Form AavegotchiDAO Foundation with 9 directors/multisig signers

[Jesse_gldnXross]

INTRODUCTION

AavegotchiDAO was summoned as a 100% on-chain DAO in September 2020 via the deployment of the GHST bonding curve. Since then, the DAO has matured into one of the most active DAO’s in the world with over forty successful AGIPs passed and extremely healthy metrics on Snapshot. Over this period we also graduated across our DAO’s roadmap, going from DAO 1.0 into the more experimental period known as Cocoon, our precursor to Metamorphosis (AKA DAO 2.0). Achieving Metamorphosis requires the DAO to further decentralize and accept more responsibilities currently guarded by the original summoners and Pixelcraft Studios.

Today we propose the next major step forward by suggesting it is time for AavegotchiDAO to add an off-chain presence to our decentralized autonomous organization. The following proposal is rooted in months of research and interfacing with a variety of legal advisors. We also take the practices of leading peers such as ENS and Sushi into consideration, opting for Foundation formation in the Cayman Islands coupled with on-chain governance being secured as primary via the Foundation’s Constitution.

Read on to see how we may move AavegotchiDAO forward in a way that drives progress for our vision of an open-source, on-chain gaming protocol!

PROPOSAL

My proposal is for us to form the AavegotchiDAO Foundation in the Cayman Islands as soon as possible by following these steps:

1. Gather all interested in serving as one of nine Directors on the Foundation. These nine Directors simultaneously are seated on the Foundation’s newly formed multisig wallet.

*Interested in being a Director? Signal your interest by saying so in the dedicated Discord thread called #DirectorElection. This thread goes live now in Aavegotchi Discord

Discord - A New Way to Chat with Friends & Communities

2. Host election via Snapshot where the nine most voted for shall serve as Directors of the Foundation until further notice (The DAO should likely flesh out details for term length etc with a separate AGIP at a later date).

3. Submit the nine fully KYC’d Directors details to our legal lead from LEX DAO so that they can immediately begin Foundation formation. This will be completed in days, not weeks. It shall include one local officer/secretary as well as a corporate secretary.

4. Upon formation of the Foundation, the Directors shall create the new Foundation’s primary multisig.

5. Pixelcraft Studios shall transfer DAO Treasury multisig funds to the Foundation multisig, including DAI, GHST, and Alchemica on both Ethereum and Polygon networks.

6. Pixelcraft Studios shall deliver a standard work-for-hire contract to the Foundation that reflects the same terms already being executed via the GHST bonding curve (ie 150,000 DAI per month to Pixelcraft Studios for lead development of Aavegotchi protocol)

7. The Foundation’s local secretary shall sign this contract citing the will of AavegotchiDAO as evidenced by passage of this very Sigprop and Coreprop; no separate AGIP required. Future contracts and transfers of funds shall require their own on-chain signaling of support, defined as the passage of a CoreProp AGIP at the time of this writing. Any future adjustments to such working processesses, responsibilities, etc shall be determined exclusively by the on-chain governance of AavegotchiDAO.

FOUNDATION DETAILS

Entity

• Legal Counsel has suggested Cayman offshore foundation with a board consisting of 9 Directors, who are also the multisig signers of the DAO Treasury wallet.
• Legal Counsel shall arrange a local Officer to act as secretary fulfilling basic administrative requirements until further notice.
• Legal Counsel shall arrange a local corporate secretarial service to assist with Foundation formation, documentation and production of financial statements.

DAO Treasury

• The DAO treasury is currently held by a Pixelcraft Studios multisig. All funds present and future would be transferred to the Board’s multisig below.
• The GHST Bonding Curve Council tokens could potentially also be transferred to the multisig signers, via a new AGIP proposal.
• Eventually, all protocol contracts could be owned by this multisig, or if that is too much risk, could be owned by the DAO itself (onchain voting) with the Board multisig action as a last resort Guardian to prevent malicious transactions.

