Written by Dennison Bertram, Tally CEO & Co-founder

Decentralized Autonomous Organizations (DAOs) have long sought to exist outside traditional legal structures under the banner of "code is law." In practice this was less a rebellion than a necessity: decentralized systems often lacked any effective recourse to courts, and code offered deterministic guarantees when law could not. For much of crypto’s early history, enforcement of legal judgments against protocols was difficult or impossible if parties could even be identified at all.

The joint-stock corporation, too, was not a market inevitability. Early thinkers assumed dispersed ownership would weaken discipline and lead to poor governance. The general partnership with its group liability was the preferred corporate structure. Adam Smith, for instance, warned in The Wealth of Nations (1776) that directors of joint-stock companies would tend to manage “other people’s money” negligently compared to partners managing their own (remind you of any DAO bashing Twitter/X posts?). The corporation endured because it was deliberately created by the state as a legal person with special powers. As John Micklethwait and Adrian Wooldridge observe in The Company: A Short History of a Revolutionary Idea (2003), the joint-stock corporation was never just a market evolution but a political creation: a state-sanctioned framework that provided liability shields and entity permanence in exchange for regulatory oversight and fiscal benefit. That history parallels the present: today’s legally enshrined, state‑chartered DAOs are following a similar trajectory toward legitimacy.

With a more receptive political climate, the state has become part of the DAO’s evolution. The idea of the DAO now collides with practical questions of legal recognition, personhood, and liability shields. Refusing to acknowledge the state does not erase it—it only invites confrontation. Increasingly, many of the most prominent DAOs are choosing state charters, a development welcomed by some and resisted by others, but clearly a new path forward for the industry.

The joint-stock corporation did not emerge from spontaneous market innovation. It was a creature of the state: a legal person chartered to carry out functions too large, too risky, or too political for ordinary partnerships. From the East India Company to the railroads, these charters were public-private bargains. In return for capital aggregation and legal personhood, the state received tax revenue, influence, and sometimes direct control.

A parallel that John Micklethwait and Adrian Wooldridge also mention is how early monarchs feared the permanence and sovereignty of monasteries and the Church: eternal institutions that evaded inheritance taxes and operated beyond sovereign reach. Modern regulators are similarly wary of DAOs, protocols and blockchain as a whole. Crypto-economic systems, like monasteries and the church, create structures that can live forever, control vast resources, and fall outside national jurisdictions. Effectively immune to state control on the digital level.

DAO’s as general partnerships is a fairly well worn discussion in the crypto space. Despite claims of decentralization, many DAOs today function legally as general partnerships or have complicated off-shore structures designed to try and wrap them in a liability shield of some sort. Without formal incorporation, every participant may be jointly and severally liable—as seen in the CFTC's case against Ooki DAO. Today, we see that the lack of legal entities also hobbles growth of decentralized organizations as they are unable to (without great difficulty or inefficiency) contract for services or enter into business relationships.

When foundingTally.xyz, one of our original pitch ideas was that we could build a world where organizations incorporated software rather than jurisdictions. As powerful as this idea is, it’s also a bit naive. Incorporation is itself a state defined status. There is no incorporation without the state, without a charter. General partnerships are the default catch all of all other kinds of organizations. This made sense in the framework of “code is law” but in practice smart contracts can’t actually intermediate everything that happens in protocols: humans still remain in the loop, and these humans, absent a state charter, are very much exposed to the state.

Legislation is catching up. The Wyoming DUNA (Decentralized Unincorporated Nonprofit Association) is not just a bill, it is law. And now, major protocols are beginning to adopt it. Most notably, Uniswap Governance has voted to establish its own DUNA entity ("DUNI"), creating a legally recognized wrapper around its on-chain protocol governance. This structure preserves decentralized decision-making while granting off-chain legal capacity to enter contracts, manage taxes, and provide liability protections for members.

This moment is historically significant. Just as the first corporate charters enabled railroads and global trading companies to scale, Uniswap’s DUNA adoption signals the normalization of state-chartered DAOs. Other frameworks, like BORGs and the federal Clarity Act, will likely follow in shaping how decentralized systems anchor themselves in law.

This is not a betrayal of decentralization but an evolution. Like the joint-stock corporation, DAOs may find power not in resisting the state, but in negotiating with it.

The state does not concede power freely. In exchange for limited liability, DAOs must make various concessions for various rewards: AML compliance, jurisdictional anchoring, identity standards. Builders must decide: are these compromises tolerable, or do they destroy the original premise?

For many the economic logic is irresistible. Stablecoins like USDC and USDT have shown that scale demands some recognition from the state. Circle's IPO and Coinbase's Base L2 illustrate a maturing ecosystem willing to engage with regulators—not to surrender, but to scale.

Today, success for many crypto projects also hinges on attracting institutional capital. Market forces themselves are pushing new products toward compliance, because institutions demand legal clarity and liability protection before committing capital. Teams are free to continue operating outside state charters in the cypherpunk spirit, but the underlying crypto‑economic forces are drawing serious projects toward state‑recognized structures. This mirrors the origins of the joint‑stock corporation: capital and scale was not possible without a state charter, and the same dynamic is now repeating with DAOs.

The early dream of "code is law" is giving way to a more complex synthesis: law encoded in contracts, enforceable both on-chain and in court (see: BORGS). Protocols may come to resemble chartered corporations with built-in governance, capital allocation, and liability protection.

This trajectory is being reinforced by capital markets. Institutional investors will not participate at scale without legal clarity, liability shields, AML compliance, and enforceable agreements. Just as the state charter made joint-stock corporations investable, state-recognized structures make DAOs investable today. The synthesis, then, is not only technical but financial: code formalizes governance, while law unlocks capital.

Rather than see this as a loss, crypto builders should recognize it as an opportunity: to reshape legal constructs using the expressive power of code. As the state moves into the room, it's not the end of the DAO—it may be its beginning.

That the industry has generally failed to agree upon a single concrete definition of what constitutes a DAO seems to suggest that the State has always been a silent participant in the process. Turns out, DAO’s are general partnerships unless chartered otherwise.

The question ahead is not whether DAOs will deal with the state, but how. The revolution isn't cancelled—it's just negotiating its terms. And just as the joint-stock corporation only unlocked its potential once capital could safely enter under a state charter, DAOs too will only achieve their full scale once institutional capital can flow through compliant, state-recognized structures.

Not every project will take this path. Just as partnerships and cooperatives coexisted alongside corporations, some DAOs will remain outside the chartered system. Despite the success of corporations, partnerships still survive. Cadwalader, Wickersham & Taft LLP a law firm founded in 1792 still endures in New York City as a partnership. Similarly many projects that seek to preserve a cypherpunk ethos: prioritizing privacy, censorship-resistance, and autonomy over access to institutional capital, will continue to exist. They may resemble historical cooperatives or mutual societies that deliberately chose smaller scale and member-centric governance over the compromises required to attract outside investment, but in doing so, they will provide a counterweight and a testing ground—reminding us that decentralization is not one thing, but a spectrum. The coexistence of chartered and unchartered DAOs will likely define the next chapter of this industry, with each path offering its own trade-offs of legitimacy, resilience, and innovation.