Idle DAO Legal Structure - FAQs


Cowrie LLC and Treasury League

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Idle DAO Legal Structure - Summary - :card_index_dividers: Proposals / :bookmark_tabs: Formal Proposals - Idle

Idle DAO Legal Structure - Governance Proposal - :card_index_dividers: Proposals / :bookmark_tabs: Formal Proposals - Idle

Legal structure for the Idle DAO - :card_index_dividers: Proposals / :bookmark_tabs: Formal Proposals - Idle

Frequently Asked Questions

This list of questions was prepared to provide further information related to the Idle Treasury League’s governance proposal to implement a US Unincorporated Nonprofit Association (“UNA”) as the Idle DAO’s entity structure. However, please feel free to post any additional questions or comments in the forums as we discuss the merits of the governance proposal.

  • Would forming as Unincorporated Nonprofit Association change the type of activity the Idle DAO could participate in going forward?

Although certain type of activity is prohibited to maintain status as an UNA, the activity prohibited would be that typically associated with a stock and avoidance of that activity would be consistent with any analysis that the governance tokens were not securities. Accordingly, the limitations on activities resulting from the UNA would be complimentary to those that already exist because of US securities law.

  • What would be the consequences of passing a governance proposal in violation of the requirements of the UNA?

If the DAO were registered as an UNA and participated in activity that was violative of the requirements established by state law for a nonprofit entity, the tax would still be owed, but the members would also need to assess the likelihood they lost liability protection, as well as the DAO’s elected federal filing status as a C Corp going forward. Additionally, the disqualifying activity would have to be evaluated as a potential violation of US securities law.

  • Why should a mostly international DAO adopt a US entity structure?

There are many benefits to adopting a US entity structure, including limited liability protections, legal existence and simplification of tax reporting issues. Additionally, by avoiding a tax haven and utilizing a US entity structure, Idle DAO would demonstrate a good faith effort to navigate regulatory uncertainty through self-regulation and risk avoidance.

  • Why were these the entities selected for further review amongst all the available options?

Regimeless DAOs are extremely common because of the historical uncertainty around available entity structures. Although remaining regimeless is untenable as a long-term strategy, that would be the result should the Idle DAO membership fail to pass a governance proposal deciding on entity structure.

The Cayman Islands Foundation structure is another popular decision amongst DAOs. Although it still carries significant risk, its use is as close to a standard entity structure as exists for the nascent field of DAOs.

The UNA presented significant advantages to most US entity structures in terms of being able to elect into taxation as a C Corp and less formalized membership requirements, while still providing legal existence and liability protection to the Idle DAO membership.

  • What would the impacts of the entity structure mean to a typical governance token holder?

It should be noted that the election to utilize a US tax entity structure only impacts the taxes for the DAO itself, not the taxes of individual token holders (the governance token holders owe taxes related the citizenship and geographic location, not the entity structure of the DAO – for US citizens, it is the exercise of dominion and control over the governance tokens). By making the DAO itself a taxable US entity, there would be greater certainty and protection for the token holders’ participation in the DAO overall, but the activities of the DAO treasury would be subject to US tax obligations.

What would implementation of the DAO involve regarding:

  • Election of Directors

The UNA does not require directors to be elected: it is truly a membership managed organization, the same as a DAO.

  • Opening a bank account

Opening a bank account will require compliance with US Customer Due Diligence rules and will require an individual from the DAO to provide identification and verification of beneficial owners. Ultimately, having an entity form will allow Idle DAO to attain a bank account.

  • Reports that have to be presented each year

Part of the implementation process for the DAO will involve determining what state to form the UNA within. The annual reporting requirements vary between states, with some having minimal registration requirement and others having none at all.

  • Recurring operations that must be managed by Idle DAO to maintain the UNA

The UNA must file estimated taxes each quarter and file an annual tax return. Additionally, depending on the jurisdictional requirements for the state ultimately selected for the UNA and developments in the application of indirect taxes DAOs – there may be an annual filing requirement and payment of state income and franchise tax.

