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

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.

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.

3 Likes

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.

12 Likes

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

1 Like

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.

8 Likes

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!

2 Likes

How is that income? The Foundation just gave the community back its tokens. Last time I checked, you give something to someone and they give it back, you don’t consider that income.

Agree with Jacek that there are a lot of assumptions (looking ever more panicked) running through this thread, including that simply “re-centralizing” this disparate group of individuals and companies currently under no common control is a magic wand to cure our supposed ills. And note, trying to incorporate the DAO WILL put a great number of people, at least the CUs, under common control, I believe.

8 Likes

yeah, in any case we could just burn those token and forget about them as in “thanks, gift not appreciated and thrown to the bin”.

If needed, we just mint them back. (LOL)

So, yeah, I don’t really see how anybody could consider that as income.

3 Likes

Not saying it is. But we should view these things from the perspective of those who would make the claims. Characterizing them as a loan from the DAO to the Foundation strikes me as a good retort.

1 Like

Thanks everyone for participating. We’ll continue our research as @SES-Core-Unit exploring the 3 topics here:

  • The self-insurance fund
  • Legal structuring for the DAO
  • A smart contract as legal shield for MKR holders

Anyone who’s interested into discussing these with us, feel free to reach out.

11 Likes

I’m very skeptical of any attempt to create a legal entity that represents ‘Maker’. In particular when the justification for doing so relies on broad assumptions. We’ve just undertaken a tremendous amount of effort to shut down the Foundation and break up into decentralized Core Units. Any moves in this direction should not be rushed in a panic and instead need to be carefully scrutinized from every angle.

Frankly, I don’t think we community members, nor Core Unit contributors, are remotely qualified to speak on the credible threats to the DAO, its members, and the potential legal constructs that might mitigate those risks. Apologies if this comes across as insensitive, but I find it quite irresponsible how people in this thread are using arm-chair lawyer legal interpretations and media sound-bites to justify action. Any brash action could jeopardize years of carefully constructed legal positioning. This reinforces the need for one or more Legal Core Units who have the expertise to navigate through such complex issues.

18 Likes