Good question. Hopefully a quick signal request for questions? Definitely something faster to respond to things like a regulatory letter.
Open to suggestions.
Good question. Hopefully a quick signal request for questions? Definitely something faster to respond to things like a regulatory letter.
Open to suggestions.
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.
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.
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.
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.
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.
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.
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.
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.
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.
A few observations from the chain above:
The RWA CU does not “operate” the RWA Cayman Foundation. The RWA Cayman Foundation is a stand-alone, orphaned entity that may, from time to time, borrow funds from Maker. The RWA Cayman Foundation has separate director(s) and a supervisor. Maker may lend DAI to RWA Cayman Foundation from time to time and, as a lender, Maker will have an interest in how such DAI proceeds are utilized (similar to a project finance vs. a corporate finance).
Just as the DAO does not exist as a legal entity, neither do the CUs. I know in the RWA CU, @SebVentures company has to sign engagement letters with law firms. As such the attorney-client privilege only applies to his company. So that I may participate in conversations between @SebVentures and external counsel and have such conversations subject to privilege, I also have a legal engagement letter with @SebVentures company.
Perhaps, but this does not mean that the CU leads will necessarily accept or follow such advice. It is only advice.
Admittedly there may be an attack vector in having counsel “represent” the DAO. Having said that, if a government wants to attack a DAO, there are probably multiple ways to do so. It seems reasonably prudent to have a platform to respond in the event of such occurrence (or better yet, advise on measures to take in advance to mitigate any such attacks).
I think there are a few ways for Maker to have the ability to obtain legal advice from time to time. First, if there is a legal CU, then I recommend that the Legal CU establish a real world entity for purposes of engaging law firms and then preserving attorney-client privilege. Changes in the CU can be easily dealt with in the organizational documents of the real world entity. Of course, if the real world entity shares the legal advice with the Maker community, then entity will lose the privilege with respect to the particular legal advice. This will be a calculated risk made at the time. But it seems useful to have the advice in the 1st instance and then decide how to use it.
Second, it is possible in some jurisdictions for non-legal professionals to be part of a law firm. The District of Columbia (Washington, DC) is one such well noted jurisdiction. Tied-up with the real world entity above, there is the potential to set up a Maker focused law firm. This law firm would then contract with other specialist counsel in the US and internationally (as needed). This is a potential possibility. Most common uses are for accountants, etc. to be part of law firms. But it could be something to investigate further (if warranted), although admittedly a bit centralized.
Finally, in the event that the community elects to proceed with some form of legal advice, I am happy to give it a hand… even if only recommending firms, lawyers in other jurisdictions. I have worked in over 40 countries on various transactions and, if I don’t know of a contact, I can certainly find one quickly. Japan is very easy as I worked in Japan for 4 years and Singapore is easy too as my last major role included supervising in-house counsel (and indirectly external counsel) in Singapore.
That’s incorrect, I believe. Other CUs, to my knowledge, do (wisely) have formal corporate forms to limit individual liability.
I’m curious, who will be the directors and the supervisor, and how will the directors be chosen?
This is an interesting idea. Would this set up permit the DAO to have a formal “outside counsel”? Would we have to have at least one person to form a DC-based law firm with a DC-barred lawyer then have that law firm engage outside counsel on the DAO’s behalf?
Okay. Did not know that. Thank you.
If a CU establishes a Cayman Foundation, the core unit will have to interview various potential candidates for the role. See MIP58: RWA Foundations
That is the general idea (through the real world entity). While I am a DC qualified lawyer, I would want to investigate the potential with DC counsel that may deal with DC Bar ethics rules on a regular basis. It might be shot down, but it also may work. It is only something to potentially explore.
Thank you for your comments. I agree: it is important to have a network of legal professionals “on demand” in case someone is target of a lawsuit or regulatory action, or in case someone needs a legal opinion about the risks of a technical implementation (for example, the recent discussion about DSS Vest and legal risks of minting MKR). Your professional network will be for sure very valuable here. I still struggle with the idea of a centralized Legal CU but I think individual members or CUs could pay for external advice or even retain external counsel through the self insurance fund I will propose shortly.
Yes, indeed. SES is documenting the legal setups of all Core Units and will share soon the findings (in a anonymized form) with the community. Some Core Units are incorporating legal entities or are using existing entities to interact with Maker DAO, other Core Units are not incorporating any entity at all. Some contributors are engaging personally as individual contractors, others are using a legal entity. There are many setups possible, depending on the business / revenue model, geographical distribution of the team, regulatory or commercial considerations, etc.