MIP55c3-SP2: Create RealDAO SPF to make Moloch-based SPVs

MIP55c3-SP2: Create RealDAO SPF to make Moloch-based SPVs


MIP55c3-SP#: 2
Author(s): James McCall
Contributors:LexDAO and RealDAO
Tags: RWA
Status: RFC
Date Applied: 2021-11-23
Date Ratified: yyyy-mm-dd
Amount Requested: 50,000 DAI
Recipient Address: LexDAO Resolver - 0x5B620676E28693fC14876b035b08CbB1B657dF38

Sentence Summary

The purpose of this subproposal is to create a 50k Dai SPF to provide a prototype SPV DAO with a template code deference agreement.


It is necessary to the future of MakerDAO to be able to manage RWA on-chain in a permissionless manner.

  • Create legal entity DAOs (“LAOs”) using Moloch “Investment DAO” frameworks.
  • Design the LAOs to hold assets similar to how a SPV functions off-chain.
  • Provide membership interests and governance rights that allow Dai to be minted against the SPV assets.
  • Explore 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, and received positive feedback in this signal.

There are enormous advantages in the ability to have “originators” or individuals form single asset/single purpose DAOs 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 SPVs 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.

Special Purpose Fund Name


Special Purpose Fund Scope & Work Credentials

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.

Is MakerDAO willing to earmark RWA funds for building the proof of concept of having legally formed DAOs, which can own an RWA, that is represented by NFTs? 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.

Funding Request - “The Ask”

50K to help build an open source infrastructure core to the decentralized future of MakerDAO. All the aforementioned DAOs have a strong history of providing open source and available goods to the public commons. See below for the an example flowchart deliverable for DAOs to own and manage real property assets.

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.


  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

  • 25K to develop single asset LLC “code deference” operating agreement and legal forms based on Wyoming LLC organization code.
    • Code Deference Agreement template based on Wyoming would be provided to allow MakerDAO legal team to add additional garnish.
    • Once approved can use a similar mechanism to LexSummoner allowing LLC generation and minting with DAO using DaoHaus framework. This is a basic “push button” organization with a DAO as frontend, with the code deference agreement to manage certain parameters of the operating agreement.
  • 20K for Smart Contract specifications of Baal to allow for governance shifting of control based on event of payment default.
    • Moloch share interests are inherently not bearer instruments. This makes them basically impossible to pledge or hypothecate the membership interests. Newer models will allow more extensibility to allow for DAOs to pledge membership interests (tokens) as collateral
    • Pledging these tokens would allow a further helper contract to split the ownership of the LLC from its governance. In this way, it can be possible for a remedy of sale or dissolution of the assets held by the SPV.
  • 5K for management.

Special Purpose Fund Details

Official Contact or Group Name: LexDAO and RealDAO
Contact Email/Handle: [email protected]/@mccallios
Date Added: 2021-11-23
Total Amount: 50,000 Dai
Wallet Address: [0x9e1585d9CA64243CE43D42f7dD7333190F66Ca09](https://gnosis-safe.io/app/#/safes/0x9e1585d9CA64243CE43D42f7dD7333190F66Ca09/balances)
Comptroller signers: @sebventures, ?, ?

Additional thoughts and comments welcome in the thread below.

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Interesting stuff you got going here. Quick Question, is there any evidence that Ricardian Contracts are admissible in a State Court? Will look over your write up a bit more and revert back. Thank you James!

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Contracts are fairly rigorously enforced if the requirements are met. The black letter of a contract are consideration, offer and acceptance, legal purpose, capable parties, and mutual assent. So no reason that a Ricardian contract shouldn’t be able to do that.
But I think what you might mean is whether series LLCs are accepted in every US state. That is a patchwork.

Though the option would be to just have a normal LLC filing, which are accepted universally to my knowledge. The downside as I see it is just more fileing fees and registered agents expense. But that is the price for incorporeal formation.

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Got it. And the idea here is go create an LLC and use smart contracts to hash-out an agreement?

If so, one of the things I have always wonder about is the language of a Smart Contract—can it be considered admissible as a legal agreement? As an example, how do you determine the legal admissibility of a strong smart contract versus a weak smart contract? I recently came across a write-up that said:

“Strong smart contracts have prohibitive costs of revocation and modification, while weak smart contracts do not. This means that if a court is able to alter a contract after it has been executed with relative ease, then it will be defined as a weak smart contract.”

Also, have you thought about the concept of a prediction smart contract as a binary option contract that triggers when an event occurs? Hopefully that makes sense.

Once the real assets are owned by a legally recognized entity such as a LLC and combined with a DAO front end smart contract framework such as Aragon, or in this case Moloch/DauHaus, then many interesting patterns can be launched from this base primitive state.

