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

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.)


Our major problem isn’t securities regulators. We have cash for fines and even a draconian enforcement action then tells us what we need to remedy.

Our problem is mainly that of liability and taxation. Maker in the US will almost assuredly be seen as a general partnership. I have yet to hear a lawyer say It would not be.

That leaves all members on the hook for any perceived damages, taxation, and possibly criminal activity. I’m not sure about you, but I don’t think anyone here has the money to pay the IRS if they decide that Maker is a US entity and decide to treat as income the $400+ million batch of tokens provided by the Foundation. My understanding is the only way around this is simply that Maker itself meet any claimed obligations. If we wanted to dispute them, that would also be best handled at the level of any supposed general partnership — otherwise you have partners cutting deals to avoid being left holding the bag .

So we need a shield around all our members — not only those who live in or have seizable assets in the US. We also need to definitively establish jurisdiction for Maker to live in so we don’t suddenly find not just the US, but multiple countries claiming Maker owes taxes on the same income.

Nothing about this says the protocol itself has to change. Or our internal governance processes. Or even whether DAI is decentralized, as the GC at dydx kindly reminded us that simple filings of required paperwork don’t count as managerial efforts.

But the first level of compliance is paying taxes — preferably in a single jurisdiction we choose now and not half a dozen that decide they can pick on a stateless DAO.

And the first level of protecting our members and workforce is to have an entity that can stand between them and authorities/civil courts.

We can figure out whether and how to do less basic stuff once we know what laws do/do not apply to Maker — much of which will be affected by jurisdiction and domicile.

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Overall I think it’s a very important discussion to have, and in particular focusing on tax both reactively in the US (as they are looking to do a tax crackdown on crypto) and proactively in the rest of the world. The way to peacefully coexist with governments is to pay some sort of tax on the economic activity done within their borders (e.g. stability fees from real world assets).

So we need a shield around all our members — not only those who live in or have seizable assets in the US.

This simply isn’t possible. There’s no way to force someone to join such a group, and there is also no way for such a group to control Maker Governance. However, I do think, as Wouter also suggested above, that it makes sense for Maker to dedicate resources and make a commitment to proactively protect MKR holders in the US who may otherwise get spooked and dump their tokens, or quit their jobs in Core Units.


MakerDAO does need a serious discussion about legal structure. I fully agree with this statement.

Also, I do recognize that some of the risks which are being mentioned are real.

That said, some of the presumptions made seem at best premature. Some examples:

Strongly disagree here. As soon as we do that, we would put ourselves at the mercy of such a country. Consider a scenario in which they ban stablecoins in the future.

Well, not sure at all. Such a key decision would have profound consequences for all aspects of MakerDAO.

First of all, I am not quite sure if all MKR holders would actually describe themselves as “members” of the DAO. I am even less sure if all MKR holders would be actually interested in becoming involved in any new legal structure.

If we accept the bold claim that MakerDAO was a US-based “general partnership” at the time of receiving MKR treasury, how would a potential conversion to a legal entity protect us now? I don’t want to discuss this matter here, just using this question as some caution that we should look for well-though solutions which actually solve problems.

Let’s try not to throw the baby out with the bathwater. I like Wouter’s idea because it provides some immediate relief for concerned MKR holders, while allows us to not make rushed decisions.

I appreciate @PaperImperium 's push for bringing up this topic, and I actually think that this is one of the greatest challenges for MakerDAO. If we do not get it right, Maker can fall. I we do get it right, that would be a huge competitive advantage. Let’s exit the panic mode and focus on solutions.


This is certainly a major concern. Which is why if we chose to do this we would need to shop carefully for a favorable jurisdiction.

What is the alternative, though? Being stateless means there is no system of tax treaties to prevent many nations pursuing us at once. Paying taxes in a recognized jurisdiction would — if done correctly — prevent a dog pile of other jurisdictions claiming us as their own and demanding we prove otherwise.

Open to suggestions, but most nations are becoming more aggressive in capturing tax revenue. Maker will not go unnoticed and has few methods of defending against accusations that it’s revenue is derived in some unfavorable tax jurisdiction

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My current thinking (and I think that you would agree) is that any hostile tax / regulatory action against Maker would need to be directed against some of the individuals / entities engaged in MakerDAO (in other words, some individual elements of the decentralized structure around the Maker Protocol).

If that is the case, the natural and likely non-controversial next step would be to find some immediate relief for such exposed individuals. On the legal and regulatory side, this is the goal of the Self-Insurance Fund. On the tax side, Wouter’s smart contract-based solution seems like a step in good direction.

For more long-term solutions, including having some form of a legal entity in place, I would think about what’s the best structure to analyze and discuss.


Is there a country in the world right now with clear regulatory laws around entities like MakerDAO? If not, this seems to be a battle against, as Dick Cheney put it, unknown unknowns.

I’m all for aiming for a competitive advantage in the face of new regulations and to de-risk the DAO’s future as much as possible but I’m not sure if there’s anything concrete we can do with the regulatory clarity we have right now.

As for the US specific comments, it appears that the US government doesn’t know how to regulate this space but is intent on making noise about it. This is leading to panic decisions by other protocols, such as 1inch and dydx who are now asking you to sign that you aren’t in the US if you want to use their platform. That might make sense once there is regulatory clarity - right now, it’s not!