Summary
This proposal suggests the incorporation of a foundation for the ssv.network DAO. Entering 2023, the DAO’s share of responsibility and autonomy is only expected to increase. A significant portion of the DAO’s activities can not be limited to only the online realm. A Foundation is a legal structure that will execute DAO decisions, specifically ones that require “meatspace” operations. It will further provide the DAO’s members and contributors with the legal wrapper intended to provide assurances and protection from the possible risk of being associated with each and every action performed by the DAO.
This proposal will cover the necessity of establishing a foundation as well as related costs, timelines, and relationships with the DAO and its stakeholders. This proposal is based on past successful Foundation establishment examples such as Balancer, ENS and more.
Motivation
Since the DAO’s inception, it has been able to demonstrate its governance over the project and protocol. Albeit facing the uncertainty and vagueness characterizing any pioneering and innovative industries, the DAO succeeded in establishing working groups, allocating development grants, funding its operations, and engaging with different contributors.
The DAOs’ first steps are behind it, and although not fully battle-tested, some experience has already been gained by colleagues and other projects in the crypto sphere. The common assumption is that an incorporated DAO or an entity representing/embodying the DAO has several undeniable advantages:
- Limited liability for both the DAO members and DAO contributors. The legal assumption that a self-standing DAO could be deemed an unincorporated partnership potentially entails liability for its members (what constitutes membership is yet another discussion) and for those active in its ecosystem. An entity representing and/or embodying the DAO should set a barrier between the DAO and its members/contributors and take responsibility for activities performed by and on behalf of the DAO. This should also apply to the taxation of the DAO’s treasury.
- Operational ease when it comes to real-world activities requiring a legal entity: fiat purchases, transfers and banking, signing contracts with services providers, owning assets, legally representing the DAO, and hiring employees, to name a few.
- Further decentralization of the project’s governance and control. As an ideal of the blockchain industry and specifically the Ethereum ecosystem, decentralization is an ever-lasting effort and goal with no limit to it. A discussion has been going on in the industry about whether unincorporated DAOs are, in fact, achieving this ideal better. However, we believe that a foundation dedicated to executing the DAO’s decisions and goals can be an arm to encourage decentralized decision-making and control without hindering the process. Perhaps even contributing by allowing the participation and encouragement of players that require a legal entity to engage with.
The Foundation will execute the DAO’s decisions in the community’s journey to establish DVT as a core infrastructure component in the Ethereum ecosystem. The DAO already needs to engage in many endeavors which require ‘real-world’ business infrastructure.
On the other hand, running a foundation will involve added operational complexity and costs, which will be described in this proposal. These should not be taken lightly by the community and should be considered when approaching the vote on this proposal. Furthermore, although the concept of a foundation gained some track record, it remains a new and innovative structure that carries regulatory uncertainties, particularly under non-Cayman laws.
Foundation specifications
The chosen jurisdiction for many of the DAO foundations is the Cayman Islands (CIF). Cayman has become a common practice due to: accumulated knowledge and experience in DAO structures, openness to work with DAOs, and available legal and financial services. Finally, Cayman has an abundance of local talent who has the know-how and expertise to set up DAO foundations. These should allow ease of incorporation and operations immediately afterward.
The CIF is an entity well suited to non-profits (meaning, among other things, it won’t be able to pay out dividends). It does not require members (this can be achieved shortly after incorporation by a dedicated local agent) and allows it to execute DAOs decisions, as shall be clearly stated in its Articles of Association.
The Foundation shall initially have the positions and functions mentioned below:
- Directors - initially and by default, they shall be responsible for operating the Foundation and its day-to-day operations, unless additional positions have been hired to run daily operations. Moving forward, the Foundation may decide to hire employees who shall take the responsibility off the Directors’ hands, leaving the Directors with oversight responsibility as the Foundation’s Board.
- Supervisor - since the Foundation will have no members, the Supervisor’s role is to inspect and guarantee that the Directors perform their tasks and operations diligently, for the benefit of the DAO, and compliantly with the applicable law.
The DAO shall have full authority over appointing or removing any director or supervisor. It may also instruct the Foundation and its Directors to take any legal action or business task, including winding up the Foundation (in which case a designated charity should be chosen to receive the remaining assets).
Initial Expected costs
Incorporation Agent: Director, Supervisor, and Secretary
These services should cost approximately US $30,000 annually.
One-time costs related to the incorporation are estimated at US $7,000 and include on-boarding compliance requirements, incorporation records, and disbursement.
Legal Counsel
Basic maintenance of the entity - approximately US $12,000 annually.
Ongoing legal services (corporate, employment, regulatory, etc.) can vary substantially and will depend on the Foundation’s scope and activity. Initial allocation, on top of the basic maintenance mentioned above, should be US $60,000 annually.
It is hereby proposed to establish the following ad-hoc working group:
- dGC Lead (BenAffleck)
- Additional dGC member at the discretion of the dGC Lead (BenAffleck)
- Blox representative
For a decision of the Foundation Working Group (hereafter: “FWG”) to be valid, it shall be made by a majority. The FWG shall set any internal other working procedures after the approval of this proposal. Any decision made by the FWG shall be published on the DAO’s forum within one week of making it. The decision is not subject to DAO approval, nonetheless, any DAO’s vote contradicting an FWG’s decision shall prevail, and the latter’s decision shall be deemed void.
The members of the working group shall contact relevant services providers in order to incorporate the Foundation. They shall have the authority to hire legal counselors, an incorporation agent, and secretary services. The FWG shall have the authority to commit, on behalf of the DAO, to pay such sums as approved above (the estimated sums). The DAO will not have the authority to overrule any such commitment to making a payment if it has already been made and published by the FWG. Payments will be made directly from the DAO’s Treasury by the Multisig Committee or by the future to-be-incorporated Foundation to whom any such commitment by the FWG shall be binding.
The FWG shall submit a proposal to the DAO containing the following within no more than 60 days of the approval of this proposal:
- Articles of Association for the Foundation and any required work procedures.
- Candidates to serve as Directors, Supervisor, and any other statutory position.
- Legal firm for the Foundation to engage with.
- Any initial employees or service providers it feels are required at this time. However, any position or service that can be hired or retained at a later time, shall not appear.
The above shall be merely initial candidates and service providers. The DAO and the Foundation shall have full authority to change these decisions at any time in the future.
After completion of the incorporation of the Foundation, the remaining sums approved above + 5% contingency shall be transferred by the Multi-sig Committee to the legal representative of the Foundation without a further vote.
After completion of the transfer of the sums, the FWG shall dissolve immediately.
The Foundation shall present to the DAO a detailed budget and work plan within 30 days of all statutory positions being filled. Nonetheless, the Foundation shall act on and comply with any DAO’s decision, subject to full compliance with applicable laws, as of filling the statutory positions.