An example would be that the DAO SPV, could vote to sign and or ratify agreements, that are hashed to IPFS. That way the record of the ratified and signed lease is on chain as a matter of record. This would be the primitive state necessary to pledge the assets, or enter into other agreements. Generally it is my experience that the right to contract is a strong right that is recognized by courts. This deference to the intent of the parties, in the four corners of an agreement can guide, contracts and entity operating agreements.

The LLC operating agreement would be a “code deference agreement” that directs the governance of the LLC to the smart contract for predefined matters.

A lease, would look like a normal lease between parties that could be cryptographically signed, or probably more likely, just signed by a designated party ratified by the vote of the SPV LAO. The document would be scanned to IPFS (or similar) hashed and related back to the vote.

One would also likely expect that the parties would choose alternative dispute resolution “ADR” as their contracted remedies. In this way, the parties could at least signal the base rules that they chose to have a dispute mediated/arbitrated in as code deferential manner as possible.

Your questions are good ones as most of these matters are likely of first impression. But I think there is a growing amount of scholarship The Law and Legality of Smart Contracts by Max Raskin :: SSRN as an example on how courts should start to look at these matters (should it become necessary). That said, I have not seen any specific adjudication yet.

I am too really interested in the possibility of prediction markets, binary, as well as mechanisms such as Kleros, but I still think they are in the process of spinning off rough edges to say the least.

But to the extent that the parties are dealing with real assets, they are going to be subject to local, state and federal rules and that will need to be the manner of managing ownership “deeds”, and perfecting security interests and managing normal transactions (property taxes, recording, UCC, etc.).

Sorry for coming off dismissive, as I know you’ve put a lot of effort into this proposal. However I’m fundamentally against the idea of experimenting with random untested legal structures for recourse of RWA collateral. I see no upside and plenty of risk, complexity and distraction. We should never settle for less than the best solution which is to use best in class trustees from the jurisdictions we trust, in tried and tested structures that don’t have a chance of randomly failing or causing asymmetric risk like dragging us into tax issues.

It’s like we’re a merchant trading goods with a container ship. Instead of focusing on what goods we should be trading, we’re experimenting with whether we can get away with using containers made out of plastic or wood. When we should just be using steel containers since that’s what we know works, and then focus on our actual business.

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I feel that LLC’s are fairly battled tested in the US, but just so I understand, which legal structure to you feel is a tested one for handing RWA?

Definitely agree that LLCs are battle tested, and I’m not saying they are an issue.

The challenge is creating the link between Maker Governance and then the actual enforcement and rights to the collateral asset, and knowing that when shit hits the fan, Maker Governance is actually able to liquidate and recover the collateral, even if all the people involved have gone rogue and are pulling all the legal tricks they have up their sleeves.

In my opinion the clear winner is to use top tier trustees, like trust companies or banks, to oversee a trust that has full rights with no catch of any kind, and is then linked to Maker Governance (so that a governance vote triggers the trustee to liquidate the trust, and the trustee automatically pays interest income or liquidation proceeds into the Maker Surplus buffer).

This has already been achieved and is running live with the 6S legal structure and WSFS as the trustee, and is also what centrifuge is now developing (I believe also with WSFS as the trustee). Monetalis is also developing a solution for this using european trusts (I believe Luxembourg based) for UK and EU. For sure it’s not yet perfect and it can still be improved further, and I think that fixing their remaining flaws and double checking all aspects of them is where the ROI of doing research into RWA structure and recourse is highest, because they are so incredibly scalable.

From the perspective of an MKR holder it is much more appealing to rely on a structure where the entity that has to be trusted with actually enforcing our collateral rights is a reputable, capitalized and regulated entity, because then they are putting their reputation and potentially even regulatory standing on the line in terms of whether the structure is compliant and enforceable, and they typically have decades or centuries of experience and trust built up focused on safeguarding institutional assets.

That is fine, but somewhat illusory as even “Wilmington Trust” Feds dropping case against former Wilmington Trust execs | AP News and others, Bernie Madoff, etc are meant to be trusted intermediaries. Which works, until it doesn’t.

I see the reticence and understand, and yet, I feel that actually having RWA where the SPV’s membership interests are pledged is also a model for consideration. But, reasonable minds can and do differ and perhaps we see risks differently.

After the 2008 financial collapse I did find it hilarious that the trustees often couldn’t even find the wet signed promissory notes for presentment.

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I think you are mixing the legal structure with the ones managing it

If you are lending to an LLC managed by Intertrust, is it that different than a Delaware Statutory Trust managed by Intertrust? I would argue the former is better as you can’t waive fiduciary duty in an LLC (that I’m aware of), while it is the case in a DST (and usually done). And what if the trust is directed by a random actor while the LLC is directed by DAO Resolutions?

Monetalis is indeed a good legal setup (using BVI) as it takes direction from MakerDAO, but everything is off-chain.

