Title: bDAO Legal Entity ‘Wrapper’ Research Proposal
Read the proposal: bDAO Legal Entity ‘Wrapper’ Research Proposal - Google Docs
Authors: @lawpanda @biyanmienert (daolaw)
Squad: @lion917, @eagle, @lawpanda, @biyanmienert (daolaw)
Date: 23 March 2022
SUMMARY
The Legal Guild would like to conduct research and issue findings and a proposal addressing potential options an d use cases for ‘wrapping’ bDAO with one or more legal entities and the related pros/cons. The proposal will include general introduction to different current potential structures in several jurisdictions and help bDAO determine the benefits and detractors of these various options. The proposal will be open-sourced and can be utilized by bDAO, bDAO members, and potential sub-DAOs in the future.
BACKGROUND
In their current iteration, decentralized autonomous organizations (“DAOs”) do not have a chain-native entity structure that is recognized as a legal entity with fictional personhood by governmental bodies. DAOs, however, can be manipulated into a variety of legacy legal structures that already exist in various jurisdictions. The Legal Guild would like to address various potential entity forms that can ‘wrap’ bDAO and associated sub-DAO with operating layers that provide certain protections and allow additional interaction with legacy entities. How a DAO should be legally structured is arguably one of the most relevant questions within all DAO organizational discussion.
The decentralized structure and automated operations of DAOs like bDAO raise complex questions about the applicability of certain laws, corporate status, and external actions that cannot be adequately answered using classical theories. DAOs operate under different circumstances than many of today’s traditional legal entities and other business associations. According to the current regulatory landscape, one of the most significant risks to DAO members is the default classification of a DAO as a general partnership in most jurisdictions. General partnerships generally default to personal and unlimited liability of all participants involved, require doxxing for interaction with banks, and other attendant concerns. Therefore, a legal framework that provides some liability protections and allows for continued anonymity of members should at least be be considered as a mechanism to protect the bDAO members.
As legal systems in the most prominent Western jurisdictions evolve, new opportunities for structuring DAOs continue to emerge. It would be beneficial to bDAO to have a comprehensive study and recommendations of current structures and jurisdictions, addressing advantages and disadvantages.
As noted above, having a legal entity that represents the DAO in the “real world” is valuable for a number of reasons. It can also be an impediment to certain ideals of decentralization or operating as a flat structure. Some of these considerations are non-exhaustively summarized below and will be revisited in the Legal Guild’s ultimate proposal and recommendations.
- Liability Shield:
- Pros: It can provide limited liability to DAO participants for the actions of the DAO or other members of the DAO. Without the shield of a legal entity, participants may be individually held liable for actions by the DAO as a whole.
- Cons: The DAO is hemmed into a legacy legal structure and jurisdictional regulatory requirements that may limit certain future actions or exclude members in certain jurisdictions.
- Other Comments: To the extent bDAO was fully decentralized at inception, any initial exposure may arguably flow toward the Bankless legacy media entity. PoolTogether Inc. is currently dealing with a lawsuit where it was named based on allegations relating to the function of the protocol. Presently, bDAO has very little surface area for regulators to attack.
- Taxation Requirements
- Pros: Without a legal entity, DAO participants may be held liable for a proportion of the DAO’s income/profits, even if they did not receive or are not able to access these funds (i.e. pass-through taxation).
- Cons: The DAO is hemmed into a legacy legal structure and jurisdictional regulatory requirements that may limit certain future actions.
- Other Comments: None at this time.
- Ability to Contract and Hold Property
- Pros: A legal entity can enter into contracts with other entities and hold (virtual) assets (including intangible IP rights). Formal ownership allows enforceable rights to be asserted in court or otherwise.
- Cons: The degree of legal capacity is moderated by the amount of compliance with external authority. It also allows surface area for legal attacks from outside entities. Lack of legal capacity will limit the ability to enter into agreements/partnerships with legacy entities unless an individual member of the DAO is appointed and willing to accept personal liability for the engagement.
- Other Comments: To the extent any IP developed by bDAO is not fully open-sourced, bDAO will not be able to assert or hold IP rights, copyrights, trademarks, etc. This applies to ownership of any other forms of property beyond a treasury that can be held in a wallet/multisig.
Ideally, a DAO should start from an end-goal perspective and utilize the technology structure that is required to effectuate that goal. A DAO should then determine the legal structure that is required or most appropriate for that archetype. The Legal Guild proposal contemplates issuing a document to provide a reference point for subsequent discussions in the context of bDAO’s immediate and future goals and the necessity–and if determined necessary the mechanism–of establishing an appropriately shielded operating layer.
MISSION & VALUES ALIGNMENT
The mission of bDAO is to help the world go Bankless by creating user-friendly onramps for people to discover decentralized financial technologies. The Legal Guild is instrumental in helping individuals navigate their transformation as the journey to a bankless future is full of regulatory steps or pitfalls which many individuals are struggling to navigate. The legal entity research and proposal is designed to educate and facilitate discussion of this process. “Going Bankless” does not obviously mean ignoring existing laws and the jurisdictional requirements of bDAO members and a putative entity should be carefully assessed and respected. A discussion regarding potential benefits and drawbacks associated with wrapping bDAO is necessary to its natu ral progression and will benefit bDAO in the present and associated DAOs in the future.
