Should we ask Cartan Group to scope setting up the DAO to accept funds?

Abstract |

Last month the ApeCoin DAO community approved AIP-98 to build an official marketplace for ApeCoin DAO - enabling the sale of Yuga NFTs with reduced marketplace fees. The presence of a new revenue stream exposed the fact that the DAO isn’t currently set up to accept funds (or equity) based on their Cayman foundation status.

The purpose of this AIP is to suggest we set aside up to $100K in $APE to fund legal + administrative cost to scope the feasibility and cost required to set up a new legal structure able to accept funding.

Motivation |

Last month there were several proposals for building an official marketplace for ApeCoin DAO. While only Snag Solutions was approved, it opened the question of how the DAO should use new revenue streams, since ApeCoin Foundation isn’t legally set up to receive revenue today.

In the interim, we proposed routing the new marketplace revenue stream to a multisig to ensure we’re driving value for the DAO via marketplace usage while giving us the space and time to determine use of funds in a separate proposal.

We’re recommending using marketplace funding to create a natural funding source for AIP-124 in our recent AIP draft but have received feedback throughout the process that the DAO will be better set up for success long-term by answering the question of whether funds can be accepted.

  • This will be especially important as we: 1) layer on other revenue streams and 2) grow marketplace revenue. By getting ahead of this we’ll be able to return any excess funding to the DAO in the future.
  • This also sets the DAO up to take an equity stake in exciting projects, ecosystem partners, etc. A route not currently open due to legal structure.

About Us |

@Zheerwagen is CEO of Snag Solutions and a BAYC, MAYC, and ApeCoin DAO member. I am drafting this proposal as a member of the ApeCoin community since this has been talked about for so long, but Cartan Group can’t action without a proposal.

Cartan Group manages the operations of the DAO and would be responsible for carrying out this AIP and reporting back to the DAO with findings and a recommendation on next steps. From there we can vote on whether to take on legal set up.

Rationale |

Enabling the DAO to accept revenue and/or equity enables us to:

  1. Pass value back to the DAO, either directly or via sub-DAO’s to ensure value flows back to the collective when there isn’t a clear path to utilize new revenue streams.
  2. Could set ApeCoin DAO up to disrupt the hedge fund model by participating in the upside of projects and partners by taking an equity stake in the business.

Specifications |

Proposed steps are:

  1. Vote approval unlocks a budget of up to $100K in $APE to fund legal and administrative costs with the goal of publishing a report on feasibility of implementing a legal structure that can accept revenue and/or equity.
  • As part of this Cartan group will be responsible for publishing the actual cost of scoping (mostly legal hours) and publishing to the DAO + returning any unused funds following.

  • I’ll volunteer to work through the scoping process with Cartan to ensure we have a community voice in the room – and am happy to pull an additional 1-2 community members into this workstream.

  1. Cartan group to publish a feasibility + cost analysis within ~2 months of this AIP being approved and the budget being unlocked.
  • From there we can vote on next steps as a DAO!

A bit of additional context based on my conversations to date:

  1. Problem: If we open the door to accept revenue from one source, it opens the door to all. The key question to answer: Is this revenue taxable?
  • This is why they’re in Cayman which is tax advantaged today.

  • If we do this we’ll likely have to start reporting everything on an annual basis.

  • We also need to scope any complexity around tax reporting internationally.

  1. The second problem is ongoing SEC investigations over ‘what is a security / equity’, as we know there’s an ongoing investigation already.
  • That said, if we were to solve this sufficiently, it opens up a new opportunity where anyone (accredited or not, US citizen or Intl.) can invest in anything via the DAO.
  1. $100K gets the ball moving, but doesn’t actually go all that far. Average legal cost/hour is ~$500, so this only covers a max of 200 people hours for early scoping.
  • Note - There could be some transparency issues on the back end - based on what we find it may not make sense to share back with the DAO directly because this could open up additional legal risk.

  • This is why it’s important we have a couple of DAO members in the room in addition to Cartan.

  1. One interesting solution to this could be creating a sub-DAO that’s still voted on via $APE like the current DAO but has a different legal set up to accept revenue and vote on uses for the funding.

Timeline & Steps To Implement |

  1. Vote approved, budget unlocked.
  2. Cartan comes back with a report on findings, a recommendation, and recap of budget utilized within ~2 months.

Overall Cost |

$100K in $APE, or ~2,200 $APE at current value.

Specific Requests for Feedback |

  1. We would love to hear your feedback on this proposed approach!
  2. Is there anything we’re missing, or anything you can suggest to improve the proposal?

Proposals submitted to the AIP Ideas category can be vague, incomplete ideas. Topics submitted here are not required to be submitted as a formal AIP Draft Template, however, you may still use the template if you wish.

I think this is definitely something we need to address as there are some great initiatives that could generate a meaningful ROI for the DAO. One of your options is a sub DAO, i’m guessing this process would still be required but on a smaller scale?

5 Likes

Yes, I assume so, we’d likely just port over the same tooling, snap shot, discourse, etc.

6 Likes

I completely agree with this approach. During early conversations about this topic, we were told to create a directive & dedicate resources for Cartan to explore how best to implement. I’d like to see:

  • Ability for DAO or Sub-DAO to hold IP rights and equity in companies
  • Funds generated to be directed either towards ecosystem projects or initiatives
  • Sustainable long-term plan (beyond 3-5 years) for the DAO to continue to operate

It would be great to hear directly from Cartan Group on if they’d be willing to perform this work and also timeframes & expected costs. Longevity is something that should become high priority for the DAO!