We need to use what is done in TradFi but maybe we also need to innovate using the blockchain. I have no clue if this proposal is good or not, but it brings a crypto mindset. I’ve set the RWF to go full stream towards TradFi institutions (because I think it is better, therefore hiring TradFi people), having some free thinkers exploring other ways could be useful just to remind us that we hoped to create something better than TradFi, not the same thing using DeFi capital.

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I forgot that this was written and is another good thought piece on legal and smart contracts. Legal Contract Formation in Smart Contracts | Erich Dylus though I am not sure how deep you would want to go.

Many default fiduciary responsibilities can be waived in an LLC. For example in this article, mostly critical of the WYO DAO law. WYOMING’S LEGAL DAO-SASTER - by Gabriel Shapiro - Lex_Node's Official CryptoLaw Newsletter discusses that the default is waiver, and yet calling for explicit opt-out provisions. What is, and is not possible to waive depends on jurisdiction. That said, LLC’s are probably the most customizable entities with deference to the wishes of the members.


Overall not sure who the final decision makers are on this MIP, but in light of the obvious weight that having a founder and large MKR holder speak out against it I can feel the prospects are dim at best. Not sure what the point is of a signal request is if the heavies wait until formal requests to cull governance proposals.

That said, it was also brought to my attention that I need to have controllers earmarked for the proposal request and I am not sure how to comply with that request or if it is just time to put the wheels back on the wagon and move on.

Forgot about this thread, but just noticed it again so want to add one last comment.

I don’t vote directly so it’s not like you should expect a MIP to fail just because I disagree with the direction.

However I think it might be useful for you to know my perspective, as I’m looking at this from the perspective of “should we deploy money at scale into this kind of structure” and whereas others that gave you feedback in the past probably just considered “should we do this little experiment”. I just really believe there are better things to prioritize than looking into new structures, such as improving the current trust-based structures and making them even more airtight.


seems like a weird take tbh

use of trusts with anonymous ever-changing beneficiaries (MKR holders) is also “an untested legal structure”

I’m a lawyer but not a trust expert. I do however understand the basics of contract law etc. Are there battle-tested trusts where the trustee didn’t know who all the beneficiaries are, they can change at any time, and many of the beneficiaries may not even know they are beneficiaries and may have never personally consented to the trust arrangement? Seems unlikely. . . .which is not to say this cannot work, but that it is weird to be so confident of a trust structure for MakerDAO RWA and so dismissive of other potential approaches.


MKR holders (or MakerDAO as a concept) are not the beneficiary of any Trust/Foundation structure contemplated or implemented so far for RWA.

An exception might be the SocGen deal where a security agent is appointed by the community and acting on behalf of the community. Which is easier said than done.

But I agree with your point that this is innovation as it relates to DeFi.

all the same, if MKR holders not beneficiaries then seems to introduce trust holes, which seems to be @rune 's concern

my only point: AFAIK there is no battle-tested legal engineering that cleanly marries DAO mechanics to real-world mechanics in a trust-minimized way, so I think @jameskmccall 's experiment should be supported


Where does one politik to find Controllers that are willing to sign up. It appears that there are only four approved, unless I am missing some central repo or cantina where they all hang out?

I appreciate that the direction is to go a more traditional finance approach and the strategy is to coalesce around the strategy. I am struck with the importance of trying to remove as much trust/intermediaries as are possible in both the protocol and to the extent that the protocol begins to touch real world assets, then the real world. To me that is the power of decentralized protocols is to remove intermediaries and replace with trustless “on-chain”, transparent, mechanisms.

At the very least, I look at this as an insurance policy that could be used to the extent that some regulatory leverage is applied on smaller nation states and more centralized intermediaries, then there would be a Plan B. At times I feel maybe we are too early, but I laugh that the next MKR series is on UNA’s which we used to provide some code deference for our own DAO a year and a half ago. That said, being too early is still just as wrong.

I really look at the model of having standalone SPV’s that are cordoned off as very complementary to an originator or pooler model of debt origination. What I mean is that 50 SPV’s “nodes” could be aggregated into one centralized (but compliant) lender and then a credit facility can be entered to mint dai direct against this pool. The originators could be forced to stake a “carry” against the loans they originate to avoid people throwing spaghetti against the wall. And the Credit Facility, could be bond rated. The benefit to this over a tradefi approach is that the ownership of the assets would be owned and controlled on-chain which would make the digitization of rights (as ERC20s, or NFT’s) possible and transparent and auditable on chain and back off chain - to deeds of record, UCC’s, etc.

I am also not a “trust” expert, but in looking at the 6S model it appears to me that there are plenty of choke points and intermediaries each of which can go on the lam. Murphy’s law if it can go wrong, it will go wrong as this cautionary tale illustrates How Bridging Finance fooled Bay Street – and hundreds of millions of dollars disappeared - The Globe and Mail.

I don’t claim to have all the answers, but was willing to try and humbly put some brain synapses to work to try and further the cause to make this stuff work in as decentralized and transparent manner as possible.