DAO Legal Framework: International Crypto Planning

Transcript

and thank you for having me my name is milaro santamaria i'm from argentina i am a lawyer currently based in lisbon and i'm a crypto legal consultant working at one week lab and myself with other niche professional professionals lawyers economists and tax advisors we provide crypto legal services and solutions for dows and other blockchain based products and i'm here today to talk about dao legal frameworks i'm pretty sure that most of you right now already know what a dao is but just to start with the right foot a dao is a decentralized autonomous organization it's a blockchain based entity where the community owns and manages it so

and by community i mean token holders of course mostly and in other words it's a set of smart contracts that enables people who are part of it to coordinate and work together as a community and i've come today to talk about this specific subject in very little time that be quite complicated and expensive so i'll do my best to do it in single steps so everyone can fill in and then we can have a little debate on the matter but the best way that we can start before we start talking about jurisdictions and entities and tax and taxes and not going to jail i think that we should start with asking this question

i'm having technical issues is it the other way around there you go so the first question would be to dow or not to dao and please apprecia appreciate my low quality memes along the presentation as well and this is because why should we care about dials as a whole dao's have come today to optimize the way that we organized ourselves as a community and as a collective because nowadays if we want to organize ourselves we would have to go through time consuming tiring costly and very bureaucratic processes of traditional organizations

so donald's come here to help us optimize the way that we organize ourselves because not everyone in the world especially talking from a third world country and don't get me wrong i love argentina beautiful place but to have people organized for a common goal can come quite become quite complicated if you have the right tools access or money so does help us do that they help people organize themselves with a couple of clicks copy wallet copy paste wallets and then you have your tao fully operating so if a group of people actually understands or thinks that a dao is the best way to organize themselves then a different question arises that's pretty much why maybe most of you are here today that

does does my dial actually need a legal rapper and there are two questions that we should ask ourselves on this matter to realize is it necessary or is it not necessary and this one is the first one and it has to do with off chain operations after a dao is created or by with the moment that we start trying to realize how are we going to organize it we ask ourselves is there going to be the need of the execution of blockchain operations are we as a diagonal need to open a bank account are we going to need to sign contracts hire people file and return taxes are we going to need to interact with all the individuals or institutions

that are out of the digital space in the mid space if this is positive then legal rapper could be an important consideration and then we would go to consideration number two and this one has to do with limited liability for members because it's important for those to mitigate allocate or reduce risks so they're not considered a general partnership so they don't have to worry about joint responsibility so whatever problem that arises from the doing the activities of the operations of the dao doesn't rely fully on the patrimony of some members or of the members and there's this entity before them a legal robber to help them have a step before that that's pretty simple to understand this

is a problem that's pretty common because nowadays the world's not ready for all of what dials have to offer that's for sure so question one off of chain operations and limited liability okay if we can say yes to this then we have to ask another question to realize how can we best choose a legal wrapper for a dow and this has to do on what's the purpose of the dao and please appreciate the meme of ryan gosling going like what do you want what is the goal what kind of activities why are they doing it when we try to understand this is that it will be easier for the dao itself to

see what kind of dao is it is it a social dao is it a philanthropic dial is it a venture dow is it a collector dial a collective dial what kind of dao is it and once we get to fully understand this the question one and two become a lot easier okay and there's another part of the purpose that shows off after we asked this question and this has to do on the fact of whether they're non-profit or for-profit in accordance to the purpose of the dao and the type of now is that is it gonna be a non-profit or a for-profit and if it's a for-profit okay we're talking about the generation of profit but are they going to have member distribution i

mean a profit distribution for members from this question is that we can pass to another a little bit more uncomfortable or more nerve-wracking because please remember there is not one specific set of entity for old house every dao is different and the type of entity or legal rubber that we choose should align with all these different aspects so it's actually coherent and can become compliant so after we asked all these questions and considering whether it's nonprofit or for-profit and about the distribution of profit for members or not is that we have to start thinking about taxes and talk economics understanding the activity of the dao

and later in choosing a jurisdiction we're gonna need to understand how taxes apply to such activities how beyond the activity itself how the jurisdiction tries blockchain related activities and then comes how does the jurisdiction or the jurisdictions are interconnected with the activity of the dao treat the different tokens i worked or keep a very close relationship with a law firm back in argentina that worked with international tax planning and they would always say this race they would say in this world nothing can be said to be certain except dead taxes and this kind of that joke i would hear it all the time so for me it's no longer that funny but nowadays i so far maybe i would even add

