corporations reduced business risks and collaboration costs, making large-scale capital-intensive projects possible. Many achievements in the modern world are built on this foundation.

The corporation tied the interests of all participants together: shareholders, directors, and project operators belonged to the same legal entity with a unified business goal, forcing everyone to bear costs that could otherwise be shifted to others. This alignment of interests was a breakthrough, but it did not eliminate conflict. Having tied interests did not mean they had identical demands, leading to new forms of internal friction.

The scaling of corporations introduced significant principal-agent conflicts. Take the Dutch East India Company as an example. Many ordinary Dutch people invested as shareholders seeking returns but had no time to participate in daily operations or long-term strategy formulation. A board of seventeen members was responsible for formulating profit plans, while ship captains and traders in Southeast Asia could only make decisions based on limited information and resources. In theory, this structure ensured oversight.

But in reality, the interests of these three groups were not entirely aligned, with differences arising because one group could seek more benefits at the expense of others. How to ensure that captains far away, outside the board’s supervision, would not plunder ships or keep loot for themselves? How to prevent traders from accepting bribes or entering into self-serving deals? How to guarantee that the board made reasonable decisions? And how should some Protestant shareholders view the company’s predatory business practices?

A series of practical problems drove innovation in incentive mechanisms. Bonuses, profit sharing, audits, supervision systems, and even efficiency wages emerged, and countries enacted laws to ensure fair trade. At the same time, various forms of abuse of power kept appearing. Despite these challenges, after long-term evolution, corporations remain the best option for coordinating stakeholders’ demands, reducing collaboration costs, generating profits, and protecting participants. The historical trajectory of corporate law in the United States reflects this ongoing adaptation.

In the early days of the United States, companies needed special legislative approval to be established, and their numbers were very small. The First Bank of the United States, established by congressional approval in 1791, is the most well-known example. New York State passed the first general company registration law in the U.S. in 1811. By the mid-19th century, more states relaxed their requirements for approval, and rules for limited liability gradually became standardized.

The Industrial Revolution at the end of the 19th century gave rise to numerous enterprises, and the Delaware General Corporation Law was enacted in 1899, becoming an industry benchmark. Cooperatives were another option that emerged in the 19th century. They offered another collaboration model: shared ownership and democratic governance. Farmers, consumers, workers, and credit cooperatives used this model to deeply tie participants’ interests to the organization’s goals.

Cooperatives achieved success in specific fields such as agriculture, but their applicable scenarios were relatively limited, and corporations continued to gain popularity. Limited liability companies (LLC) were another important innovation. Models such as German GmbHs and British Ltd.s preceded them, but modern LLCs were established much later than generally believed: Wyoming officially legislated them in 1977. Before that, corporations had limited liability but had rigid structures and double taxation; partnerships were flexible but involved unlimited risks for participants.

LLCs combined the advantages of both: they offered limited liability along with a transparent tax system, suitable for various small and medium-sized projects. Today, they have become the mainstream choice for startups, small businesses, and various investment tools. Subsequent variations followed: limited liability partnerships (LLP) in 1991, low-profit limited liability companies (L3C) in 2008, and benefit corporations in 2010, among others. These institutional optimizations were very practical, adapting corporate structures to specific scenarios.

But whenever technology redefined the possibilities, revolutionary new organizational forms emerged.

Decentralization is such a revolutionary concept—it allows large groups of strangers to collaborate without a centralized management team or trusted intermediaries. Before the crypto industry emerged, especially before Satoshi Nakamoto invented blockchain, decentralized collaboration remained mostly theoretical. One of the earliest major innovations in the crypto field was the DAO (Decentralized Autonomous Organization). DAOs operate based on code rules, managed collectively by all participants.

There is no centralized management team or board of directors, nor a core decision-making layer like the 'board of seventeen' in the Dutch East India Company. But implementing decentralized governance is extremely difficult. Getting token holders to vote on major matters is far harder than mobilizing shareholders of listed companies to elect directors. The voting rate at traditional company shareholder meetings is already low, comparable to U.S. municipal elections; the problem of voting participation in DAOs is even more severe.

At the same time, how to prevent power from concentrating in the hands of a few large token holders remains unresolved. In recent years, the regulatory environment has further exacerbated these problems. Under the previous U.S. administration, the SEC failed to issue clear rules for the crypto industry and instead took aggressive enforcement actions by exploiting legal ambiguities. Innovation struggles to take root in an environment of uncertainty, and unclear rules themselves hinder business development.

The core of legal disputes stems from the SEC’s Howey Test, three criteria used to determine whether an asset is a security: 1. Investment of money; 2. Participation in a common enterprise; 3. Profits depending entirely on the efforts of others. In the context of listed companies, 'the efforts of others' refer to the company’s management operating the firm. For crypto projects and DAOs, the SEC believes that even if protocol development is done by many unrelated people who may not hold tokens, the relevant tokens still meet the definition of securities.

This means that large-scale community participation and on-chain transactions will face compliance obstacles. Equally important is that DAOs have long lacked official legal recognition. Project participants cannot enjoy limited liability protection. In simple terms, DAO members may bear unlimited personal joint liability. From a legal perspective, the governance model of crypto communities has almost reverted to the risk level of medieval business partnerships.

