[Discussion] The DAO needs a serious discussion about legal structure

I think we need to bring this conversation to the forefront of our thoughts. MakerDAO currently has no legal structure registered in any jurisdiction, notwithstanding the dissolving Maker Foundation and the Dai Foundation.

In the US, we are almost certainly likely to be classified as a general partnership, which we urgently need an answer for. There are efforts underway to create a new legal carve-out in the United States in the next month or two, but my hopes of this happening are less than 50%. If there is not appropriate language inserted into the “reconciliation” legislative process being considered in the US Congress, I suspect we will not see the required legal relief until it will be too late for Maker.

For those who are unfamiliar, a general partnership is the default organization of a for-profit, unregistered entity. This means that any individual member of that organization can be held to account for any other member for (among other things):

  • Legal liability
  • Tax burden
  • Business obligations

We have previously discussed liability to DAO members, and begun to brainstorm ways to mitigate that exposure. It remains to be seen if there is a way to fully reduce this risk to sane levels. Just as our gymnastics with RWA have been ponderous and imperfect, I do not think we should hold out hope for a complete solution here. But we have some of our most knowledgeable minds working on it.

Given the amount of money involved, it seems only a matter of time before claims (spurious or legitimate) are brought to members of this and other DAOs. Note that the only reason the Maker Foundation was able to move litigation from BT into arbitration was due to user agreements. To my knowledge, we no longer have those user agreements in place, and is the most instantaneous way we can at least lower our risk. Someone please make my week by telling me I am wrong, and new users are somehow subject to an agreement.

Honestly, regulatory enforcement actions are likely to be the least of our worries for shared liability. Though on that front, I am hearing more and more ominous whispers about 2022 being a very litigious year for crypto. I have no special information about which protocols and companies that might impact the most.

On the topic of taxes, US history has many examples of a single member of a general partnership being forced to pay the entire tax burden of their partners. Given the current political climate in the US, desire to increase spending, and growing worry over how to pay for that, I cannot foresee Maker – which pays taxes exactly nowhere – escaping notice, perhaps in multiple jurisdictions at once. Note that the final, late deadline for last year’s tax filings in the US is about to pass in less than two weeks.

I do not know what the variation in these exposures is in other jurisdictions like the EU, UK, LATAM, and others. But in the US, the current level of exposure to legal and tax liability is off the charts due to the size, complexity, and sheer number of members in MakerDAO.

This trajectory needs to change. We need to find solutions to these problems as soon as possible, and not simply to manage our own risk. If we want to do business with highly regulated institutions, they will need to be assured that we are compliant with all applicable laws. Some solutions – like a legal wrapper for MakerDAO in some globally recognized jurisdiction – would even allow for our RWA program, which is supposed to be the next engine of growth to 100x Maker, to scale much faster and safer than is possible now. There are compelling business reasons to solve these issues, and do so decisively.

In theory, anyone holding MKR could be exposed to these risks. One can imagine a number of other connections to Maker outside of holding the tokens that could also expose an individual.

As a closing message, anyone who has not already done so may wish to limit their interactions with this and all other DAOs to be within a limited liability entity in their preferred jurisdiction. In most countries, there are simple, easy versions to set up. I conduct all DAO business through an incorporated entity, and also hold MKR tokens within an incorporated entity to limit risk. I cannot and will not give legal advice, but consider doing something similar for yourself.

Please leave your thoughts and suggestions below. This has needed urgent attention for quite a while, and we need to get in front of this.


While I might not necessarily wish the same type of developments you want, I agree 100% that this discussion is needed.

The MakerDao community is made both of decentralisation purists, which would be happy with just ETH as collateral, and more business oriented people which would love to see MakerDAO incorporated as much as possible.

In light of the recent post of @rune , where he envisages a situation in 1 year where we can embark billions of corporate bonds, support RWA green activities, etc, I think it’s mandatory to make it clear what this will imply on the legal fronts (in USA, EU, and other main areas).

People should be well-informed now on what direction MakerDAO is going to take in the next year or so even if not all details are available today.


Correct. High-quality, highly regulated counterparties are going to be few and far between if they think we are not in compliance.

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@PaperImperium this is a good listen on how Guidance from Regulators (SEC, CFTC, IRS, Etc.) can benefit Decentralized Finance (there’s even a mention of the SocGen MIP6 application at 35:35)

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BTW if you rewind that :point_up_2: interview to minute 23 – you’ll get an idea of how even a Compliant company like COINBASE has been tirelessly asking to be Regulated (even bought 3 BDs to date) yet the SEC has been stalling since 2019… and then you wonder why some say crypto companies don’t want to cooperate when in fact we are ALL waiting for guidance & direction.

