[Informal Poll] Do we want legal representation/advice for "the whole DAO?"

Is MakerDAO interested in having legal representation for the DAO as a whole? Currently, CUs take on legal advisors to suit their own needs, but there is no legal expert for MakerDAO to turn to should “MakerDAO the organization” face a love letter from a regulatory agency, or simply have day-to-day questions.

After informally consulting with a variety of legal experts both within and external to the DAO, it seems that there are workarounds to the DAO not being an entity (though they are administratively burdensome for the attorneys involved). Assuming the gymnastics can be done correctly, does MakerDAO want an external “general counsel” or formal legal advisor?

I see two main benefits:

  1. This provides someone MakerDAO can ask mundane questions of that are not already covered by a core unit’s legal advisors (like to what extent the Deco Protocol proposal involves non-exempt securities or how we can structure a product in a way to minimize objections from regulators in major jurisdictions).
  2. This provides someone ready to begin responses to regulatory letters that often have timelines attached to them, without us having to locate and onboard legal advice under duress.

I see one main downside:

  1. Cost. Good representation does not come cheaply (we would not want Twitter-warrior lawyers).

Cost is also likely to be lumpy, as our needs for billable hours will rise and fall with our legal needs. It may be that even a top-tier practice will not need much of our money, simply because we don’t have many questions and no one is coming after us. It may also be that we incur very large expenses – though that seems likely to be in the middle of an existential crisis, in which case it is not an expense we can realistically avoid.

Additional thoughts and comments welcome in the thread below.

Given that this would not be a replacement for CUs retaining their own legal experts as appropriate for their jurisdictions and operations, and also given that there are high-quality practices that come highly recommended that are prepared to work for MakerDAO, do we want a legal advisor for the DAO as an organization?

Does MakerDAO want a legal advisor for the DAO as a whole?
  • Yes
  • No
  • Abstain

0 voters

This poll is intended to be a temperature check on whether to pursue a layer of legal representation for the whole DAO. CUs already attend to their own legal matters with representation specific to that CU, and this is not intended to supplant that.

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How do you envision the process in which the DAO asks questions to the lawyer?

Signal request? GovAlpha? Something else?

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Good question. Hopefully a quick signal request for questions? Definitely something faster to respond to things like a regulatory letter.

Open to suggestions.

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I’m leaning towards skeptical because the setup would be simpler through a Legal CU. There are operational questions as mentioned by @SebVentures and also conceptual questions about what it means for the dao itself to have a lawyer. Contracting a CU tasked with monitoring legal issues in multiple countries and with discretion in choosing legal counsel fits the current Maker structure better and will probably be smoother operationally.

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Where do you foresee the legal representative being based? I’m assuming US? How does this help or protect CUs or contributors in other jurisdictions?

Will the representative have requisite knowledge of EU/UK/Japanese/Argentinian etc law? Probably not. Will they take responsibility for identifying a law firm that does?

This feels like a compromise that is inferior to a legal CU which encompasses legal representation from a range of countries/regulatory systems and is mandated to source external legal opinions when the CU is not appropriately staffed.

I think this could be considered but only as a short term stopgap until a superior structure is in place.

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The main issue is that then the CU is the client, rather than Maker. That means no attorney-client privilege

There are creative ways to fit it into the CU model, though. We can, for instance, have our own law practice. But that’s likely more expensive than hiring outside help as needed.

Obviously we will want representation in all major financial jurisdictions. The US is a must, but we’ll need it anywhere that there’s a market we cannot afford to be closed out of. There are quite a few of those

I had to “Abstain”–the question of what jurisdiction it will cover, and the relationship between members of this DAO and their CU–can it be interpreted as a “general partnership?”

I also wonder if the DAI Foundation should provide such legal services, and/or if each region should have a Legal CU that advices the community & MKR token holders. All-in-all I believe Maker should avoid a central point of failure. But yes, so many unanswered questions.

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Attorney-client privilege when the client is a DAO doesn’t make sense to me. How would it work?

Reflecting on the idea a bit more, the DAO is really a structure around which things are done, more like coordination nexus than a tangible entity.

If we send the request through a signal request, I guess the law firm will provide the answer in the forum (assuming they are willing to in the first place). Attorney-client privilege is dead anyway.

If they answer only to one group, you end up with the same centralization problem.

What is the problem of having a Legal CU hiring counsel on behalf of MakerDAO? I’m hiring counsel on behalf of MakerDAO with my own entity and it works fine. If you don’t trust the CU for any reason, get rid of this CU to start with.

The root of the problem is to get a Legal CU and define how they can be helpful. Imagine you are the Legal Facilitator, you hire a counsel. The first thing he tells you is that we are breaching securities laws, KYC laws and are acting as a broker (I don’t think so, just making a point). What do you do?

I think the main problem is there isn’t one, and unlikely to be one any time soon?

If someone wants to form a Legal CU, I suspect we can do it that way. But right now, we’re Waiting for Godot.

The most pressing question to answer is: If someone wants to start an enforcement action against or subpoena MakerDAO, who do we have currently ready to answer that?

That may or may not be a Legal CU. But if that happened tomorrow — either on the forum or more likely to a random collection of DAO members— what would we do? Everyone hire their own lawyer? Sounds like an invitation to the Prisoner’s Dilemma

I’m not opposed to efforts to educate the DAO on various legal matters but given the variety of different matters we deal with and jurisdictions we’re coming from, do you have any thoughts on what type of lawyer might be best suited to our needs?

Generally speaking, any legal counsel retained by CUs is going to put the interest of the CU ahead of MakerDAO so while it might be an unusual situation, having someone engage a lawyer with the understanding the lawyer is advising the DAO rather than that individual is probably doable and if there are issues the community would rather get an answer on directly rather than via a CU, then this is probably in our interest.

