GIP-107: Should the GnosisDAO form, in addition to the Gnosis Asset Holdings I Foundation, a legal conduit to continue to foster Gnosis´ decentralization goals?

Governance GIPs
1

GIP-107: Should the GnosisDAO form, in addition to the Gnosis Asset Holdings I Foundation, a legal conduit to continue to foster Gnosis´ decentralization goals?

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GIP: 107
title: Should the GnosisDAO form, in addition to the Gnosis Asset Holdings I Foundation, a legal conduit to continue to foster Gnosis´ decentralization goals? 
author: @peertopeer
status: Draft
type: Meta
created: 2024-07-05

Executive Summary

The GnosisDAO (the “DAO”) approved, with the successful passage of GIP-94, the establishment of a legal conduit, Gnosis Asset Holdings I Foundation, which was set up to onboard Centrifuge Prime (as described in GIP-94) and] to also hold other illiquid investments, including those made historically by the Gnosis Builders as described in GIP-96.

This proposal intends to seek a vote from the DAO to establish another legal conduit, the Gnosis Operations Foundation (the “Foundation”), to provide the DAO with an additional mechanism for executing work in a decentralized environment.

Motivation

The DAO supported the proposal to onboard the Gnosis Asset Holding I Foundation into Centrifuge Prime, as it aligns with its view on treasury diversification. The expertise and proven track record of both the Centrifuge team and karpatkey, especially their collaborative success in structures similar to what’s proposed helps broaden DAO investment horizon into real-world assets (RWAs). In addition, the Gnosis Assets Holding I Foundation was set up to hold other illiquid investments, including those made historically by the Gnosis Builders [link to GIP-96].

This proposal aims to allow the DAO to establish a Foundation as a legal conduit to execute work that can further the adoption and the decentralization of the DAO. The Foundation is intended to enhance the DAO’s capabilities to engage with traditional legal and financial systems, thereby improving its operational efficiency and expanding its capabilities.

The DAO does not possess a separate legal personality. This restricts the DAO’s ability to engage in activities that require a legal entity recognized by traditional legal systems. By establishing an operating Foundation, the DAO can overcome this limitation and unlock new opportunities for growth and collaboration.

The Foundation can serve a number of purposes: (i) to allow the DAO to operate at a larger scale and engage with service providers who require formal written contracts to be entered into. Examples include entering into and managing contracts for the provision of technical development, infrastructure, maintenance, research, marketing, content creators etc. (ii) legally subscribe to SaaS tools and platforms which could enhance the DAO’s operations, and facilitate the payment and management of such subscriptions for project management; (iii) handle fiat currency transactions and conversions for the DAO, including for example to pay contributors/contractors performing services for the DAO who require payments in fiat for accounting/auditing purposes, (iv) register and manage IP rights on behalf of the DAO and enter into licensing agreements / enforcement of IP rights; (v) disburse grants through more traditional grant agreements with legally enforceable rights to enhance accountability to grant recipients.

Specification

The legal structure will be integrated with DAO governance to ultimately be owned and operated by GNO token holders. The principal idea behind the structure is to establish an entity that is capable of signing and fulfilling legal agreements on behalf of the DAO.

Integrated Management Process

DAO has an existing sophisticated and high-quality non-custodial treasury management process, pioneered and led by karpatkey DAO. The services in this proposal will be fully integrated to support the existing processes efficiently, while also supporting any future developments within the DAO. These processes and overall structure will be developed in collaboration with the Gnosis community.

Ongoing Management and Support

The structure is enabled by the Cayman Islands Foundation Companies act 2017 (the Foundation Act).

The Articles of Association defines the critical processes and structure of the company such as:

The Foundation is assigned one nominee director who is responsible for executing and adhering to the mandate of a DAO Resolution or a Delegated Committee Instruction.

The Foundation may form a Delegated Committee that has a mandate from the DAO to manage certain activities. The Delegated Committee can be comprised of different contributor teams, depending on the nature of activities that the Foundation is directed to pursue by the DAO.

A Delegated Committee Instruction is a written set of instructions, as scheduled to the Articles of Association, and which imposes a legal obligation on the Foundation to execute.

A supervisor, responsible for ensuring the director fulfills its duties, and a secretary, responsible for administering the company, are also required roles.

Specific obligations and procedures for assigning beneficiaries and distributing assets are foreseen during events such as winding up the Foundation or similar.

A foundation director will solely execute orders from the DAO (or a Delegated Committee appointed by the DAO) and acts as a legal signatory in the Cayman Islands. The foundation director will implement DAO votes and Delegated Committee Instructions as detailed in the Articles. The DAO has full authority to remove/replace the foundation director at its full discretion in a timely manner.

The Initial foundation company secretary is proposed to be Leeward Management Limited [Leeward Management | Our Team] is a leading fiduciary and governance services provider in the Cayman Islands. The service company is well positioned to fulfill work on behalf of a DAO as it is specialized in dealing with Digital Assets and also acts as the foundation company secretary for Gnosis Asset Holdings I Foundation.

Glenn Kennedy [Leeward Management | Glenn Kennedy] is proposed to be appointed the Foundation director. He focuses on corporate governance and legal and compliance matters, bringing over 20 years of experience with fund formation, operations, regulatory and business law and extensive experience in the Web3 space.

Pricing and payment

The pricing for this proposal is structured to streamline fees.

The fee structure is as follows:

Fees
Structural Setup up to 50,000 USDC To be paid immediately for lawyers and Cayman service providers to set up a Cayman foundation company to the benefit of the DAO, any unused budget will be returned to the DAO treasury. The structure may require ongoing fees but will be assessed on a periodic basis and only after approval from the DAO.
Ongoing per annum governance and corporate expenses estimated 45,000 USDC To be paid for provision of registered office, Secretary services, Supervisor, Director, MLRO/DMLO services.

