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This paper assesses the potential structures for the Maker protocol’s adoption of real world assets.
As the Maker protocol is not a legal entity itself, this paper contemplates both the creation of a legal entity engaged with the Maker protocol (the “Governance Avatar”) and a legal entity to be engaged with the real world asset (the “RWA Entity”).
The Governance Avatar and the RWA Entity are assessed against the following criteria:
An orphaned special purpose entity that is bankruptcy remote.
Locus of decision-making (Maker protocol or delegated to a third party (trustee, service provider, authorized person)).
Nature of fiduciary duties to the extent of delegated decision-making to a third party.
Separation between the Maker protocol and the real world asset.
This paper assesses the following hypothetical Governance Avatars and RWA Entities:
Governance Avatars -
- a Cayman company owned by a Cayman charitable trust, and
- a Cayman foundation company without members.
RWA Entities -
- a Delaware statutory trust, and
- a single, member-managed Delaware limited liability company owned and managed by the Governance Avatar.
There are other potential jurisdictions and legal entities that could be adopted for the Governance Avatar and the RWA Entity.
The appropriateness of the potential jurisdiction and legal entity type may be influenced by:
The physical location of the real world asset (United States, Europe, Singapore, etc).
The type of real world asset (treasuries, corporate bonds, ETFs, loan portfolios and within loan portfolios, the type of asset - trade receivables, real estate, renewable energy, distressed debt, agriculture, etc).
The options above are neither exhaustive nor exclusive. It is entirely possible to mix and match Governance Avatars with different RWA Entities. Further, depending on the jurisdiction of the real world asset (United States, EU, Singapore, etc.), the type of real world asset, and the acceptability of one option over the other in a relevant market, one option (or combination) may be more attractive than the other.
For clarity, this paper does not address the tax consequences of the above structures. Further, this paper does not address how the Maker protocol interacts with the Governance Avatar in terms of funding and the accounting treatment of such funding. Finally, this paper does not address each of the contracts likely to be needed to ensure that there is not any leakage of DAI or fiat currency from the overall structure (i.e., escrow accounts, payment instructions, etc.).