It’s Sergey from AURUM Law Firm (https://aurum.expert). You might already know us as we performed the DD/KYC check on the token sale participants for the GEAR DAO a few weeks ago ([GIP-18] DAO Round PART 2. Community Proposal - #52 by Sergey_aurumlf). Now we have another proposal for GEAR DAO to consider.
We’ve been in crypto for years now and some may call us “crypto lawyers”, although we consider this definition to be not quite correct. Nevertheless, we know the market and industry quite well and frequently act not only as lawyers but as advisors as well.
While working with DeFi projects and DAOs we noticed that many organisations have certain structuring issues: at a certain point, every DAO inevitably faces the need to have a legal structure, for example, to enter into contracts, manage IP and assets, hire developers and contributors, make fiat payments, etc. Yet, often core contributors and multisig controllers wish to stay out of any legal arrangements, remain anonymous, or avoid legal exposure, which results in a situation where there is no one who could take the lead in the creation and management of such legal structure.
Lately, we have been working on a new project that is called DAObox (https://daobox.io/). The idea of DAObox is simple: we set up and manage a legal structure for the DAO; this structure is fully subordinated to the DAO but does not require anyone from the DAO members or multisig controllers to be revealed or exposed.
The legal structure that I mention is often called a “legal wrapper” (in this post I also call it “legal entity” and “legal vehicle”). Below I will provide more insight into how everything works and why GEAR DAO might need this.
A legal wrapper is essentially a legal entity with its own legal identity and personality. Think of the legal wrapper as a company that can acquire its own rights and obligations and has a separate balance sheet.
The legal wrapper can be used by the DAO to manage those activities that cannot be carried out off-chain, e.g., hiring developers, renting servers, paying for services and subscriptions, giving grants, and concluding agreements. Such an entity can be further used to hold and manage off-chain assets, such as fiat funds, IP, trademarks, domain names, etc. Lastly, the legal wrapper protects the DAO members and multisig controllers against liability that is related to acts and activities of the entity – normally, the legal wrapper itself will be responsible for any transactions that it performs (excluding certain exceptions under the law).
The legal wrapper, as we envisage it, will serve a common goal and not any particular person or group; as such, the purpose of the legal vehicle will be to facilitate the development of the GEAR Protocol regardless of who is “in charge” of the protocol. To put it another way, even if all current DAO contributors decide to leave at once, the legal wrapper will continue to serve the needs of the GEAR protocol as long as it has resources.
DAO vs Legal Wrapper
Legally speaking, a legal wrapper is not the same as a DAO, so it does not replace or absorb a decentralised autonomous organisation that exists on the blockchain.
This means that the GEAR DAO will continue to operate on-chain, and the legal wrapper will only take charge of operations that are occurring off the blockchain. This also means that the DAO and multisig wallet controllers retain direct control over smart contracts, the treasury, and any on-chain assets that the DAO has, and finance the legal wrapper only as and when needed.
The issue of control is an important one as in the future, the legal wrapper may be holding and managing certain valuable assets of the GEAR DAO (if DAO ever decides to transfer those to the legal vehicle). In short, although DAObox will be taking the managerial positions, the GEAR DAO will have the ultimate control over the legal wrapper and our actions will be limited by the mandate given by the DAO.
The constitutional documents of the entity will subordinate its governing bodies and management to the GEAR DAO and resolutions adopted by on-chain voting. Any such resolutions will be binding upon the legal entity and its managers.
Furthermore, the constitutional documents will limit the authority of managers on the disposition of material assets and intellectual property held by the legal vehicle, entering into certain transactions (the value of which exceeds a certain threshold), and performing certain other actions – any such acts will require the consent of a DAO.
Lastly, given that the legal wrapper will be subordinated to the GEAR DAO, the DAO can pass a resolution on replacing us as managers of the legal entity at any time, and such resolution shall be binding.
We will be providing reports on the material operations of the legal wrapper and financial transactions on a quarterly basis so that everything stays transparent. Also, we will be here to respond to your queries and questions or (maybe) have AMA sessions every month or two if that would be desired.