gas fees if it applies but honestly taxes are important and it's directly related to the tokenomics what are the perks of the tokens that the dollars are gonna issue are we talking about governance tokens what are their characteristics and the rights that token holders are going to have so we can know we're talking about a security a financial instrument or not or a utility token or a hybrid and then is is the dow also going to have a payment token is it going to have to you what is going to be the relationship between the two because depending the type of entity and from that the type of jurisdiction that we're going to choose is that we're going to understand how

these two are going to relate which is quite a heavy question to know as well and there's something else to mention is that there is this idea uh around the the ecosystem that finding a legal rapper is a one fully thing to do and there's no book that says actually i don't think there is a very specific book or whatsoever beyond some really good papers and research on the matter that if a dow finds a legal rapper then it should be fully wrapped in that entity or legal wrapper because siloed structures are also an option what do i mean with a siloed structure and what i mean is that

you can have different legal wrappers or one legal rapper just handle or take charge of one activity of the dial different entities or league and robbers can wrap the different operations or activities that we're talking about so far i've given a lot of information so i'm going to recapitulate a little bit with an example say we have a dao a group of people who want to take the possibility of creating a dao for a charitable purpose mostly centered in the us so they will most likely need to pursue option operations therefore to receive funds donk so that's french so they would need to open a bank account okay option

operations limit the liability for the members where they're doing they're going to be handling other people's money so they're going to need limited liability and they want to be a non-profit here taxes are an important part of it because if we're talking about a non-profit purpose that can be as well recognized as such therefore charitable by the irs in the us or any other talking about jurisdictions it could be the other entity that had those taxes but we're talking about the u.s right now then this group of people as dao could consider utilizing the benefit of the tax exemption of 501c3 of the irs code so people who want to create a philanthropic dial with a

charitable purpose could consider first of all incorporating as a corporation and then to file for 501c3 become a foundation foundation and therefore have a taxes that exempt status so when you think about the dialect framework and what could actually suit best your dao taxes can be a benefit on those cases and this whole little pass is always helpful but talking as well on the siloed idea is that even that foundation could only wrap the treasury of the dao itself and later on the whole protocol the dao itself of the protocol of the governance of the protocol i'm sorry could be unincorporated or in a different entity

and even a different entity could be the one that for example holds the ip or a different entity in different cases as well be the one that issues the tokens from a different place so this siloed structure could work as an umbrella of the way that we want to organize our dao and the different operations and activities so this was an example of what we were saying on a non-profit but and we were given an example of the us the thing about the u.s beyond the fact that most of the times i've spoken with people about dow league wrappers the first thing they would mention would be wyoming and dial llc's but these are not the only options i will talk about a little bit on the

international side as well but what i'm trying to say is that when we find a dao that is strongly tied to the u.s regarding members control of income and treasury and as well on the operation of the protocol then it's most likely that they're going to feel a lot more comfortable with finding a us domestic structure and we know about diameter llc's we know about tennis tennis cos that's the same thing but without da because it's a little bit maybe more realistic on the autonomous autonomous kind of part but most people might be surprised on the fact that regular llc's can be quite an interesting option for dao to find legal

robber for different house this is because they provide the flexibility of a partnership related to taxes because you know how to double pay taxes but as well with the limited liability of corporations again i will repeat the fact that not every structure works for every dial because every dialogue is different so in this case a regular llc could work or even a corporation if the dao is ready to sacrifice different aspects of its working and this means most likely the sacrificing part of the decentralization and the autonomous counterpart but what i wanted to make sure for everyone to understand is that regular llcs are also an option

let me as well give an example so it can be a little bit more practical let's say we have a group of people who want to get together put their funds together so they can invest together into other crypto related projects or other dials and they realize most of the members are from the us and most of the projects are developed in the u.s which is going to make the analysis a lot easier to say okay let's find a u.s entity and then it's a possibility of them for them to incorporate as a delaware llc which would cost them even less time and money because something that's so used okay they're going to need to raise funds it's easier for vcs to feel safe around this kind of spectrum but there is a little detail that there

is a requirement for member lists this means that members would have to feel comfortable having to disclose who they are and every time there is a new member they would have to do an update in this case it would be less positive for them and they would need to realize what are they willing to sacrifice on the concept of dials to actually do so this part we can accept it we can understand it and there's also the option of using the dao llc's in the us that don't have this specific requirement to maybe find an option and we also have vermont blockchain-based llc's and colorado's lcas these are cooperatives which we can see from many point of views how similar these kind of structures are with the way that dials work