The Board

• Consists of nine doxxed Directors that also act as multisig signers on the DAO Treasury multisig. The DAO Treasury multisig shall be set at 5/9 signers in order to execute.
• Paid position starting at 8000 GHST per year, paying 2000 GHST to each Directory directly from the Treasury multisig every 90 days.
• The Board acts as the executor of the DAO’s wishes. If individual Directors disagree with an action of the DAO, they can choose to resign but they cannot vote or act against a verified on-chain AGIP’s intent.
• Candidates should:
  • Be upstanding members of AavegotchiDAO with good reputations
  • Be familiar with smart contract interactions
  • Possess a hardware wallet and know how to use it
  • Be willing to have your name on a Cayman entity and be doxxed to Pixelcraft Studios
  • (Nice to have) Be familiar with creating transactions and signing on Gnosis Safe

The Officer

• The Foundation also requires at least one Officer to serve an official capacity for signing off-chain documentation. Legal offers a package to deliver one local Officer to fulfill this role. This is not a role for advocacy so this Officer will simply execute signatures at the direction of the Directors. Of course, AavegotchiDAO can always revisit or even expand Officer roles at any point.

Roadmap (Estimated)

• Now - Nov 21: DAO Discussion Forum + Signaling
• Nov 21: 3 Day Sigprop on whether or not to incorporate
• Nov 24: 7 Day Coreprop with elections
• Dec 2 - DAO Foundation directors confirmed/elected
• Dec 14 - DAO Foundation officially launched with 9 directors
• Dec 16 - DAO Treasury multisig transfers to the Foundation
• Q2 2023 - Diamond Contracts transfer to Foundation

Benefits of Formation

• Independence; greater separation of Pixelcraft Studios from AavegotchiDAO
• Board can execute proposals on behalf of the DAO (Liquidity provision, GHST staking, funding Dework, etc.)

Risks of Formation

• More responsibility on AavegotchiDAO governance
• More exposure to any future policy shifts specifically in the Cayman Islands jurisdiction

Questions

Are the Board in charge of the DAO? What about decentralization?

No, per the Foundation’s Constitution, the Board is legally obligated to execute the wishes of the DAO. It is a streamlined structure where they act on behalf of the DAO. The Board cannot dictate what the DAO should do.

Is there legal risk for being on the Board?

This is crypto, it is impossible to say that something is without risk. However, other well-known projects such as Sushi and ENS have set up similar foundations. As regulation becomes clearer, we can always adapt our strategy.

Instead of participating as an individual, one may be wise to consider participating as a legal entity such as an S-Corp, Delaware LLC, or equivalent entity in your own jurisdiction.

Of course, it is always important to seek your own legal counsel for clarity on your particular situation.

Edit: adjusted the #directorelection Discord thread to go live from time of Sigprop to now. The thread is live now so everyone has more time to signal interest and discuss in sync with this parent thread.

[CryptoGotchi]

Thank you guys for pushing this forward. Great thread, and looking forward to the sigprop. One thing I noticed was

@Jesse_gldnXross

Pixelcraft Studios shall deliver a standard work-for-hire contract to the Foundation that reflects the same terms already being executed via the GHST bonding curve (ie 150,000 DAI per month to Pixelcraft Studios for lead development of Aavegotchi protocol)

Once legal has drafted the contract, the DAO should get to read it and vote on it, before it is signed by the Foundation. While you could make an argument that the tap proposals already passed long ago, the exact language in the contract matters. I think it should be part of our best practices to have any legal document brought before the DAO before the Foundation signs it.

Also, you said those funds are going towards the development of the Aavegotchi protocol. Is there any way we could get a breakdown of how exactly those funds are used? The Foundation probably has a responsibility to ensure the DAOs funds are used appropriately. While I have no doubt that all is on the up and up at Pixelcraft, a quarterly report about the use of those funds would probably go a long way towards instilling even greater confidence in the whole project.

[MikeyJay]

@Jesse_gldnXross

The Foundation also requires at least one Officer to serve an official capacity for signing off-chain documentation. Legal offers a package to deliver one local Officer to fulfill this role.

This sounds like a much better officer situation than what was originally proposed. Can you provide some details about the firm or individual performing this role? What is the cost to retain them for this service?

