MIP 55 Signal Request - RealDAO SPF (to make Moloch based SPV's)

MIP 55 - Signal Request

Preamble

Sentence Summary

Is MakerDAO interested in allowing a RWA budget to flesh out ideas associated with DAO’s and Single Purpose Entities?

Motivation

Can we manage RWA on-chain in a permissionless manner?

  • Can legal entity DAO’s (“LAO’s”) be created using Moloch frameworks?
  • Can these LAO’s be designed to hold assets similar to how a SPV functions?
  • Can “dai” be minted against these assets?
  • What would “on-chain” remedies look like against RWA collateral?
  • The RWA brainstorm was highlighted in an earlier post here and further fleshed out in blog post here.

Special Purpose Fund Name

RealDAO SPF

Special Purpose Fund Scope & Work Credentials

This is a temperature check to see if MakerDAO is willing to earmark some RWA funds to bootstrap building the proof of concept of having legally formed DAO’s, which can own an RWA, that is represented by NFT’s. The Single Purpose Entity would also develop ideas and frameworks to allow a SPV DAO to have shifting governance over a pool of assets using the Moloch v3 (unaudited) framework discussed in Baal.

There are enormous advantages in the ability to have “originators” or individuals form single asset/single purpose DAO’s that can be governed on chain and “resolved” in a permissionless manner. In light of the new “Clean Money” proposal, there would be clear use cases to finance green energy and carbon capture. For example, these SPV’s could own solar farms, methane digesters, carbon offsets and credits, organic transition financing, sequester carbon through land use, etc. Agriculture finance, which is my specialty, will need a wide range of investment into ESG goods, which are often difficult to provision using traditional financing. I see specific needs in the previously mentioned areas, and each of these would be good candidates to place the real world assets into the SPV to finance.

Funding Request - “The Ask”

It is likely that the people (lexDAO, RealDAO, Moloch Mystics) working to build these primitives will continue to build with or without a grant, but it is clear that a signaling and morale boost would be much appreciated as this would be infrastructure core to the decentralized future of MakerDAO. All the aforementioned DAO’s have a strong history of providing open source and available goods to the public commons.

LexDAO - Repository of Legal Engineering Primitives - LexDAO · GitHub

Medium LexDAOism - open sourcing ideas and thought leadership in the legal and organizational development space.

RealDAO - Proof of concept that can be extended easily to manage assets from a DAO. The following LexDAO primitives are stitched together to demonstrate the pattern of onchain asset control and management

  • LexSummoner - to easily and quickly generate DAO native legal shells that would provide cognizable benefit to house assets
  • RealNFT - NFT minting contract with cognizable advantages as it is permissioned to a “DAO” to control the functions, ownable, whitelistable, burnable, pausable. Current version here.
  • Dispute Resolution - May be part of agreement between the SPV LLC and the intermediary that is providing DAI or more “at risk” lenders of first resort tranche.
  • LexLocker contract - Used to lock the NFT or perhaps proceeds and payments into a double sided (buyer/seller) escrow smart contract. There are no intermediaries unless either the buyer or seller hails a resolver, locking the NFT for swift resolution.

Pros and Cons

Main benefits:

  1. Using SPV mechanisms based on Moloch are much easier to cordon off and manage for regulatory and systematic risk as each can be a legally cognizable entity organized as a legal shell and DAO.
  2. Legal simplicity is that they would be governed by organization laws of states that have a long history of using the LLC frameworks.
  3. On-chain mechanics allow real time monitoring of the real assets and digital entitlements. The dual legal frameworks would allow traceability and transparency to follow the chain of title. For example, the deed and the title report could be put into the NFT’s metadata.
  4. Flexibility - Obviously the DAO model above would be useful for a wide range of assets. Most assets can be legally held in an LLC organization, and through code deference the DAO smart contract can be programmed to manage the asset in the form of an SPV. In other words, this model should be extensible to other asset classes.

Downsides:

  1. Regulatory - It may be difficult to navigate in the US (and other jurisdictions) as there is current regulatory uncertainty. If the distributed ledger world is saddled with it’s own set of onerous regulations, it may make sense to just follow a traditional finance path.
  2. Smart Contract Risk - Obviously with any custody of assets of value, there are questions associated with smart contract risk, audits, and recovery. These can be mitigated by using trusted frameworks, audits, and legal disclaimers.

Funding Breakdown

15K to develop single asset operating agreement and legal forms based on Wyoming LLC or Delaware, LLC state organization code.

