Last week Shipyard Software incorporated the first DAO in the Marshall Islands, Admiralty LLC!
Shipyard’s DAO (decentralized autonomous organization) oversees Clipper and currently consists of a multisig wallet with several signers. This DAO, which we also call the "Admiral DAO", will be the organizational entity governing Clipper on behalf of the community, and future DEXs developed by Shipyard will also be overseen by Admiral DAO.
Why Incorporate Admiral DAO?
Governance over Admiral DAO will be gradually decentralized over time, giving the Shipyard community decision-making power over Shipyard’s DeFi products – both Clipper and beyond. The incorporation of Admiralty LLC ensures that this transition to decentralization will be recognized and protected by international law, and allows Shipyard’s DAO to capitalize on two legal benefits — limited legal liability and corporate personhood.
Instead of solely requiring courts, DAOs operate according to a set of governing rules that can be selectively or even entirely enforced by code. However, because DAO members live in the real world, they still bear liability for anything the DAO does, and any damages the DAO might be sued for. As DAOs continue to expand, DAO members have grown increasingly aware of the need for a corporate entity to limit liability. Indeed, limiting liability was the main reason corporations became popular in the 17th century.
In addition, incorporation bestows Corporate Personhood on the DAO. This is a concept dating back to early guilds (Shrenis) in ancient India, which craftsmans used to speak with one voice as a community. Today, it enables companies to survive beyond a leader’s death, own property, sign contracts, open bank accounts, employ people subject to local laws, and pay taxes as one entity instead of as thousands of members.
Why Incorporate in the Marshall Islands?
Existing laws that define legal entities have not accounted for the unique legal considerations of blockchain technology. As a result, incorporating a DAO is like fitting a round peg in a square hole.
Sure, some aspects of DAOs map neatly to existing corporate forms, such as accounting and taxes. But incorporating a DAO is less straightforward than it might seem, mostly due to administrative hurdles. For instance, most jurisdictions require bylaws to be filed with the government in a particular format, but code isn’t written on paper and blockchain code may be unalterable. Also, many legal entities are required to track membership with a ledger of names, while DAOs typically track membership with tokens. This means that even though progressive-minded jurisdictions are already racing to become leaders in the DAO market, the most widely known options only offer incomplete solutions for establishing token-holder based governance.
That’s why Shipyard looked beyond the common options — and found the Republic of the Marshall Islands (“RMI”). The country recently passed an amendment to their Nonprofit Statute that enables DAOs to incorporate as nonprofit LLCs with bylaws and membership that can be recorded on the blockchain. This clear and unambiguous solution aligns with Shipyard’s community needs and provides the most comprehensive way for DAOs to register as legal entities, thereby gaining official acceptance within the global corporate framework. Here's a detailed rundown on why Shipyard chose to incorporate in the Marshall Islands.
As the first organization to incorporate its DAO in the Marshall Islands, Shipyard is charting a new course for the DeFi sector. Expect other DAOs to follow in our wake!