DUNA: A Threat to Decentralization and Freedom in Web3 Governance

Exploring why Andreessen Horowitz’s vision for the Decentralized Unincorporated Nonprofit Association (DUNA) lacks the accountability, stability, and coherence necessary for decentralization.

This article explains why a new legal framework called DUNA is a threat to freedom and decentralization.

What is DUNA? Andreessen Horowitz (aka @a16zcrypto), a technology-focused venture capital firm with the motto “Software Is Eating the World,” recently published their 7 Big Ideas for 2025, and DUNA made their list:

“We’ll see greater adoption of the ‘DUNA,’ a new industry standard for blockchain networks in the U.S.”

Their background information reveals:

“The new Wyoming law incorporates many of the provisions we proposed in the model legislation.”

The Decentralized Unincorporated Nonprofit Association (DUNA) is a legal framework designed to provide blockchain networks with legal recognition, liability protection, and governance structures. On the surface, it sounds like a win for decentralization.

Liberals champion freedom above all else, holding a strong belief that individuals and markets are best equipped to govern their lives. I wholeheartedly subscribe to this ideal.

I want to be free and make my own decisions, unencumbered by excessive bureaucracy or unnecessary interference.

Andreessen Horowitz champions these same values of individual freedom and decentralized business models.

But if my claim is correct—that DUNA erodes freedom—why would they support it?

The simple truth is, freedom is not free.

If I invest in a business and it fails, I lose my money—that’s a fair and natural consequence of my freedom to take risks.

Now, imagine my business is a bakery. If I sell bread made with contaminated grain and it makes people ill, who should pay for their doctor bills? This question seems simple enough to answer, assuming we care about our neighbours.

But what if my bread not only makes people ill but spreads fear across the community? Suddenly, my neighbor—a baker with a spotless 20-year record—sees their sales plummet. Customers, unsure of which bakery to trust, avoid buying bread altogether. My actions have caused losses not only to my customers but to my neighbor, who did nothing wrong.

Transparency might mitigate these risks by helping people identify the source of contamination, but it doesn’t prevent me from selling contaminated bread in the first place. It only protects the people who come after the first person gets sick. And it assumes that consumers can process vast amounts of information efficiently—something technology can help with but never fully guarantee.

Some might say this risk is the price we pay for freedom. After all, shouldn’t consumers who are concerned about such a small risk simply test their bread before eating it? Most bakers are decent, and contamination is rare. This position is defensible, but it’s also highly questionable. The idea that such risks should be borne entirely by individuals fails to account for the ripple effects of harm in a shared society. The sick individual could be a teacher whose absence disrupts students’ education, causing harm far beyond those who ate the bread. Leaving such things to unfold is not only unfair but also economically inefficient and a threat to prosperity.

This is the central challenge of freedom: balancing individual autonomy with the responsibilities owed to others. And it is precisely this dilemma that the DUNA pretends to resolve by claiming freedom without accountability—but instead, it creates a system that erodes both.

My Freedom vs. Your Freedom

This tension becomes clear when Andreessen Horowitz explains their intent to facilitate the widespread adoption of DUNA (p. 8) across web3. They state that they will achieve this in three ways including by

“requiring, as a condition of investment, that its prospective portfolio companies in the United States agree to adopt the DUNA structure [..].”

Andreessen Horowitz should be free to invest however they see fit and to make their investments conditional. Equally, entrepreneurs should be free to reject such conditions—assuming they have meaningful alternatives.

In theory, competitive markets ensure that these freedoms balance each other out. When markets function properly, they efficiently allocate resources, including capital, and shape what products and services are made available and how they are delivered. This dynamic should, ideally, allow both investors and entrepreneurs to exercise their freedoms without one dominating the other.

Wyoming's Decentralized Unincorporated Nonprofit Association (DUNA) Framework

The Wyoming DUNA law establishes a new legal framework designed to provide decentralized organizations with legal recognition and operational flexibility. 

1. Legal Recognition and Separate Entity

A DUNA is a legal entity distinct from its members, allowing it to hold property, enter contracts, and sue or be sued in its name and aims  to shield members from liability for the association’s debts or actions​ unless they engage in gross misconduct, criminal activity, or breach of fiduciary duty.

2. Governance without Centralized Management

A DUNA is managed according to "governing principles," which can include smart contracts, consensus mechanisms, and other decentralized decision-making methods. It does not require centralized administrators, though members can elect or appoint administrators for specific tasks​. Members have voting rights as determined by the DUNA’s governing principles, which may utilize distributed ledger technology (DLT) to calculate and verify votes​. Members and administrators are subject to a covenant of good faith and fair dealing but generally do not owe fiduciary duties unless explicitly required by the DUNA’s governing principles.

3. Profit-Making and Nonprofit Characterization

A DUNA can engage in profit-making activities, but profits must be used to further the nonprofit’s purpose or set aside for that purpose.

What is the problem DUNA is trying to resolve?