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Coinbase is NOT very compliant. They have handled their situation poorly.

Securities laws are also probably less problematic than taxes/liability. At least for Maker.

Good news Sir!


SEC Chief Says the U.S. Won’t Ban Cryptocurrencies

Link to a 1 year ago discussion:

Regarding RWA, I think you can have a legal wrapper for that and it can be somewhat decentralized.

What we don’t have is how to solve taxes. I think I alluded somewhere how a Cayman Foundation (orphaned) could issue MKR as securities that somewhat can be used governing the protocol as well. If you funnel MakerDAO benefit to this entity, they might pay dividends to MKR holders (as it’s security). You get limited liability. If the legal entity fails, you just start from square one, the contract itself is immutable and not controlled by the entity.


Aren’t we literally dissolving a Cayman-based foundation right now?

Given that Gensler expressly said today he’s going after DEXs, I’m unsure what level of censorship resistance decentralization to the point of no entity gets us.

I wonder what the market value of that 84k MKR was? And what jurisdiction we can reasonably use to avoid a tax bomb should an aggressive government choose to make it one.

I can’t seem to find a direct quote, or statement from Gensler via media outlets stating such, or are you referring to:

“Even in decentralized platforms – so-called DeFi platforms – there is a centralized protocol. And though they don’t take custody in the same way [as centralized exchanges], I think those are the places that we can get the maximum amount of public policy.”

Still waiting on transcripts. But yes. Remember that he thinks DEXs determine transaction fees in high-volume market conditions (aka high gas)

Anyway, I’m sure you saw the a16z post about efforts they’re making with the Senate Banking Committee? There’s always a chance the laws or regs change in our favor I suppose.

I agree and have already shared thoughts about a first step elsewhere so I’ll link to it here:


Here’s an early proposal I wrote up for the Bankless DAO. I’m only familiar with US Tax laws but this could probably be setup in a similar format in any jurisdiction such as Switzerland or New Zealand.
Good luck.


The first half is a very good summary of the why and the most common options in a US jurisdiction. I recommend people peruse it (the second half is more specific to Bankless’ needs).

I think we need to quickly get this discussion going, because each day potentially leaves members exposed.

If you have educated opinions about jurisdictions based on tax regimes and law, please chime in!

If you have educated opinions about legal vehicle structure (including how to maintain the primacy of the MKR tokens regardless of equity structure), please chime in!

This is an urgent issue where inaction has potentially catastrophic downsides, and action has the potential to allow Maker to more efficiently operate in RWA, fixed income, and anything else not on-chain.

In particular, if we are interested in an ambitious new direction for MakerDAO, then we will need a firm foundation to interact with counterparties, shield our workforce from ruinous financial risk, and have definitive answers to claims of taxable burden.


I think the discussion in forums/decentralised communities moves faster if there are some concrete proposals to discuss.


Agreed with @PaperImperium that we need to step up our legal strategy efforts. The discussion is obviously heating up in the US and I’m not going to speculate with hypotheses here, but, for me there is one important thing we should keep in mind when considering these matters:

Any path that leads to legal AML/KYC requirements on the Dai token itself, should be a non-starter.

The Dai token is of course fully permissionless and cannot be changed in its current form. But it’s not unthinkable that the wrong strategic choices on the legal front could lead to a future where the current ERC20 token, under legal pressure, is decoupled from the core protocol and a new, permissioned version is deployed.

If that happens, we should just trigger emergency shutdown, call Dai a failed experiment and give up. Free and borderless transactions with Dai, accessible to the unbanked, high inflation economies, etc. is the core of our value proposition. Any taxation and even liability considerations should be secondary to that.

In a world where CBDCs will be the official legal tender and every individual value transaction will be up for scrutiny by law enforcement, Dai has to be the free alternative or it should not exist. Because the digital age makes absolute surveillance an option, this will become an issue as important as free speech.

The other thing I’ll say is that panic is rarely a good adviser. If individual DAO members (MKR holders) feel personally uncomfortable with legal risk, maybe we should consider constructions that can put their participation as MKR voters on hold while the storm is raging, avoiding them to quit altogether. In times of panic, at time-out can be very helpful.