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My immediate thought is a US securities law firm, given the number of letters going out to DAOs and companies from federal and state regulators. Uniswap and Coinbase are not the only ones getting hit, and many of them appear to be out of the blue.

Obviously that will not be the one and only law practice we would want to have access to.

Perhaps a DAO-wide general counsel is not the answer. That’s definitely why I wanted to ask people.

I will be retaining counsel for myself if not covered by the DAO, however — it only seems wise. Perhaps that’s what everyone should do. It’s an open question, but does mean the first action against us may legally put individuals and CUs against each other. Seems bad for business.

We’re charting a route into new territory. Whatever we do will hopefully provide guidance (good or bad) to other DAOs.

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I have a few thoughts on this thread in general along with specific responses to the comments above.

First, as the DAO does not have a corporate form, it will be difficult/impossible to create an attorney-client relationship and thereby attorney-client privilege with outside counsel.

Second, I believe concern over “MakerDAO the organization” receiving a regulatory love letter is overblown IF the DAO continues more or less along its chosen path (RWA with regulated intermediaries, etc.). However, the risk of uninvited regulatory engagement increases with a corporate form that can receive subpoenas or inbounds – e.g., an RWA Cayman Foundation operated by the RWA CU and making investments “on behalf of” the DAO. And I’ll comment on Deco, and some of the problems with it, in another thread.

Third, I believe every CU should have legal counsel, just as any independent company operating in the general economy has an in-house or outside lawyer they use for various things. Moreover, my practice is to house my MKR in a limited liability company to protect myself for any governance decisions that may be attributed to me because of voting. Of course, I am more risk-averse than most in this regard.

Fourth, if we ever onboard a Legal CU – which should act more as a consultant than actual counsel given the lack of corporate form and inability to represent the “DAO” as a client – they should run relationships with outside counsel. That’s ideal as you’ll need lawyers to manage lawyers, including costs and work product.

Fifth, if the DAO ever considers engaging outside counsel, through CUs or otherwise, focus on the big picture. Yes, good counsel is expensive because it’s worth its weight in gold.

Now to some specific comments:

This would be ideal – US and EU to begin, with Japan/Singapore next.

Perhaps – though this likely requires counsel to structure the relationship as a consultant and plastering disclaimers about “how this legal advice cannot be relied on” over everything and anything it puts together (memos, emails, opinions etc.). Also, I’m not sure what the difference is between our own law firm and a CU – and on the former, non-lawyers cannot own law firms if I remember correctly so that cancels out formally owning any firm.

It doesn’t – the DAO would have a hard time being considered a “client” by any major law firm.

The problem here is that the lawyers have a relationship with your CU, not MakerDAO. In theory, they can advise you in such a manner as to disadvantage the DAO and, as a result, MKR holders. It requires the DAO to not only judge a CUs performance but basically look past everything they say and do with regard to actions they take, especially on regulatorily sensitive matters. That’s a tall ask for a decentralized group.

Well, a good Legal CU wouldn’t go to an outside law firm without an incredibly deep understanding of the protocol, the latest regulatory developments and how the law as is applies to the protocol’s function. Put another way, we wouldn’t want our Legal CU needing to ask basic questions – those opinions and positions should be long-formed before they seek outside counsel assistance. But if they encounter such a position in the future, they should seek counsel from multiple places before listening to drastic positions (like seeking a second opinion for a critical medical diagnosis). If the answers are uniform “bad” across the board, they should bring those concerns, along with a means for how to deal with them, to the G&R call, as we do with other problems arising in DAO governance.

I understand the concern, but I don’t think the sentiment is correct. Yes, these projects have presumably received letters, but all of them have centralized entities that may easily receive subpoenas – Uniswap Labs, Inc., Coinbase, Inc., etc. These are not DAOs on the receiving end of letters, they are highly organized and well-financed centralized companies, not much different in corporate form then your local McDonald’s, Carrefour, or Café Havanna. My point is these companies “centralized” – which likely has many benefits – but also brings disadvantages, such as being more open to regulatory action. Now if we heard Banteg got a subpoena in the mail, I would revisit my thinking (and they may have – Yearn.fi now has a warning about US-based users) but I don’t think that’s likely.

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Thank you @PaperImperium for introducing this topic! Generally speaking, I don’t agree with having ONE legal representative / advisor / CU for the DAO. This makes sense in centralized organizations with top-down hierarchies, but not in a DAO, where no single party should have the power of representing or directing the organization. It also brings obvious centralization risks, which in turn increases regulatory risks. Additionally, it is a very obvious attack vector for legal or regulatory action.

Instead, I support the current setup; each CU retains its own counsel, depending on its business model and jurisdiction. I think legal advice should be granular (to avoid centralization risks) and external (to externalize liability risk associated with legal advice). Several CUs could share one legal resource.

Nevertheless, the risk of regulatory or legal actions is real, and we should deal with it now. While the community finds the best way of structuring legal advice/representation, I want to propose a Self Insurance Fund for MakerDAO. I will elaborate on the details in a later post, but the idea is to structure a fund that covers legal costs in case a DAO stakeholder is the target of a lawsuit or regulatory action. In a second layer, the fund could also cover fines or civil damages ordered by a Court of Justice. The Special Purpose Fund (MIP 55) could be used for this purpose.

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A minor suggestion for this great idea re self-insurance: rather than draw from protocol fees or Dai printing, we should allocate a portion of the MKR treasury for potential costs. In case the need for Dai should arise, we can burn the MKR and channel the Dai to paying the bills.

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Yes, certainly a good idea! First, we have to determine how large is our exposure and who will be covered. Then we need to define the source of the funds and the claim/payment process.