The Decentralized Unincorporated Nonprofit Association (DUNA) framework is designed to address challenges faced by decentralized autonomous organizations (DAOs) operating without formal legal structures.

According to Andreessen Horowitz, DAOs often face issues such as legal uncertainty, as they are treated as general partnerships under existing laws. This classification exposes members to unlimited personal liability for the DAO’s actions or debts. Without formal protections, members’ identities and assets are vulnerable to regulatory scrutiny or legal action, discouraging participation in governance and decision-making.

DAOs also encounter operational challenges because they lack the ability to contract with third parties, own property, or appear in court under a unified legal identity. This makes it difficult to manage real-world interactions and disputes. Additionally, DAOs operate in an environment of taxation and regulatory ambiguity, exposing them to risks of enforcement actions or penalties.

The DUNA framework aims to provide DAOs with a legal wrapper that resolves these issues, enabling DAOs to interact with the legal system as distinct entities. Unlike traditional legal entities, the DUNA does not require appointed directors or centralized management and offers limited liability protections to its members.

Why does the issue underlying DUNA matter?

The need for DUNA, as supported by Andreessen Horowitz, arises from their vision of how Web3 business models should fundamentally differ from Web2. DAOs are central to the Web3 ideal—a decentralized internet where blockchain networks function as public infrastructure rather than profit-extracting systems controlled by centralized corporations, as exemplified by Web2 giants. A reimagined Web3 version of Facebook, for instance, would not aim to generate profit but instead operate as a core infrastructure, interacting with consumer-facing businesses that rely on it. This vision demands a legal conduit like DUNA to facilitate such interactions while limiting independent decision-making and keeping the organization’s scope strictly focused on maintaining the infrastructure.

Andreessen Horowitz's Claims About DUNA

Andreessen Horowitz claims that the DUNA gives DAOs legal existence, enables them to pay taxes, and offers limited liability—while protecting consumers from additional risks. The specific assertions of how how this would play out in reality, however, are misleading and, in some cases, incorrect.

1. Limited Liability and Jurisdiction

The DUNA provides limited liability under Wyoming law but cannot shield members from federal or international liabilities (e.g., federal tax, sanctions compliance, securities laws). For example, if a DUNA fails to pay federal taxes, token holders or administrators could still face enforcement actions. While DUNA provides state-level protections, operational risks persist: governance paralysis, compliance failures, and regulatory missteps can still harm participants. If members disengage or the organization fails to comply, remaining participants may bear disproportionate responsibilities.

2. Privacy Claims

Andreessen Horowitz states:

"It protects DAO member privacy from the federal government."

This is inaccurate. While the DUNA may shield some member information under Wyoming law, it cannot protect members from federal enforcement actions. Agencies like the IRS or SEC can subpoena records or compel disclosure if the DUNA is under investigation.

3. Securities Law

Andreessen Horowitz claims:

"The DUNA stops [the risk of categorizing a DAO as a general partnership], solving the key challenges DAOs face and substantially mitigating the risks facing DAO members."

"Adopting a DUNA can be used by a DAO to bolster its community’s arguments against the application of securities laws."

“[..] aligns the DUNA with applicable standards for decentralization under U.S. securities laws.”

While the DUNA may address some risks, its protections apply only within Wyoming’s jurisdiction and cannot override federal laws. The SEC evaluates tokens under the Howey Test, which focuses on substance over form. If the DUNA’s structure still ties token value to the DAO’s operations, participants may be classified as partners under securities laws. Simply labeling a DAO a "DUNA" does not change this reality.

4. Compensation and Profitability

"The continued prominence and use of a particular blockchain network [..] is an implicit endorsement by users of such network that the compensation it is paying is reasonable."

Endorsement?

This would mean approval and explicit agreement. The word is from Old French endosser, literally "to put on the back," which originally comes from signing or writing on the back of a document—like endorsing a cheque. Nevertheless, there are people using a blockchain for whatever reason.

Is the price either charged or implicit to the arrangement reasonable? That is not an economic term. So what is needed for markets to be price efficient? To accept that the existence of a particular blockchain also means that we have price efficiency, one must assume that:

• Full Information: Users have complete, real-time access to detailed data about compensation structures, individual contributions, and the value those contributions create for the network.

• Comprehensive Understanding: Users possess the ability to analyze and interpret this information instantly and correctly, understanding complex compensation models and governance mechanisms.

• Zero Switching Costs: Users can switch to competing networks without any friction—financial, social, or technical.

• Viable Alternatives: Competing networks exist, operate comparably, and are accessible, enabling users to leave one network and join another without loss of utility.

• Perfect Rationality: Users consistently act in their own best interests, weighing all available options objectively without cognitive biases or limitations.

In reality, users rarely have such insight, and the IRS or other regulators—not users—determine whether compensation is reasonable, especially regarding tax obligations.

5. Administrative Complexities

"The DUNA does not interfere with how DAOs are currently launched and operated – it safeguards decentralization."

However, adopting a DUNA introduces legal and administrative complexities, such as maintaining tax compliance, governance documentation, and regulatory oversight. These obligations could interfere with how DAOs currently operate.