Can you provide the name of the firm that advised PC on this matter?

What are the upfront legal costs to the DAO to form the foundation?

Thanks again to PC for doing all of this research! Forming a legit legal entity that can conduct business in the off-chain world is an important step in the DAO’s evolution.

[Jesse_gldnXross]

Good point regarding seeing and agreeing to the contract as verbiage matters. Let’s set that aside as a separate actionable. The intent here is to get the Foundation quickly reflecting any already existing agreements as soon as possible.

Regarding the “see where funds are going” second point, we already know: Pixelcraft Studios. Unless you’re suggesting Pixelcraft needs to open up its books to the public, I suggest the performance/results of the arrangement are the key. Said another way, when Pixelcraft contracts with another company, we know the cost and the results expected, but we are certainly not privy to their internal meeting minutes, financials, etc.

[Jesse_gldnXross]

Yes, after further consultation we realized this is probably a better starting point for everyone. We don’t need lots of officers in elected roles initially, or perhaps, ever.

We just confirmed that the main legal counsel we’ve been working happily with should be able to join us this Sunday for the 2pm UTC DAO call. That will be a great venue to get to know who is our partner if we decide to form this Foundation in Cayman.

We can also get more info on legal costs mapped out pretty soon or by this Sundays call and then document those further details here.

[CryptoGotchi]

@Jesse_gldnXross

Good point regarding seeing and agreeing to the contract as verbiage matters. Let’s set that aside as a separate actionable. The intent here is to get the Foundation quickly reflecting any already existing agreements as soon as possible.

Thank you fren. In fact, the DAO doesn’t even need to wait for the Foundation to be founded in order to approve any paperwork to be signed by the Foundation. Any agreement you’d like to get a move on asap could go up as a CoreProp (imo existing agreements don’t need a sigprop since the signal was already given) as soon as you have the paperwork. So getting DAO approval for the verbiage wouldn’t need to add any delay. We could have the paperwork for all past agreements approved for signature by day one of the Foundation.

@Jesse_gldnXross

Regarding the “see where funds are going” second point, we already know: Pixelcraft Studios. Unless you’re suggesting Pixelcraft needs to open up its books to the public, I suggest the performance/results of the arrangement are the key.

Those are two extremes on opposite ends of a spectrum. There is a lot of space in between opening the books to the public and a degen crypto meme like this:

In fact, AGIP 1 and 3 were rather specific about how two thirds of those funds are to be used:

AGIP1:

AGIP3:

The quarterly reports I suggested could simply confirm that and give a little bit of detail on how much went towards what purpose.
Also, back when those proposals were voted on, Aavegotchi was a lot less developed. By now you’ve build a much larger ecosystem. We’ve got the core protocol, we’ve got the Verse, we’ve got the Fakes, etc. How much of the tap goes towards each of these projects? Don’t you think info like that should be made available to the DAO? Said another way, if PC contracts a construction company to build an office building for 2M USD, you’d wanna know some details on how much of the budget is spend on what, right? Maybe that 1M USD golden shower with diamond ornaments that the construction company is about to order for the CEO’s bathroom is not what you had in mind

Let’s move away from those degen crypto memes like the one above, and towards building the gold (dare I say diamond) standard of the industry in terms of DAO / Dev symbiosis

@Jesse_gldnXross

ie 150,000 DAI per month to Pixelcraft Studios for lead development of Aavegotchi protocol

Come to think of it, this verbiage is quite different from the verbiage in those AGIP agreements. If PC would like to change the agreement to have less limitations on how to spend the tap money, now would be the time to do it. The DAO loves you guys and I’m certainly not trying to trip you up or anything. I’m just looking to define (and vote on) very clear terms, so that we can all stand on a solid footing going forward

[Choyna]

That’s great news Jesse. Do you know if the main legal council are confirmed to be joining the DAO Meeting on Sunday?

[Jesse_gldnXross]

Yes our main legal counsel up to this point, Ross, will be joining the call.

[Jesse_gldnXross]

Fair enough, there is certainly a spectrum of options there. Since we’re separating the DAI stream and any other contracts from this Foundation formation coreprop, we can probably readdress this at a time in the near future.