it's a member-based entity created for members by members as well and the thing about this kind of entity is it can be a little bit more rough with anonymity but it's really good when we're trying to find it out it is also for profit and tries to do profit distribution for members based on contribution and i already explained on the non-profit part how the us has some interesting options for dials who want to be with a charitable purpose able to optimize the way they deal with taxes be it with private foundations like the first example the political nonprofit social clubs and also talking talking about nonprofits unincorporated non-profit associations with this last one being or having the

particular benefit that when it comes to the formality of incorporating it's less rigid because they don't require state filing okay so we're talking about the option that most people so far have still have that i have spoken to you know about the us but the space and ecosystem is quite international we're in europe right now having this conversation in this conference so it's not always us-based and if we have a group of people that want to form it down and realize it's actually not us centered or based and members are not mostly from the us and that control of the income or the treasury is not from the us

then other international options become a little bit clearer marshall islands is a little bit of state state in the middle because they're an associate state from the us and they also have a specific dao llc regulation on the matter that was actually based on the llc act of delaware that's very similar and then we can look a little bit more to europe where we're right now we can think about malta malta has technology arrangements that also recognizes styles in case they want to find a legal robbery still because of the maybe rigid amount of regulation on the matter it could be better used for looking for licenses for different blockchain related projects then we can talk about leasing sign in switzerland

these two countries are one of the countries with the most regulations on blockchain and this is important because whenever incorporating or having a project where you can have legal certainty from the very first moment you can sleep better at night on the sense that you know how things are treated it was last year deletions night it was voted not voted it was there was a research by pwc that said the leasing sign was indeed the place in the world with the most clear tax regulation and treatment so you wouldn't know how your taxes would be treated even with the possibility of a doubt to find the legal rapper a league wrapper in lesion sign for a

dao could be in the form of the foundation or cooperative as well with the possibility of having a purpose trust which is another kind of structure that's possible to use for daos and then in switzerland it's quite known because we also know we have the ethereum foundation is the possibility of having an association the thing about this last year's structure is that you can have the regulatory certainty that you're looking for but setting them up can be a lot of quite more costly that with the rest of the structures that we already mentioned which is something that dao should bear into account before they start this kind of consideration have to do with the contingency planning that should be done before the deployment of

the dao so the mantra of move fast break things doesn't become great things doesn't become an unhealthy and dangerous costly mindset and we must also admit that the regulatory uncertainty makes this feeling of having a gigantic playground around the world because there's not so much regulation or just gray areas become the floor is lava pretty fast beyond the fact that this room feels like lava a little bit right now but that's another story so the things that we have discussed so far have to do with the little mind path that we have done to understand which kind of tao are we having with its

purpose and what are they looking for in the matter of income for-profit non-profit and as well the different jurisdictions that can be useful but beyond that it's impossible it's important to make these questions at the right time before governance focus on voting on what to do when you think you found the right structure are given a way for a community that doesn't really understand what they're doing so a roadmap even for a scalable decentralization is smart to do before anything is done there are there's very few information actually on this matter and there are a few cases that can be used as examples and there's another very interesting two more

different jurisdictions are worth to mention these are as well near the channel islands with guernsey and jerseys purpose trust that can be very useful for the holding of ip and then we have foundation companies in cayman islands and foundation companies can be pretty good when or can be a very attractive kind of option for dao they're looking for decentralization and anonymity bearing into account the little danger or upgrading danger that cayman islands would consider they were listed by the european anti-money laundering in the blacklist as well in the great list of financial uh task force so please know that whenever choosing

this kind of offshore or international options there is a possibility of future regulations or problems or challenges that could arise because of the part of trying to maintain the anonymity and the decentralization beyond the fact that in the other options using different entities as founders to give a little bit more opacity and security for founders is also an option but international tax advice as well at legal advice is very necessary in this case and i know this is a lot of information in very little time i'm so sorry about that but i can show you a graphic that should help you a little bit with that that feels a little bit like this

i know it feels a little bit like this because i was giving i this is very little time for a very complicated subject with very little examples but this one is a little bit more accurate for everyone when i was trying to simplify it felt a little bit like that but in all seriousness there are two very good papers one by rodrigo cedia that was not able to perform yesterday with chris bummer about dao league of wrappers but very good research on the matter and a good graphic on it as well as the one created by miles jennings and david kerr that i really recommend to see let's go a little bit back so it's easier so we ask ourselves first of all to dial or not to dial do we want to set up a dao and why