One way could be to deposit MKR tokens in a contract that locks them up and makes the retrieval dependent on the outcome of the US legal situation, putting a substantial risk of forfeiture in place that would remove any tax obligations. In case of forfeiture, another form of compensation can be considered. Or the forfeiture condition could be completely unrelated to the legal outcome, linked instead to some performance metric of the protocol. The Sagittarius engine proposal has similarities to this. (I just made these mechanisms up as thought experiments so don’t take my word for it, but I want to illustrate the direction in which we can think here.)


More specifically there would be two coexisting systems and people will gather around the one they want to work on/with. I think it’s pretty clear which one will gather more energy, talent and enthusiasm.

Not a lawyer, but generally that means we have to find a way to not be regulated by this list:

Federal Functional Regulator - §1010.100(r)(1) The Board of Governors of the Federal Reserve System;
(2) The Office of the Comptroller of the Currency;
(3) The Board of Directors of the Federal Deposit Insurance Corporation;
(4) The Office of Thrift Supervision;
(5) The National Credit Union Administration;
(6) The Securities and Exchange Commission; or
(7) The Commodity Futures Trading Commission.

Or avoid being any one of the following:

(2)“financial institution” means—


an insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)));


a commercial bank or trust company;


a private banker;


an agency or branch of a foreign bank in the United States;


any credit union;


a thrift institution;


a broker or dealer registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78aet seq.);


a broker or dealer in securities or commodities;


an investment banker or investment company;


a currency exchange, or a business engaged in the exchange of currency, funds, or value that substitutes for currency or funds;


an issuer, redeemer, or cashier of travelers’ checks, checks, money orders, or similar instruments;


an operator of a credit card system;


an insurance company;


a dealer in precious metals, stones, or jewels;


a pawnbroker;


a loan or finance company;


a travel agency;


a licensed sender of money or any other personwho engages as a business in the transmission of currency, funds, or value that substitutes for currency, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutionssystem;


a telegraph company;


a business engaged in vehicle sales, including automobile, airplane, and boat sales;


personsinvolved in real estate closings and settlements;


the United States Postal Service;


an agency of the United StatesGovernment or of a State or local government carrying out a duty or power of a business described in this paragraph;

(X)a casino, gambling casino, or gaming establishment with an annual gaming revenue of more than $1,000,000 which—


is licensed as a casino, gambling casino, or gaming establishment under the laws of any State or any political subdivision of any State; or


is an Indian gaming operation conducted under or pursuant to the Indian Gaming Regulatory Actother than an operation which is limited to class I gaming (as defined in section 4(6) of such Act);


any business or agency which engages in any activity which the Secretary of the Treasury determines, by regulation, to be an activity which is similar to, related to, or a substitute for any activity in which any business described in this paragraph is authorized to engage; or


any other business designated by the Secretary whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters.

I don’t know how realistic that is. But it’s surely not impossible, if we are willing to curtail or alter some of our business activities. Some of which may be unexpected — like will BTC’s status as foreign currency put us in one of these buckets.

Unfortunately, it’s not easy to get more than casual opinions on that until we have an actual legal entity that can hire legal professionals.


I think this is a great post. I 100% agree with the ideas.

Even if the US goes crazy with its legislation, we don’t necessarily need to change to core values of MakerDAO. The USA is not the only country in the world. DAI (not Maker) should be 100% decentralised.

As @rune said in a recent interview with Grayscale: MakerDAO kind of decouples bitcoin into two parts:

  1. DAI, which is a decentralised (as Bitcoin, in an ideal world) asset, but stable
  2. MKR, which is the speculative asset.

How about this construction for shielding US MKR holders:

  • It’s possible to lock up your MKR in a contract which removes your voting power.

  • You get it back after a set period of time, on the condition that emergency shutdown hasn’t been triggered in the meantime.

  • You receive a small interest rate for the opportunity cost.

  • The lock-up period is automatically extended at the end of the term with a new term, unless you explicitly indicate that you want to withdraw at the end of the current term.

  • The contract is 100% permissionless.

  • If your MKR is in the contract, you’re covered by the self-insurance fund.

Emergency shutdown is a credible risk of forfeiture. And if ES is triggered, any MKR holders fate is up to the social contract anyway so you don’t lose much.

I think this should remove any taxation obligations due to the forfeiture condition, and the liability risk because it removes voting power (control).

This is a simple contract to develop and could be deployed in a matter of weeks.

Only the interest rate and the self-insurance fund features require permission from Maker governance. Anyone could develop and deploy their own version without those features today to get started.

(Don’t put all your MKR in a contract you developed in a day.)