Next Steps in order:

  1. Leave posted legal docs to the community forum for a few days as a period for feedback.

The Memorandum of Association is a document that contains all the conditions which are required for the registration of the Foundation. Memorandum (subject to minor changes based on feedback from Cayman counsel) here.

The Articles of Association is a document that contains the rules and regulations for the administration of the Foundation. Articles (subject to minor changes based on feedback from Cayman counsel) here.

  1. Open a snapshot vote
  2. Setting up the foundation takes ~10 days
3 Likes
2

will have a look once I am allowed to access the docs.

3

in general it seems a valuable add on to me.

4

Hello :wave:

Thanks very much for sharing your draft proposal. A few questions for you:

  1. Who’s the person/team behind this proposal? I see the same account posted GIP-96, which was a win-win solution to use the legal conduit to hold illiquid investments. Is there also crossover with those behind GIP-91 and GIP-94?

  2. Does this proposal have any involvement or support from other key figures in the DAO, like Gnosis LTD or karpatkey? Or otherwise, is this the first communication about these plans, or have there been other discussions before putting this proposal before the DAO?

  3. From an initial read through, it feels like this could be a solution that’s lacking a problem. Are any of below purposes particularly needed for current work/initiatives? Or is the intention simply to prepare so we have the options available, should the need arise?

The Foundation can serve a number of purposes: (i) to allow the DAO to operate at a larger scale and engage with service providers who require formal written contracts to be entered into. Examples include entering into and managing contracts for the provision of technical development, infrastructure, maintenance, research, marketing, content creators etc. (ii) legally subscribe to SaaS tools and platforms which could enhance the DAO’s operations, and facilitate the payment and management of such subscriptions for project management; (iii) handle fiat currency transactions and conversions for the DAO, including for example to pay contributors/contractors performing services for the DAO who require payments in fiat for accounting/auditing purposes, (iv) register and manage IP rights on behalf of the DAO and enter into licensing agreements / enforcement of IP rights; (v) disburse grants through more traditional grant agreements with legally enforceable rights to enhance accountability to grant recipients.

  1. What work has been done to assess the different options the DAO has for a legal structure to trade and operate through? The Caymans is known for being expensive and attracting increased scrutiny. Was the choice motivated by the use of the same setup for the existing conduit?

The last two questions are generally driving at understanding: (i) whether a Caymans Foundation is the right decision? and (ii) whether now is the right time to do this?

Once a foundation is established, the cost and difficulty of altering the DAO’s legal structure increases. It’s not a decision to rush lightly into, and so the first two questions look to understand who’s behind this work stream. Is this a case of the barber telling us we need a haircut? Or is this proposal the culmination of cross-party efforts to address a genuine need?

Many thanks in advance for all responses/information :pray:

2 Likes
5

Hey @staworth thanks for your questions:

Karpatkey and Gnosis LTD are aware of this proposal. Karpatkey supports it and was involved through the process of defining some details, after getting some legal consultation. We are not behind it, but we agree that is the best way for the DAO to manage to get access to the sort of services listed on the proposal.

It’s both. There are some initiatives that we would like to pursue, and using this ops foundation should enable. For example, it’s in our mandate to provide liquidity for GNO throughout many markets. Historically, we have done so in DeFi, but main transaction volumes are coming from CeFi venues, where we can’t engage due to the lack of an entity.

The establishment of the Ops Foundation will also give us greater legal certainty when it comes to engaging vendors, contractors/employees and partners on tasks for the DAO. This is crucial for the smooth operation of the DAO’s activities and for protecting its interests with third parties. We therefore believe that the Ops Foundation can help the DAO structure its operations in a way that enhances efficiency but also provides a level of operational resilience and legal protection that is difficult to achieve through a decentralized and informal approach. This could apply to existing work/initiatives, as well as to future work proposals involving an ongoing contractual relationship with the DAO.

These are valid points, as we said, both Gnosis LTD and karpatkey were aware of this proposal. karpatkey supports this, and we will make sure of keeping the operations transparent for community scrutiny.

2 Likes
6

Thanks also for the responses @Karpatkey, and for setting out karpatkey’s involvement/participation. That’s greatly appreciated :pray:

On the basis of this response, we will also support the proposal as drafted.

We’re conscious that there may be a range of strategically-important scenarios/transactions where the ops foundation would greatly assist, but that making details public in advance may be a significant hinderance. Some discretion is clearly needed for this topic.

For example, it’s in our mandate to provide liquidity for GNO throughout many markets. Historically, we have done so in DeFi, but main transaction volumes are coming from CeFi venues, where we can’t engage due to the lack of an entity.

However, this general example of centralised exchanges is a good one; we of course want to ensure that karpatkey and the DAO have everything needed to pursue the mandate for $GNO liquidity. That alone is reason enough to support.

Karpatkey and Gnosis LTD are aware of this proposal. Karpatkey supports it and was involved through the process of defining some details, after getting some legal consultation.

We’re also pleased to hear that separate legal advice has been obtained. That coupled with the previous experience with this jurisdiction and vehicle following GIP-94 is persuasive in supporting the decision to go with a Caymans Foundation.

We’re conscious that publishing advice or working documents obtained so far would risk waiving any privilege that is protecting that advice. As such, there is also a need for some deference here, and so we don’t feel any further information is needed for our support.

Thanks again

7

Hey all - new validator here and getting up to speed on the ecosystem so I can be more involved. I’m a US lawyer that founded a firm focusing on the crypto space and am very familiar with these structures and the available options.

This looks to be spot on for what is needed and seems to be being handled efficiently. Glenn is an excellent director that I’ve worked with a number of times and is highly regarded as best of class for this role.

Would recommend approving.