2 parts
- decentralized part
- smart contracts
- they usually live in a blockchain network
- they susually have their own treasury and rules for how the smart contract treasury might be spent
- centralized part
- the product distribution
- as most smart contracts are source code that lives in a blockchain network, its not possible for users to get access to this smart contract. this is why DAOs have product distribution company
- this company is the one that builds the platform and the wallet etc
- they are usually also used for the token distribution
- they might be issued by the smart contract
- and usually some part of the issued tokens are allocated into the treasury or into some liquidity pool or some other reserved funds
- at the same time some other projects they plan to do a token sale and htye need the legal entity who will act as the party in the token sale and conduct the KYC agreements and ensure all other regulatory things passing
- the main idea of this entity is first to publish the services which help end users interact with the dapps, and second to sell tokens to the token holders and conduct all this compliance procedures
- sometimes we set up a subsdiary (the Labs company), the purpose is to cover all operational matters, pay software, pay people, etc.
- the reason to have a separate entity is to register it in a country where the core team is based to be able to cover all these hiring matters
- and to be able to open a bank account
- its always very difficult to open a bank account for token distribution company
- this company will usually get software development grants from the treasury to basically build on things
- the third part of the structure is to create a legal wrapper for the people who will be involved in the rules of the smart contracts
- centralized treasury management
- also issue grants to the operating company to cover their core team expenses
- to limit the liability of the DAO members who are involved in the decentralized governance, the legal wrapper gets added to all DAO members to safeguard against any future proceedings against the DAO and provide limited liability under the LLC structure
main difference with an ICO
- concept of dao was very early stages
- most ico founders didnt think about decentralized governnance
- the main idea of a DAO LLC is to be able to do that
- they are usually registered to limit the liability of dao members as they are involved in voting
- basically plan to set up a liquidity pool
- spend it for investments and
- promise to token holders some guaranteed income
- works a lot like a DeFi project
defi projects are structured in one of two ways
- mostly decentralized where we have these dapps and smart contracts which have their own treasury and the founders of DEFI projects allow any other user (asset holders) to stake their liquidity into this smart contract and freeze it for some time
- that allows it to create its own liquidity pool wwhich allows is to access a bigger liquidity play and the interest they get from that gets redistributed as a Yield
- if the smart contracts have their own treasury, they only need a legal wrapper for the people who are managers of this project. the group of 5 people who decide what is the percentage of their
- the more we remove ourselves from that process, we need less
- in case there are legal proceedings, they will still search the people for people who are
- legal wrapper still relevant to reduce liability
- in case we choose the dao structure that is decentralized, we have to create an ownerless company that have no shareholders
- investment daos
- usually an LLC (Cayman LLC) and the members of this LLC get membership/interest in this LLC which allows them to expect an investment return as part of the membership interest and the LLC is the one who invests in company
- any dividends or exit proceeds go to the LLC members
- there are some SEC filings but they have to do KYC
- regulated structure assumes that these assets are not tradeable
- the founders of this LLC are entitled to offer to their members a token sale and a way to burn their tokens and get their liquidity token back
- you could have two types of tokens
- LP token → not tradeable
- Community token
in case the LP token gives the right to get investment income, it will be an investment contract and thus it cannot be listed on a trading marketplaces
and security token platforms aren’t there yet (tezeero) or have very low liquidity
Creating an LLC for each type of investment
A truly decentralized structure but the LLC type of legal wrapper
→ it might be reasonable to use a defi model and decentralize as much as possible and make it fully autonomous → then we can think what remains centralized in this model and how we would legally need to wrap it to formalize the treasury
It will be more scalable than using a centralized wrapper but it will be iportant who will be our investors
If we plan to for accredited investors, then the LLC structure will work