  • Costs associated with establishing and maintaining the UNA

The primary cost associated with the UNA will be the payment of any US taxes related to Idle DAO activity (particularly the Treasury). Beyond that, the costs will be limited to utilizing a CPA to file the tax return and minimal annual registration costs depending on jurisdiction.


Hi @David_M_Kerr, thanks for your posts!

I have one question regarding UNA state registration. Do we have already a list of possible US “hosting” states? Which Pros and Cons do they have in terms of taxes, reports and overall costs?


Hi Biaf - we do indeed have a list of potential states to choose from in relation to where Idle establishes its UNA. There are still some specifics to work through with local counsel (which is why I did not include the specific states under consideration). But, attaining local counsel and finalizing the best state jurisdiction for Idle would be the very first step upon approval of the governance proposal.

High level, we do have 3 very good options for low state income tax, minimal reporting and low costs at the state level. Before an UNA entity structure is enacted around Idle DAO, there will be another governance proposal that includes the articles of organization for the UNA and a detailed explanation of the state selection and its projected costs.

Best Regards,



First of all, excellent write up on all 3 posts. Extremely informative, detailed and a very complex topic.

For myself it’s a topic I am very interested in and excited to see it in discussion for the IDLE Dao, though takes a bit longer for me to digest it all.

A question I have is (and I’m sure there are a few others curious too)

  • what other daos have a legal structure in place (if any) and if so, what is their structure typically like. Coming from more the established protocols in the space?
    I tried looking and couldn’t really find too much on the topic.

I’m more in favour (I think) of the USA direction compared to the Cayman. Find it maybe a bit too unpredictable at the moment especially in the current times we live in. Especially that we already have networks as you mentioned and a foundation there. Though i am totally unsure of the overall best route to go.

Curious to see more questions pop up on this thread and moving forward to narrowing down the decision.


Hi Jonny:

Different DAOs have taken various approaches for any number of reasons. Some have decided to remain regimeless. Foundations are relatively frequently used across a variety of different jurisdictions including Switzerland (Ethereum Foundation), Cayman Islands (Maker Foundation) and others. Some DAOs have also utilized more traditional structures such as Trusts, LLCs, and traditional C Corps again spanning across any number of jurisdictions. More recently, DAOs have begun to experiment with structures such as cooperatives and now UNAs. In short, there is no perfect structure yet and there is no consensus as to the best approach.



Hi @David_M_Kerr , nice to e-meet you ser.

First, sincere congratulations on the UNA proposal.
My opinion is that the Idle DAO must set up a legal structure ASAP.

This topic has been discussed with the community since September 2021 when the Treasury League came up with the first research on the subject: Legal structure for the Idle DAO

Thank you for the honesty! This tells all.

I have stated publicly back on September 21 that IF the DAO can set up BOTH (UNA and Cayman Foundation) I would support it.

If I have to choose between UNA or a Foundation+ Company combo (LLC or/and any other limited liability structure in UK, Switzerland, Italy or any other countries), I would take into consideration 2 factors:

  • Price/Costs: A Foundation goes for around 4k and then individual jurisdictions go from 500 USD (USA LLC) to around 6K (Switzerland). Source:
    I looked at your posts but could not find the cost of incorporating a UNA.

Full disclosure, I am not associated with otonomos and I am not an investor in otonomos either.

  • Social Security for “staff”/members: a UNA would pay taxes in the USA with no reason other than, in your own words

Tbh, this sounds a lot like extorsion money being paid to the American Empire, in hopes of protection.
Cayman (and other offshore jurisdictions) are NOT on any black list and neither are companies set up in countries like Italy, UK, or Switzerland.

Again, IF I must choose between a UNA and a Foundation+Company combo, I would rather support the combo because it would pay taxes where it’s fair to pay them (because they took place in those jurisdictions) and also because that would open the door to (optionally) register and offer social security benefits to staff/members in the country of residency.

I noticed @Biaf already asked about total costs. Again, if @David_M_Kerr could provide at least a cost estimate for both the UNA and the Foundation+Company combo that would help to speed up a decision from my side at least.

