Over the past few decades, small jurisdictions such as the Cayman Islands and Bermuda have become key players in global finance. Despite tiny populations and limited resources, these “offshore financial havens” host hedge funds, insurers, and increasingly, web3 token issuers launching Initial Coin Offerings (ICOs). Traditionally, offshoring a token launch or establishing a DAO abroad seemed attractive due minimal regulation. Yet as regulatory scrutiny intensifies, this approach is growing ever riskier—particularly for projects targeting U.S. markets.
Changing policies, new legal frameworks, and recent U.S. legislative developments such as the Wyoming Decentralized Unincorporated Nonprofit Association (DUNA) structure suggest that an onshore approach could offer greater clarity and stability than relying on offshore entities.
Offshore Strategies and the Lure of Regulatory Loopholes
Historically, incorporating offshore may have eased regulatory burdens for token issuers. Early ICO projects often routed through offshore entities to argue U.S. securities laws did not apply. But the global regulatory environment is evolving. American regulators and courts have grown wary of token projects designed to evade domestic rules. Mere offshore registration is no longer a reliable shield.
The Post-Morrison Landscape and Offshore Token Projects
U.S. jurisprudence increasingly rejects attempts to avoid domestic regulation through offshore structuring alone. Courts now look beyond formal domicile to the location of investors, developers, and actual economic activities. In the ICO context, if a project’s core team, user base, or promotional efforts center on the United States, offshore incorporation is unlikely to prevent U.S. law from applying. Enforcement actions by agencies like the SEC further underscore that token issuers who disregard U.S. compliance do so at their own peril.
ICOs, DAOs, and the Perils of Entityless or Offshore Approaches
Many web3 projects initially chose “unwrapped DAOs” with no formal legal entity, or offshore wrappers, as a means to preserve decentralization. However, this approach exposes DAO participants to potential liability and tax issues. Regulators and plaintiffs have argued that without a recognized legal entity, a DAO could be treated as a general partnership, making each member jointly liable.
Offshore structures that appear solely for regulatory arbitrage may fare no better. If a DAO or token issuer draws U.S. participants or relies on U.S.-based operations, authorities can still claim jurisdiction. The risk of regulatory action and costly litigation is growing, making offshore incorporation a shaky foundation for long-term compliance.
Emerging Onshore Solutions: The Wyoming DUNA and Beyond
As offshore tactics lose their luster, some U.S. states are creating frameworks more compatible with decentralized technology. Wyoming, known for pioneering novel business structures, introduced the DUNA—a legal entity designed for decentralized organizations. The DUNA form gives DAOs legal existence, enabling them to pay taxes, enter contracts, and achieve limited liability without undermining decentralization.
This structure can benefit ICO issuers seeking U.S. compliance. By adopting a DUNA or similar onshore entity, a project potentially reduces uncertainty and strengthens its position against claims that it’s an unregistered securities issuer or a de facto partnership. While some protocols still rely on loosely affiliated organizations, the DUNA and other onshore frameworks offer a clearer, more predictable path.
Onshore vs. Offshore: Reassessing the Trade-Offs
Offshoring once promised easy regulatory arbitrage, but in today’s environment, it’s increasingly risky. U.S. regulatory bodies, adapting to the sophistication of token markets, now scrutinize the substance over form. In contrast, onshore frameworks like the DUNA provide legal recognition and liability protection that can help projects navigate shifting rules.
Choosing an onshore approach doesn’t mean sacrificing the open, decentralized ethos of blockchain networks. DUNA’s design retains the community governance structure and permissionlessness intrinsic to web3, while supplying legal tools crucial for sustaining growth and innovation in U.S. markets.
Conclusion: A Path to Compliance and Stability
As token issuance and DAO governance evolve, placing faith in offshore incorporation as a regulatory workaround is increasingly fraught. The introduction of entities like the DUNA shows that U.S. frameworks are catching up to decentralized realities, offering more reliable avenues for compliance.
By structuring ICOs and DAOs onshore, token issuers can gain legal clarity, mitigate enforcement risks, and reduce the chance of being treated as a general partnership or unregistered securities issuer. In a climate where regulators view offshore maneuvers with skepticism, embracing an onshore solution like the DUNA provides a balanced and sustainable path forward.