[diddlypoo]

Pasting my comments in discord here as well:

I am very concerned about the DAO Foundation proposal. The DAO is nowhere near ready for a step of this magnitude, we havent even finished the first fully DAO led project. We would be putting the funds of the entire protocol in the hands of 5 people on the honor system. There is no verbiage on what steps would (or even could) be taken if a majority of the Foundation members decided they would refuse to implement a DAO proposal, or even if they decided to simply take the funds. KYC to Pixelcraft is not enough of a deterrent, and if the standard for KYC is not an external product/system that verifies government issued identification, it can easily be faked. The suddenness and forced urgency (3 days???) of this is concerning as well, far more details are needed about the structure of the Foundation, people interested in being members need time to obtain their own legal counsel according to their own circumstances, and concrete ways of ensuring accountability must be defined. What is the rush to do this “as soon as possible”?

Nevermind even the DAO funds, this proposal includes transferring the contracts as well to the Foundation, meaning a majority could simply decide to take people’s assets as well, as the diamonds are upgradeable. Frankly I am appalled that this is being pushed thru in this manner.

[coderdan]

1. It’s not the “honor system”, the funds held by the multisig signers would of course be legally protected and unlawful transfer by the signers would be a criminal act. That will be included in the constitution.

2. We have been discussing this with our legal counsel for months now. Initially they suggested we open an entity in Panama, but because of the Protector role we continued to explore options and further legal counsel from Ross showed that Cayman is the superior, more decentralized option, and many other DAOs are choosing to incorporate there.

3. As Jesse’s sigprop states, the next step will be the election, followed by the ratifying of the DAO Constitution. This current Sigprop is just a temperature check on whether or not the DAO wants this at this moment. Coreprops will continue to follow in due time if the Sigprop passes.

4. We would like to get this entity established ASAP because multiple community members have signaled that they are unwilling to be signers on the DTF or any body that is entrusted with DAO funds. And we as Pixelcraft are not comfortable acting as an active custodian of the DAO funds, such as staking 3M GHST onto Aave or providing large amounts of Alchemica liquidity beyond what was initially necessary to bootstrap the pairs.

5. The multisig is not going to have direct control of Aavegotchi protocol contracts. Once our onchain voting is established, the contracts will become owned by the DAO, similar to how Aave or Compound works. The multisig may act as a Guardian which could veto malicious transactions while they are in timelock.

This project has existed for two years already, and the Safe Harbor period in Singapore and other countries is three years. We are aiming to have the onchain DAO setup within the next 8 months so that we can full our obligations as Summoners and deliver a successful transfer of ownership of the Aavegotchi contracts from Pixelcraft to AavegotchiDAO.

6. About the GAX, there are definitely many open questions relating to regulatory issues, which is why we are not focusing on that aspect of the protocol as this time. If and when the GAX is deployed, there will be more discussions as to how it should be deployed, who should hold keys, etc. But that currently is not part of this conversation – the focus of this conversation is about setting up an entity and multisig to allow regulatory protection for those providing custody of DAO assets (not moving on their own volition, but based on the authorization of the DAO). Ross does not believe this implies the need for the Foundation to be a VASP.

[Mori]

I understand the general skepticism presented in this thread, but ultimately I do think having an on chain multisig is a significant improvement off of the current status quo as long as signers are decided on carefully. Currently, most treasury funds are simply controlled by PC with the implicit promise that it is for usage by the DAO. On-chain voting does not exist yet for GHST, nor would I necessarily realistically advise it for this project due to the potential for governance attacks either by bonding curve or by de facto delegated GHST in third parties, which would be inappropriate to trust to be secure from the protocol’s perspective. Therefore I can understand the speed at which PC would like for this to be done, as it is a non-trivial liability to have treasury funds that are not appropriated for their usage to be under their control.

Importantly for the multisig to really function as intended, members should be diversified in a way that actors do not have a close relationship with each other, so I would like to see some voting process that allows for this to be taken into account rather than just taking the most upvoted posts.