are we going to need to execute offchain operations do we need limited liability okay so what's the purpose of the dao is it going to be a non-profit or a for-profit do members need are we going to want to give them distribution of those profits how much do we care about the centralization and anonymity please remember nationality and trade of business so we can know how much we could we would worry about having problems in the u.s or in different actual jurisdictions as well the eu and how to treat for example financial instruments and on this case i will give you a little bit of homework please don't hate me on the bitmex case and tokens and tags and and just to show you as an example of

what we're doing right now and how we're doing in the middle of an analysis to understand how to handle it we've been working with the open vino project for a while now the open pinot project is an open source platform decentralized that enables wineries all around the world to tokenize the bottles of wine so they're able to sell these tokens that represent bottles of wine from the very moment of harvesting and we've been working for them for a while even the ceo that mike tango bravo presented yesterday on via digital certification so wineries will be able to self-certify using blockchain and the next step of what we're trying to do with them is the openmind with a little bit and slightly different

concept of what we've seen so far because in this kind of dial dial token holders would earn revenue every time there is a transaction so they would earn revenue from transaction fees from the decentralized platform of the tokens that are generated but each of the wineries are tokenizing the wine so token holders dow token holders can therefore decide what to do as a community with such treasury and we're in the middle of this analysis to understand what are going to be the perks of the tokens and therefore the tax implications of those tokens in spanish there is a saying that doesn't sound as fun actually in english that it doesn't matter if you have a monkey with a self-dress it's still a monkey it doesn't matter how a token is called or how you want to

treat it the inherent nature of the token shows how the token is going to be treated and classified and therefore regulated in the jurisdiction that we're talking about this is a lot of information in very little time i'm almost on don't worry and the thing that i want to let everyone know that it's clear that there's no one simple way to give an answer to league of rappers for dials their different dynamics their different needs their different jurisdictions they have to do with members but it's still possible and beyond the fact of doing your own research we can give you a hand on this matter so please don't hesitate to contact us we believe that building is not only for developers and these are

exciting times for lawyers for policy makers for everyone who wants to make the step from web 2 to f3 in a good way without the bad press for lawyers most of the time because no there's no one who's actually happy when a lawyer comes into our room so i hope you guys are less upset than when you came in so yeah thank you [Applause] is there is there a moment in time or a tool where basically i wouldn't say we substitute lawyers but get to a point where things are more clear let me finish though if you were to start a company today you kind of know in the country you reside more or less

the type of incorporation you should follow how far are we when it comes to to dowsing corporations and also to all the assessment of tokens if it's a utility token if it's a security token is there a way to sort of lower the barriers to to build so that to start it only you don't need like 20k in legal fees to just get an opinion on that that's a good question that would leave me without a job but all jokes aside actually following this path to understand better who are you going to be your members from where the control as well of the income and the treasury is going to come from and the characteristics of the tokens are going to make it a lot easier to when you

actually have to decide when you want where you want to have the legal wrapper for your dial from then on you're actually going to need a lawyer for the incorporation counterpart of the entity that you're choosing but if you already have all this part figured out it would only be for that for you to explain that to them so them after confirming that everything is aligned to it for you and i would recommend doing this analysis before the deployment of the dial itself because i know maybe as well related to the governance tokens that you're going to give away on the kind of power of voting that you're going to give to the rest of the members but following this kind of path after you understand whether it's going to be a for-profit or non-profit and members where they're going to be from and tokenomics then after that it should be

easier for you to find legal assistance that not overtaking the rest of the project thanks for doing the talk by the way there's one project called cali dao if you go on a website and it just creates your yeah that's right um one question about the founders residents themselves so you were talking about this international bvis xyz now there was a case a couple of months ago i think we all heard about terror though kwon was living in south korea but the company was registered in singapore and i think a lot of crypto founders registered in bvi came in because it's easy are you do you think we'll start to see a trend where the residency of the

people will apply and where the company is actually registered because a lot of this is kind of happening and uh dok juan needs to pay i think 80 million in south korean taxes the singapore entity essentially just doesn't exist because he was and the team was in south korea um so what's your views on that i believe on this sense that part of the planning that a lot of projects do go beyond where it would be good to have the legal rappers so the founders and the members are in jurisdictions where you wouldn't meet a problem for the project after it's deployed so i think that something that is happening is going to keep happening but to have a transparent respectable