SCOPE OF WORK
Objectives & Goals
- Help bDAO decide which jurisdiction(s) fit its needs best and which legal structure(s) should be used. Alternatively, if it is determined no legal structure should be adopted are there additional steps that can be taken to limit bDAO and member liability through the proposal and implementation of a participation agreement.
- Provide an invaluable resource to bDAO members and the DAO ecosystem community in general where legal structure is one of the most regularly asked questions and uncertainties.
- Potentially create a DAO consultancy (or coordinate with the existing consultancies) where the legal guild can act as a resource to advise DAOs on adoption of legal structure, perpetuating bDAO’s purpose of assisting mass adoption of decentralized governance structures in a safe and sustainable manner.
- Present a proposal to solve the practical problem concerning the absence of a bDAO legal entity in the light of the findings of the research. The team will conclude the work with the publication of the research and with a proposal to be submitted to the community.
Features
- Overview of the requirements, pros, and cons for the different legal entities (or lack thereof) which could be used for a DAO structure in the most relevant jurisdictions.
SPECIFICATION
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The Legal Guild and contributors will look specifically at:
- U.S. legal structures
- European legal structures
- Offshore jurisdictions
- Potential combinations of entities
- Documents like participation agreements attempting to limit liability in the absence of an entity
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These are the most relevant jurisdictions for such a construct. The great advantage of bDAO and the contributors here is that they are all attorneys from different jurisdictions and can thus pool their expertise to take a broad comparative law approach.
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The DAO guide is intended to be comprehensive, technical, and accurate, providing information that would be beneficial to any DAO and provide bDAO the ability to determine the most appropriate course of action.
FINANCIAL IMPLICATIONS
Revenue Model
None, the research and proposal will be open-sourced for the community.
Funding Request
200,000 BANK
The funding is being requested from the Bankless DAO Grants Committee. The rough breakdown is as follows:
- Jurisdictional Research - 100K BANK (~5 jurisdictions anticipated)
- Template / Formatting, Introduction & Conclusion - 12.5K BANK
- Editors - 50K BANK
- 2 Project Leads - 25K BANK
- Graphics / Miscellaneous Expenses - 12.5K BANK
BRAND USAGE
The proposal and any research will use the Bankless Logo and will be under the brand of bDAO.
SUCCESS METRICS OR KPIs
- Provide discussion points for next steps in bDAO development.
- Allow bDAO to adopt a legal structure with minimal friction if and when it is determined appropriate.
- Provide a useful resource for bDAO members in general.
NEXT STEPS
After the proposal is accepted, the immediate three steps are:
- Selecting the 5 most viable options for in-depth research.
- Assigning additional legal guild members for research of selected jurisdictions.
- Identifying on-the-ground counsel or other resources necessary to effectuate implementation of any legal entity without significant delay.
- Setting a timeline for the team so that the first draft is prepared within 8-10 weeks of the commencement of the next season.
SQUAD BACKGROUND
@biyanmienert(daolaw): German attorney at law and lecturer at the University. Specialized in crypto corporate and securities law. In crypto since 2015 and wrote the first Ph.D. worldwide regarding the legal qualification of DAOs. Has been advising clients in regard to DAO and DeFi structures since 2017.
@Lion917: I am a legal consultant specialising in Asian jurisdictions from a leading Law University in Asia. I specialise in Blockchain, Data Protection and information technology. I have been a contributor in the legal guild for a few months and an avid writer for their newsletter. I also held a permanent administrative position for the guild during season 2. I have been an early adopter of decentralised finance and I also work with DAOs to streamline their legal-tech products. Though I have always been enthusiastic about law, technology is my true passion and I am glad that bankless provides me with the chance to contribute. I am a level 2 contributor at Bankless. Given my experience in the field of DeFi, law and research, it can be a unique opportunity to apply these skills to an impactful workplace where I can use symmetric global parameters to provide targeted expertise. Regulatory innovation is required for the sustainable growth of DeFi. While coordinating the guide, I aim to engage more contributors so the guild flourishes.
@Eagle: Law Professor with a focus on digital law, blockchain and cryptocurrencies; Coordinator of the Legal Guild, LexDAO and Lex_punK Army DAO.
@lawpanda: I am a U.S. attorney licensed in Maryland and Washington D.C. specializing in litigation, investigations, corporate disputes, and legal ethics. I have been practicing law generally since 2010, and have been slowly increasing my involvement in the crypto space since 2020. I was a non-active member of bDAO at inception with more recent participation in the legal guild. I am a member of LexDAO and the LexPunK Army and senior contributor at Across Protocol. In addition to contributing to Decentralized Law and the aforementioned organizations, I have been conducting research on potential DAO legal structures and legal ‘stacks’ over the past year and created an open-sourced document compiling that research. This project and proposal is a continuation of that work.
POLL (Discourse Post Usage Only)
- I SUPPORT the Legal Guild’s Legal Entity Wrapper Research Proposal
- I DO NOT support the Legal Guild’s Legal Entity Wrapper Research Proposal
- I SUPPORT the Legal Guild’s Legal Entity Wrapper Research Proposal (but it needs revisions consistent with the comments below)
0 voters