Tennessee Set to Wow with DAOs


March 28, 2022 9:01AM

Federal and state legislatures across the country pass thousands of laws each and every year. And while all legislators believe that their new laws will have a positive impact on their community, in hindsight, some stand out as paradigm-changing. For example, when Congress passed the Federal-Aid Highway Act in 1956, few could imagine the interstate system we have today, and how it has made transportation and commerce easier. Another example is the Immigration and Nationality Act (1965), which ended the limitations of immigrants from specific countries, and now focuses on the education and other qualifications of immigrants, improving the quality of America’s workforce. One historian, when speaking about the Immigration and Nationality Act said, at the time, it wasn’t thought to be all that important, and it wasn’t very controversial. But few acts of Congress have ever been as consequential.” 

History has shown that states have similarly passed groundbreaking legislation. When Colorado passed Right to Try in 2014, which allowed terminally ill patients to take non-FDA-approved treatments, many states followed, with more than 40 adopting similar laws by 2018. The success of the policy led the federal government to follow suit, with Right to Try being signed into law in 2018.

Tennessee’s General Assembly is on the cusp of one of those potentially ground-breaking laws. The legislature is currently considering a law that will allow decentralized autonomous organizations or “DAOs” (like “Dow Jones”) to register as a type of LLC here in Tennessee. DAOs are blockchain-based organizations or companies that are run by computer code instead of by 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. This allows strangers to safely collaborate over the Internet. While DAOs have been around for several years, DAOs often face a lack of a welcoming liability structure. By default, DAO participants can be treated as a general partnership, putting investors at risk for a  high financial liability should the venture turn south. 

Beacon Senior Fellow Andrea O’Sullivan recently wrote how DAOs “are exciting because they can afford individuals more freedom and granularity in their financial lives. Individuals who are confident in their investment acumen and the code of a proposed DAO can directly invest without needing to pay or trust a financial institution which may be expensive or not always have customers’ best interests in mind.” 

By pioneering such a new business structure, Tennessee can be a hub for new jobs, investment, and economic growth in our state, similar to how Delaware became the hub for traditional LLCs or South Dakota for credit card companies. Even if DAOs are nothing more than an interesting experiment that fails to materialize anything substantive, creating a forward-thinking regulatory environment can signal to investors and innovators that Tennessee is the place to be and invest. And as we’ve said here at Beacon before, if Tennessee wishes to have a thriving economy in the future, it must become a tech and innovation leader today.