As managers and the only persons responsible for the operation of the legal wrapper, we are essentially taking all the risks arising in connection with the operation of the legal wrapper and DAO activities carried out via the legal entity. As I mentioned above, the very need for such a service is dictated by the fact that any manager or controller of the legal entity can potentially be exposed.
For example, any document executed will have our signatures on it, and in any action that can in the future be brought against the GEAR DAO, whether due to regulatory reasons or otherwise, both the legal wrapper and we will likely be targeted. Other than legal, there are further reputational, economical, and regulatory risks involved.
As lawyers, we naturally feel more comfortable than others in dealing with the risks, but the risks still exist and can be quite serious and resource-consuming.
With respect to the legal wrapper, we will be acting as hired managers under the supervision and control of the GEAR DAO.
We expect these to be the main areas of our responsibility: setting up and maintaining the legal entity, major corporate actions, accounting and reporting, opening and operating bank accounts, making fiat payments, handling paperwork, including reviewing and executing contracts (excluding legal services), managing accounts with service providers, such as hostings, subscriptions, servers, etc., business correspondence. We will also act as the point of contact for the registered agents. In other words, we will handle all types of activities that are normally carried out by an entity.
We do not feel like our engagement with GEAR DAO has to be limited by hours of work at the moment, but if the engagement scales substantially resulting in the need for extra resources to be allocated, we will need additional (reasonable) funding to be allocated to cover the expense.
Note that this offer does not cover any legal services and DAObox will not be acting as a legal advisor.
We propose to establish a legal wrapper for the GEAR DAO as an ownerless (i.e., self-owned) foundation. The constitutional documents of the foundation will subordinate its governing bodies and management to the GEAR DAO and resolutions adopted by on-chain voting and will limit our authority on the disposition of material assets and entering into transactions the value of which exceeds USD $30,000 without the consent of the GEAR DAO. Normally, any spending of funds will be in accordance with the quarterly/semi-annual/annual plans (budget) adopted by the GEAR DAO.
We will take the managerial positions, including the position of supervisor and director, i.e., will essentially be hired managers of the entity. The foundation will have no members.
We offer the following terms:
(a) A two-year contract (can be extended thereafter);
(b) 40,000 USDC as an annual fee (80k for the 1st and 2nd year payable upfront);
(c) A one-time GEAR token allocation: 0.1% of the total GEAR token supply, to be distributed in accordance with the schedule applicable to the current GEAR sale round (1-year lock-up starting September 2022 with 1-year vesting thereafter).
If this proposal passes, the GEAR DAO will need to allocate 80,000 USDC (1st and 2nd-year fees) to the following ERC20 wallet: 0x95e7Fb8aecca90DF207379419DE8144836BBC549.
The token allocation can be granted upon the completion of the entity set-up (via a distribution smart contract or otherwise) to the following ERC20 wallet: 0xd19841D452ea34428B549fe1Ec39da57d863dFba.
The fee for each subsequent year will become due 30 days before the anniversary of the day when the GEAR DAO will have approved this proposal, so the next payment will become due approx. in September 2024 (if the proposal passes). Certain disbursements, e.g., corporate/agent’s fees, may be added to the annual fee starting from the third year onwards.
Upon the receipt of the initial stablecoin payment, we will proceed with setting up the legal entity and will report to the DAO once everything has been set up. We will further share the entity’s constituent documents with the DAO so that all members can review the control mechanisms and corporate governance rules implemented.
After that, the GEAR DAO can decide on the tasks and objectives of the legal wrapper for the period of October-December 2022 (or another period at the DAO’s discretion) and allocate a budget that will be required for these purposes. The same has to be done periodically (on a quarterly, semi-annual or annual basis) or on an as-needed basis. Adjustments are also acceptable.
I will be reviewing this forum from time to time and responding to your questions, so feel free to ask!
Legal Notice: This proposal is made by DAObox Inc. Approval of this proposal by the GEAR DAO and transfer of the fee to the above wallet will constitute the acceptance of the offer and terms set out in this post. We are lawyers, but not your lawyers; nothing contained in this proposal or otherwise communicated by us on this forum is an offering of legal services or legal representation to any person.