I would also like to hear from @TheHanAndOnly about pricing for UNAs.


Hi Unicorn:

Price is certainly a consideration, but the reality is - the all-in costs of any of these structures is quite a bit more than just the filing costs (which for an UNA would be extremely minimal). To do each one properly requires legal work and specialists that are expensive. The primary attorney team and myself are aware of the costs associated with novel structures and do not feel that Idle DAO should bear that cost alone, accordingly we have been very diligent to keep costs down on our end.

The costs associated with this UNA project include establishing the UNA and evaluating Idle activity for compliance with the entity structure. The estimated costs for this project are $120,000 for implementation (includes community education, formation of the entity, initial tax filings, and assessment of ongoing and proposed operations within the entity structure). The up to $20,000 annual estimate is for meeting any filing requirements, retaining a registered agent, filing quarterly tax payments and filing a return.

The social security issue you raise is more accurately framed as a payroll tax question. This is a tricky area as the reporting and withholding requirements are controlled both by the entity, the location of employees and contractors, and source of income. Having already reviewed Idle DAOs payments to members, it is my assessment that those payments are to independent contractors and would not result in the withholding of US employment taxes on any payments (although depending on the location and citizenship of the contractors, could result in a percentage of payment being owed when that member files their own individual tax returns).

The US entity could potentially have an obligation to send a record of that payment to the contractor and to include those total payments on its annual tax return. Completion of those forms is part of what needs to be assessed in the next stage of this project but presents an attainable path to meeting reporting requirement, which is a benefit of the UNA structure.

Long story short though, the outcome you want regarding payroll tax would not be hindered by the utilization of an UNA structure.

Best Regards,


Hi all very happy to see this debate is moving forward within the Idle community! We’ve also blogged about a “DAO Hub” as a shared services platform for DAOs in our Nov Otonomist issue Terrestrial Docking Stations for DAOs: The Swiss Association and the U.S. UNA.


Knowing that most of your community is outside the United States, our recommendation would be to focus on the Swiss Association setup. The beauty of this Verein structure is that any contributor to Idle, irrespective of how they have been incorporated (or not!), can become a Member and should then be able to access the shared services incl. fiat banking. However some more research would need to be done to examine a couple of angles and we’d be happy to price this up. We can pave the way here for other DAO-lead projects and together show real thought leadership!


Hi @David_M_Kerr thank you very much for these three very detailed posts about the UNA structure. I am sure this open conversation will help the community to take a decision on this important step.

I am personally not very familiar with US tax jurisdictions and would like to better understand what approximate tax rate will apply to the DAO Treasury in an US jurisdiction. Obviously, it depends on the state jurisdiction but I think it would be helpful for the community to get an idea.

As the Idle DAO Treasury and its financial activities would be taxed in the US, I was wondering who / how the classification of taxable activities would be made, since certain crypto activities are not regulated yet?

Also, would the Treasury League multisig wallet transactions be considered to be part of this? (Quarterly Budget allocations from the idle DAO Treasury to the multisig)


Thank you very much @David_M_Kerr for the clear explanation and the analysis provided to the Idle community. Two questions from my side:

  • Similar to what @Salome already asked (especially following the latest regulatory developments in the US that are currently only discussions and not final approvals), I wonder which activities of the Idle DAO Treasury would be taxed under US regulations if it were in the form of UNA?

  • Lastly, is there any difference between subDAOs (Idle Leagues) and DAOs in the legal framework of the UNA structure?


Hi Han:

Any number of international jurisdictions were considered when assessing the recommended structure for Idle Dao, including the Swiss Association. However, the above is not an accurate description of how a Swiss Verein structure would work as related to Idle DAO: each entity contained in a Swiss Verein structure retains the right to conduct business activities in compliance with the applicable legislation in the country which they reside. This would increase, not lesson the administrative and reporting burden of an organization like Idle DAO.