Forced by reality, crypto projects can only follow lawyers’ advice: establish offshore foundations as independent entities to handle ongoing protocol development, cutting off the connection between development work and domestic U.S. operations; or establish entities outside the U.S. outright. Both approaches harm local innovation, employment, and taxation in the U.S. Frankly, the structure of offshore crypto foundations is extremely complicated. These workaround solutions designed by lawyers transfer operational authority to offshore 'independent entities' in an attempt to avoid securities regulation.

In a hostile regulatory environment, such choices are understandable, but they have significant drawbacks: it is difficult to coordinate interests within the foundation, its ability to drive ecosystem growth is limited, and centralized control is likely to solidify. Faced with the risk of SEC lawsuits on one hand and having to build flawed unconventional organizational structures on the other, crypto projects were once in a dilemma. This is exactly where DUNA (Decentralized Unincorporated Nonprofit Association) comes in.

It draws on the experience of various business organizations and governance structures over hundreds of years to achieve the common goal of all business organizations: efficiently coordinating people to work toward a common goal. At the same time, it frees itself from the constraints of centralized management, alleviating the common principal-agent conflicts and information asymmetries in traditional enterprises. With this mechanism, DUNA breaks away from the core premise of the Howey Test: participants no longer rely solely on the operational efforts of third-party management to create value.

Before DUNA was implemented, crypto community organizations had only three options: DAOs, which lack legal status and expose members to high joint liability risks; traditional legal entities, which force projects to adopt hierarchical structures and are prone to SEC regulatory actions; and offshore foundations, whose legal structure and actual operations are complex, driving the industry overseas. For a long time, there was no mature solution that allowed large-scale community governance of decentralized networks—new collaboration models born from blockchain technology—to enjoy the same legal protection as enterprises.

Now, DUNA fills this gap. Simply put, DUNA gives loose network communities legal person status. Currently, three U.S. states—Alabama, West Virginia, and Wyoming—have legislated to recognize this new type of organization. It combines the advantages of existing legal entities while supporting decentralized governance, differing completely from traditional corporations and representing a model that no previous organizational form could achieve. What specific legal protections does DUNA offer?

It includes legal person status, limited liability, perpetual existence, and official legal recognition—covering all the core advantages of modern enterprises. The legally recognized legal status allows the organization to sign contracts on behalf of all members, while limited liability isolates the organization’s debts from members’ personal assets. With these foundational elements, large-scale loose communities can collaborate: raising funds, holding assets, hiring operational staff, paying taxes legally, and engaging in business partnerships, without participants having to bear devastating personal risks.

This new type of organizational form will not become widespread overnight. As states compete to pass legislation, lawyers become familiar with relevant regulations, and entrepreneurs gradually build trust, the system will continue to spread. Before Delaware became the preferred place for company registration, New Jersey held the lead; now, Texas and Nevada are seeing rising registration numbers. LLCs were established in Wyoming in 1977, and after clear tax rules were set, all 50 states recognized them by 1997.

DUNA also originated in Wyoming, with official legislation passed in March 2024. Well-known crypto protocols and communities such as Uniswap’s governance community and Nouns DAO have already started using the DUNA framework. Just as corporations provide a native legal framework for large-scale business activities, DUNA creates a dedicated legal identity for decentralized networks open to the entire internet.

Think of DUNA as a legal shell: it enables decentralized network governance mechanisms to carry out business activities without the need for a traditional centralized management team. It evolved from the UNA (Unincorporated Nonprofit Association). Seventeen U.S. states and Washington D.C. recognize this legal entity, which serves homeowners’ associations, civic groups, sports leagues, religious organizations, and interest communities. UNA features lightweight governance, eliminating the high operational costs of corporations and LLCs, and it can hold assets, sign contracts, and file lawsuits or respond to lawsuits in its own name.

DUNA operates on a similar logic: token holders and ecosystem contributors carry out governance through on-chain rules and token voting, without relying on a board of directors or management team. Members enjoy limited liability protection, with organizational debts isolated from personal assets; at the same time, the organization can be recognized and connected by courts, regulators, and partners. Of course, DUNA is not a panacea. It cannot eradicate governance problems, guarantee that an organization will remain decentralized (although a DAO applying to register as DUNA needs at least 100 active members), nor bypass securities-related regulations directly.

Its true value lies in filling institutional gaps and giving decentralized organizations a complete legal identity. From informal merchant networks, partnerships, corporations, LLCs, to DAOs, whenever humanity needs a new collaboration model, a new generation of organizational systems emerges. DUNA may mark a new stage in the evolution of organizational structures. But just as corporations did not completely replace partnerships, DUNA will not eliminate all previous organizational forms either; it simply expands the toolbox of organizational tools available to humanity.

For the first time, humanity has the opportunity to give decentralized networks a clear, complete, and legally valid identity. For most of human history, large-scale or even small-scale collaboration meant huge personal risks. Brave entrepreneurs like Marco Polo relied on blood relations, reputation, and fragile informal rules to sustain their businesses, and a single shipwreck could lead to total bankruptcy. Corporations reshaped the way risks were calculated, separating the success or failure of projects from the founders’ personal wealth.

DUNA extends this risk isolation mechanism to a new realm: decentralized networks governed autonomously by the community based on blockchain. Now, a group of strangers on the internet with a loose organization can act as a unified legal entity: signing agreements, holding assets, bearing business risks, without any participant having to risk everything on the success or failure of the project. From this perspective, DUNA offers a new solution to the oldest problem in business.