These flaws are interesting—or perhaps not. What is more interesting is that they raise deeper concerns about the fundamental idea behind DUNA’s promise.

DUNA’s Promise is Flawed and Undermines Freedom

The DUNA is a governance model that defies the fundamental rules of decentralized systems. In doing so, it destroys the very principles that make decentralization possible. The outcome is not freedom—it’s fragmentation, leading to stagnation and chaos.

In traditional governance models—whether political or legal—we rely on processes to manage disputes, allocate resources, and protect freedoms. These processes:

• Aim for fairness and freedom but rarely achieve perfection.

• Operate as iterative mechanisms, revisiting decisions and updating frameworks as new issues arise or old ones resurface.

• Acknowledge that perfect happiness or absolute consensus is unattainable, which is why governance remains an ongoing cycle of negotiation, compromise, and adaptation.

This mirrors the concept of state in a blockchain: constantly verified and updated through consensus mechanisms to maintain stability. Both systems reflect the reality that governance is dynamic, not static. Political and legal decisions don’t close issues permanently; they revisit and refine them as circumstances change. Decisions are codependent, creating trade-offs: deciding to build a new bridge in Town A means no new bridge is built in Town B. Stability often comes at the expense of flexibility, and flexibility at the expense of stability. Effective governance is about managing these trade-offs, not pretending they don’t exist.

In a blockchain, the state exists because it is independently verified by all participants against a static protocol—the rules that everyone agrees to follow. These protocols are like a constitution: they provide the foundational framework for how the system operates. While laws (specific governance decisions) can change within this framework, the protocol (constitutional principles) itself remains stable to maintain trust, coherence, and consensus.

In a decentralized setup, freedom emerges from restriction: participants can do whatever they want as long as the changes they introduce comply with the protocol. The protocol is the shared framework that allows independent verification and agreement on state changes. It is this restriction that makes freedom in decentralization possible. This dependency creates:

• Verification: Any change can be independently validated by all nodes, maintaining trust and coherence.

• Agreement: State emerges as an agreed outcome, validated against shared rules.

• Stability: The protocol prevents arbitrary changes, ensuring that the system remains predictable and reliable.

Without this dependency, a blockchain becomes unstable and chaotic. The DUNA, however, is fundamentally based on a fiction that denies this dependency and is equivalent to a blockchain that claims:

• Restrictions imposed by the protocol do not apply.

• Changes introduced by any small group should still result in a verified state, as though the entire network agrees.

This is impossible in any decentralized system. If changes don’t comply with the protocol:

• The outcome is no longer a verified state, but a fork.

• Constant forks destroy the coherence of the system, making the blockchain arbitrary and meaningless.

And this is exactly what would be required to make Andreessen Horowitz’s claims true. Stable governance systems need frameworks that limit arbitrary changes and enforce accountability. The DUNA’s decentralized, single-issue voting model undermines this by allowing governance to shift unpredictably based on the whims of participants. The DUNA framework imagines that governance decisions can both update dynamically and retain the stability of protocol-level agreement.

Accountability in Practice: The Bakery and the IRS

My bakery, now operating as a DUNA-chartered DAO with a separate development company, would face no consequences as long as the contaminated grain was purchased by the DUNA. I could rely on the vote that appointed an administrator responsible for sourcing grain to absolve me of accountability.

Suppose a DUNA decides not to file taxes for a given year because a majority vote prioritizes community spending over compliance. The IRS could still pursue liabilities, leaving current token holders or administrators exposed. Consumers, counterparties, or even former token holders would have no recourse when the DUNA fails in its obligations.

If the IRS were prevented from enforcing rules, the blockchain analogy would be nodes agreeing to include a transaction that doesn’t meet the protocol’s validation rules because it benefits a specific group. And the question remains: if not the DUNA or the token holders, who is responsible? Who ensures tax filings are done correctly and on time?

If we allow such concepts, they undermine the very idea of state and governance, both in traditional political systems and decentralized systems.

The Impossible Promise

The DUNA promises a governance model that:

• Fails to distinguish between protocol and governance.

• Expects coherence without agreement.

• Creates instability through constant change.

If we assign responsibility to a DUNA administrator for tax compliance, there must also be a mechanism to ensure the job is done correctly. Otherwise, the answer cannot simply be, “Sorry IRS, maybe next year.”

What is needed instead are functional systems that can resolve conflicts arising from governance decisions—such as hybrid models where companies delegate certain decisions to users while ensuring compliance with applicable rules and regulations. However, even this creates vulnerabilities. Single-issue voting often favours extreme positions, creating the illusion that trade-offs don’t exist and long-term consequences are inconsequential. When a decision turns out poorly, token holders can sell and move on. This may work for some but not for all participants.

The DUNA’s promise relies on an impossible idea: that governance can bypass the dependency between state and protocol while maintaining coherence. Propagating such ideas is careless. Andreessen Horowitz @a16zcrypto should know better than to use its influence to undermine the freedom it claims to champion.