According to a new S-1 filing with the Securities and Exchange Commission (SEC), a Wyoming-based decentralized autonomous organization (DAO) is looking to register as a public company.
DAOs are blockchain-based leadership structures for grassroots economies. They can include secondary markets for exchanging governance tokens, which members use to express consensus on group leadership decisions.
American CryptoFed DAO LLC is one of the first DAOs to formally request SEC recognition via S-1 registration, and it bills itself as Wyoming’s first DAO. Crypto advocates have debated the best way for such decentralized organizations to be recognized by governments, and the state of New York made a significant contribution to the discussion earlier this year. In a contentious law, the state allowed DAOs to be chartered and recognized as limited liability companies by state authorities.
Though there are several paths to compliance, CryptoFed is taking Wyoming’s. Its attached exhibit designates the DAO as being based in Wyoming, and that the governance contract will be interpreted in accordance with Wyoming law, and token holders will submit to Wyoming jurisdiction.
To establish its secondary market, CryptoFed intends to use two tokens. The Ducat token will be used to price transactions, whereas the Locke token will be used to make governance decisions.
In addition to refundable Locke auctions and the sale of Ducat at a higher market price than their initial value, the group is registering to enable a secondary market for these tokens. It does, however, intend for Ducat to be a stable token pegged to the US dollar, with any proceeds from their sale at fluctuating value being returned to purchasers “in one way or another.” It is awaiting guidance from the SEC on how to calculate and pay the registration fees associated with the offerings.
To be clear, the DAO’s organizers argue that the tokens are not securities and are seeking SEC registration as utility tokens. The DAO is looking to Commissioner Hester Peirce’s most recent draft of the Token Safe Harbor proposal as a guideline for disclosures and a path to securities regulator compliance. Though the proposal has yet to be formally recognized as a path to compliance for burgeoning projects by the entire Commission, it details proposed disclosures, creates definitions for token projects, and establishes a decentralization threshold.
“Both the Locke and Ducat tokens are being registered with the SEC as utility tokens rather than securities. The registration of the tokens described in this prospectus does not imply that holders of CryptoFed or Locke tokens will offer or sell Locke or Ducat tokens. The prices at which CryptoFed or token holders may sell tokens in this offering will be determined by the tokens’ current secondary market price.”
The tokens will be distributed but restricted, unable to be traded, and non-transferable until the SEC declares CryptoFed’s Form S-1 effective. In the S-1, the DAO specifically contrasts itself with the US Federal Reserve system, claiming that its decentralized system achieves inflation control and maximum employment. It intends to use the EOS blockchain as a sister-chain to run its own CryptoFed Blockchain.
Users will be required to open accounts at participating banks in order to comply with know-your-customer, anti-money laundering, and money transmitter regulations.