That said, the Swiss Verein structure enables people to create a legal person for a global partnership or association without transferring legal responsibility to that new entity. This structure deserves much consideration as DAOs continue to evolve in terms of scale and complexity.


Hi Salome:

The Federal US Tax Rate for corporations is 21% and at this time, that would be the primary source of taxation related to an UNA electing into US corporate taxation with Idle DAO’s facts. Preferential capital gains tax rates are not available to C Corporations, which is how an Idle DAO UNA would elect to be taxed.

Depending on activity, this tax would be applied to the income of Idle DAO less expenses, but the significant tax driver for the Idle DAO at present is going to be activity related to its treasury resulting in realization of income. (The activity within the multi-sig wallet would also be part of this analysis, but much of that activity would be an expense that ultimately reduces net income tax).

At present, the IRS considers the sale or other exchange to be a realizable tax event. Setting aside much of the complexity around this issue to focus on clarity: this means that any exchange of IDLE to fiat currency or any form of cryptocurrency payments involving IDLE are almost certainly going to incur a 21% tax.

Now, this does not go on into perpetuity – the reason that the IDLE tokens have such a significant tax impact is that they are being taxed at their present valued compared to a cost basis of $0 (in contrast, any tokens acquired through an IDLE swap would have a basis of whatever FMV the IDLE had at the time of the swap – although the acquired token would still need to be evaluated for gains/loss when disposed of, additional tax would only be due if the token acquired had increased in value from the time of its acquisition).

The US tax environment is much more thoroughly explained in the article included in my first post above – however, to put it plainly, the UNA structure:

  • will not affect the tax payment of individuals holding IDLE. That will be determined by their activity, geographical location and citizenship regardless of entity structure.

  • will impact the taxation of IDLE DAO operations to the degree to which there is taxable income within the entity (this is expected to be negligible at present, but down the road this could result in a significant tax bill, which is what happens when an entity is profitable).

  • will significantly impact the taxation of Idle DAO Treasury activities, particularly in the short term.

Additionally, although we do have solutions in place to avoid Permanent Establishment (basically the triggering of another jurisdiction’s tax based off activity) and intend to utilize a state jurisdiction that does not have income tax, significant planning must be undertaken to make sure activity in other states does not trigger taxation in those jurisdictions (this exists regardless of entity structure and is not affected by the existence of the UNA).

Lastly, Franchise Tax is a tax on revenue applied by some US states applied to revenue. Many of the UNA jurisdictions being considered charge a franchise tax of less than 1% on total revenue – which can still add up.

Now, all of that said – many of these taxes are applicable to regimeless DAOs and the enforcement in this area has simply not caught up to the technology. The advantages for getting this resolved in a compliant and feasible way represent significantly more value to the future of Idle Dao than the cost of the taxes (the combination of UNA features, including legal existence, liability protection, attaining a bank account, demonstrable compliance with the law, ability to contract as an entity, ability to attain insurance, ability to hold property as an entity – will provide significant benefit to Idle DAO by mitigating risk for members and providing a structure capable of partnering with other entities by contract, opening the door for many new opportunities).

Tax optimization is important, but not at the risk of existence or optimization of opportunities to expand the use of the Idle protocol.


Hi emixprime:

Let me know if my response to @Salome does not answer your question regarding US taxation and I will be happy to provide more detail.

Vocabulary is always hard in developing fields and this issue certainly applies to DAOs. I view the leagues more like administrative organizational structures (or committees) to help the community undertake the responsibilities of decentralized governance and accordingly - they would all be under the UNA entity. However, as the subDAO concept evolves and DAOs start developing complex structures - I could imagine multiple tokens, independent revenue streams and multiple memberships generally operating under a shared objective. That complexity would definitely need to be addressed with multiple entities (and potentially an overall structure like the Swiss Verein described by Han).


Hi @David_M_Kerr, I confirm that your previous reply to Salomé answers my first question.

Thanks also for the subDAO reply, I think you got a clear idea of what are Leagues :shield:
Let’s see in the future how the subDAOs will evolve, and if there will be any legal update for that