kind of project you would also want everyone to know that what you're doing is not sketchy and that's why beyond the fact that right now cayman islands is one of the most used structures and still valid because it's not you're not doing anything wrong it's illegal you know that the international pressure on this kind of structure is gonna become stronger each time so the more you can be clear and transparent and less dodgy the better for your project you can still choose not to but that depends on the core values of each project itself but the founders will get a court case in their original country regardless of where the company's registered that's kind of the point like

if we'll see this trend i was curious if you see this year where founders will start getting indicted in their home country regardless if they're in bvi or singapore yeah what i've seen a couple of times to avoid that is those founders of the league of rappers of the dallas or the projects are not the persons themselves but actually other trustees of purpose trust or different contrasts or companies that have them to give a little bit more opacity to those kind of structures which usually not a lot of people make this kind of analysis whenever before they invest or they interact with platforms or blockchain related projects but are a little bit of the alarms that make us think why are they using a special shade of protection

so that's another option that of what they do just opacity hi thank you for the talk sorry for the husky voice um actually my my question is more going to be on what do you think is a doubt and it's not a dao there's actually a web two platforms that are being deployed for french government entities called um participative democracy where you're going to have votations consultations and basically anybody that can actually interact as a dao would you consider that it is not a dao because it doesn't have a legal framework to economics and taxations or do you consider that it can be seen as a dao because it interacts in a societal manner as a dao well i think that

i once heard the phrase that there are more definition of what a dao is than actual taos in the world right now so it's a super interesting debate because we're talking about the decentralized autonomous organization but to be fully decentralized that's like zero point zero two percent maybe when there are there's actually a a percentage i don't remember but a number like that so maybe we're not talking about the centralized autonomous organization we're just talking about on chain governance which is perfectly fine to whatever kind of project that i want to do it or maybe we're talking about at the centralized autonomous corporation so the fact of having on chain governance maybe would be the base point and voting for members to understand what kind of organization that we're

having and which is like including them in the same concept so it's easier to understand but basically it would be it's on a it's unchained so it's a dao if it's stored in the cloud for example or any other distributed architecture it would not be considered a doubt because it's not using with three technologies right i've i feel as people can always be against the or we have we can make a debate out of it that if we're talking about web 3 then we're talking about a dao if we go to web 2 maybe not yet at the same time i'm a believer that sometimes you need web 2 training wheels before you feel ready to fully drive stick as a web 3 dial because every project that is fully decentralized once started being centralized and that's what we're talking about being ready

with this kind of structure before you fully deploy to avoid potential issues thank you very much please okay thank you thank you for the talk um [Music] do you think that the same way that we saw open sabbling and different cod audit firms review codes for projects are we going to see those kind of open source legal information to be able to implement in dallas absolutely i feel that being able

code audit is fundamental because i once heard that it's not whether you were hacked or not hacked is where were you already hacked where you're gonna be hacked and for future projects especially for what is up to come for regulation it's important to for them to show that at least they made the according due diligence to feel sure enough that they can deploy their project and to have a badge of okay this entity these people this organization told me that everything is okay so code audit beyond the fact of needing a good software factor of course is fundamental to feel as safe as possible on things that are very likely to happen especially for projects that cannot have a fully functional all the time having

code audit thank you um yeah i don't have a question but like i have a comment uh you show the jurisdictions especially in the eu that um can be suitable to establish an entity uh one of them was malta and the other one was like um sorry like yeah i remember also like a cayman islands and bbi so um i think they may have like more like kind of like favorable um structure legal structure to establish an entity but for example from aml perspective i know that like eu for example sees malta or like cayman island

on a really high risk and uh they're not really um yeah they don't say anything about bvi but like when we think about the whole region like they see many high-risk uh areas so um maybe i also can i can get your comment on that that in the corporation incorporation it may be favorable but maybe in the long term after they incorporate it due to other regulations uh maybe they're not going to survive actually absolutely this especially has to do with the fact that this year the cayman allies got black back blacklisted by the european anti-money laundering and also gray listed and bvi is mostly an option used for token issuance but they're

about to get regulated on that matter as well so whenever trying to find the different options founders of the dow need to see how risk covers they are on the different jurisdictions that are considering and what they're willing to sacrifice to find a safer option related especially with the centralization and anonymity but if you're trying to be transparent and there was to talk earlier that had to do and how to be and not go to jail and basically is don't be transparent because in the end if you're not doing anything dodgy should be good thank you