20K for Smart Contract specifications of Baal to allow for governance shifting of control based on event of payment default

5K for management

10K to LexDAO upon deliverable of working SPV model

Next Steps

  1. This polling request is to receive feedback and hopefully the DAO’s support to build out a hybrid decentralized SPV model as described above. If support is received, then we will incorporate the feedback into specific milestones.
  2. As can be seen in the linked blog post, many of the steps have already been accomplished as a proof of concept. Step two, would be to incorporate MkrDAO feedback into making the model customized and fit their procedures.
  3. Provision specific milestones into the Special Purpose Fund (if approved)
  4. Further refine the specific asset use case into a collateral request using the SPV framework. Methane digesters appear to fit the ethos of the DAO, are very capital intensive and are very able to separate from the real property and finance separately in a SPV, with offtake and ontake agreements.
  5. A simpler alternative to methane digesters would be to simply make loans on conservation lands, though the coupon that these lands are able to generate is considerably less than that of higher intensity projects such as methane digesters.

The fund would be permissioned according to the requirements of a Special Purpose Fund (“SPF”) MIP55 to ensure progress and sufficiency of the deliverables and to prevent scope creep.

Additional thoughts and comments welcome in the thread below.

Would the DAO signal a 50,000 DAI SPF (with conditions) to signal boost and build decentralized infrastructure?

Would MakerDAO signal for a MIP55 - 50,000 DAI SPF (with conditions) to build decentralized SPV infrastructure?
  • Yes
  • No
  • Abstain

0 voters

Poll Closes 11/11/21 at 12 GMT

3 Likes

Was going to vote yes on this proposal, but evidently I have not been active enough to achieve trust_level_2.

This is an exciting project to move forward on the idea of a DAO holding real world assets similar to a special purpose vehicle. For example: land. The crypto community really needs to take steps to prove these concepts to incorporate off-chain value into the web3 world.

RWA concept proof would go a long way to effectuating Makers’ “clean money” proposal. I look forward to seeing this proposal pass.

2 Likes

This Signal Request is a good way for the Maker community to express a willingness to experiment with other ways to handle RWA. So far the RWF is moving more towards interacting with established TradFi players than fostering innovation from the broader DeFi community.

1 Like

Surprised to see such little vote turnout, experimenting with Moloch DAO’s is an awesome step forward and it’s great to see the MIP55 framework get a use case.

Have you checked out otonomos? I feel like they have something geared specifically towards this type of structure that isn’t 15K.

2 Likes

Thank you for your interest. I have checked out Otomos at one point and what they do is very cool. It is my understanding that this is just step 1, which is basic formation of the legal shell. That is really the easy part, the legal tooling and drafting that would be required is to draft a specific Moloch code deference agreements so that operating agreement defers certain aspects of asset governance to the “smart contract” DAO that would handle the RWA as a NFT and perhaps the NFT as well. For example the NFT would require certain legal tooling to digitize the rights that are meant to be represented on chain. You will see some of the basic idea in the article that I wrote (link above), that starts to flesh out these ideas. Fact is that lawyers are expensive and in all honestly, even at 15K it is probably a loss leader for the lawyer work that would be required.

@jameskmccall - this is a great initiative and one for which $15K will not be enough for legal. A robust structure, for US purposes, will need to address several different legal disciplines, including, corporate law (each state will be different), legal enforcement of smart contract rights, regulatory (state and federal), bankruptcy, and tax. My recommendation is to have a pre-eminent firm work on this project. They will have the resources to address the myriad of issues and, most importantly, can appoint an internal lawyer to coordinate activities. Based on my experience, most of the white-shoe NY firms can address DE law in some respect because of its standardized nature, but you will need DE counsel too. Wyoming may be require Wyoming counsel for sure. The advantage of a preeminent firm is that you will have a one-stop shop for all of the issues. Their review and participation can provide a degree of comfort for the Maker community. That is why the RWA CU is currently using Latham & Watkins and Shearman & Sterling on various matters.

4 Likes

Thanks Christian I think it is unsaid exactly what the “deliverables” would be in this case as it is a unique smart contract system. The equivalent of the operating agreement would be a code deference agreement pioneered by (my knowledge) Gabriel Shapiro and customized to address the particularities of the Moloch smart contract, which is already well designed for SPVs and has supported venture clubs, like TheLAO, which LexDAO members helped work on. This is a space that I feel might actually require some catch up from “white shoe” firms and the tuition here could become expensive without a limited scope, though they might have something to offer as this project develops and touches more jurisdictions.

Your point is well taken that at the next step, when the aforementioned tooling is provided it would make sense to bring in a deep bench of knowledgeable attorneys to make sure that it protects against legal uncertainties, bankruptcy remote, tax, securities, etc. In my opinion this would be very deal specific, for example with a methane digester there is plenty of legal work, to feather in the off-take and on-take agreements, and lay out all the responsibilities, in the agreement and make sure that it maintains remoteness.

This proposal is more to incubate work that is already in progress, in the vein of DAO’s helping DAO’s to hopefully find on-chain solutions for managing assets that would enable a feathering of legal rights on top of a legally recognized DAO setup. I mean, legal contracts at some point just become digitized rights, so might as well provide a manner for the SPV DAO to manage these assets, and that way, it is much easier to contemplate liquidations and due diligence.

2 Likes

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