There are some difficult questions surrounding how or if these earnings are redistributed to token holders, so having some guidance on how best to handle that should be done by professionals.

8 Likes

Thanks as always for the response Todd! And I’ll let Cartan group weigh in on this as well but would add:

  1. I chatted with Brandon directly on this, amongst others, and they’re happy to support this!
  2. I agree with everything you’re saying here in terms of ideal outcomes! :slight_smile:
4 Likes

Great write-up @zheerwagen and 100 on the above @0xSword – holding equity might be a stretch (we may all need to be accredited investors) but totally supportive in getting legal beagles on this.

Well played all --:clap:t4:

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As a long time lurker and recent contributor, I’m surprised to learn that the DAO is not currently set up to receive funds…

Do we know why this function was not included in the scope of forming the existing DAO? Inclusion of that information here may add context for interested holders.

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Based on the convos I’ve had it was to eliminate any concern re: tax liability. Cayman based foundations pay 0% in taxes, but if they accept revenue and operate internationally they would need to adhere to international tax laws.

So lots of complexity that likely would have meaningfully delayed the launch.

It’s also worth noting that a potential outcome of this scoping exercise is a reccomendation that this is either 1) not feasible 2) introduces too much risk to be worthwhile.

In either case I personally would think this is a worthwhile investment to get an answer on.

6 Likes

Absolutely agree we should do this; don’t agree it has to be Cartan that administrates the discussion. A completely disinterested legal opinion from a firm with dedicated resources on the subject may actually be better for the DAO, I think.

4 Likes

Love this AIP idea. I believe we have to start thinking on the longevity of the DAO and without the ability to receive funds/cash flow it doesn’t look very promising. This would be a great starting point to open the discussion and ideas. a Sub-DAO or a different legal entity could be a solution.

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This is awesome @zheerwagen, and very much needed, thank you! :pray:

I will definitely be voting YES for this, as it’s come up during office hours and other conversations within the DAO both between community members, the Cartan Group, and the Special Council.

I wanted to comment that I really appreciate how you’ve been writing proposals lately, starting the titles with “Should we x.” I think it makes things a lot easier for people to understand the scope of the whole AIP in just the title. :slight_smile:

I’d love to see this become an AIP standard and included in the AIP Template. In my opinion, every AIP should be framed as a question with a “YES” or “NO” answer easily available.

I would like to volunteer where I can to help in this initiative. I agree, I think it’s important to have a few community members present during this discovery phase. Please let me know if I can be of assistance in any way. :heart: :raised_hands:

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Sub-DAOs/working groups funded by the DAO are a win in my book. I’m super stoked for any structure that protects the decentralization of the core entity while allowing for interaction with legacy business structure. But what’s essential to me is to maintain the integrity of the “d” in the DAO as much as possible. And I do think it’s very possible, not just pie in the sky idealism.

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I’m definitely in favor of this proposal. Let’s get it done.

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Yeah, I believe we’ll have to look on the structure and specifics with lawyers for the best way to make this happen, if we chose to go with the idea.

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gm @zheerwagen,

Great write-up. Just a thought: now that you’ve set out the pathway, couldn’t we just ask Ape Foundation (@bc) to have their legal team sort this out?

If I’m missing something, never mind me and carry on :laughing:

SSP

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Thank you all for the early feedback! Batching a few responses here :slight_smile:

@Mantis / @ssp1111 - I think your push on who does this work here is an important one, but also think we can augment whoever project manages this process with a small subcommittee to help guide the workstream. @Amplify would love to include you on this!

First a clarification: Cartan would not be administering any discussion or making legal decisions, only project managing across legal, auditors, and other experts.

The reason I thought Cartan makes sense on this is because it will likely fall on them to execute anything that touches the Ape Foundation (legal entity) and therefore it makes most sense that they scope this.

Any thoughts on other ways we can augment their efforts, or any other team that would be well set up to take this on?

4 Likes

Hello Zach, thank you for including me in this!

Sorry, this response isn’t totally directed at you it just inspired a rather large write up so bear with me. :stuck_out_tongue_winking_eye:

Currently every AIP falls under 1 of 4 categories: Core: Ecosystem Fund Allocation, Core: Brand Decision, Informational, or Process.

Instead of creating subcommittees and fractured working groups, I’m starting to think about what a “Core Team” within the ApeCoin DAO might look like. I want us to start thinking about creating at least 2 “Core Units” or committees within the DAO.

1. “Core: Ecosystem Fund Allocation: Proposals for how DAO funds should be utilized”

A working group committee led by one council member which would be responsible for aiding proposals that fall under this category.

So when a bug bounty is proposed and we need a group of dedicated individuals to scope severity of submissions and liason with whitehats these DAO members are the first choice. Or if we’re paying Cartan to scope out sending funds back into the DAO and we need some community members along for transparency and reporting, this is the committee the team would go to in order to fulfill these duties. In the future, and if within scope, this would also be the team responsible for allocating the initial funding to any potential “Treasury Management” or “revenue earning arm” / committee of the DAO.

2. “Core: Brand Decision: Proposals for aything the DAO attaches its name to, included projects and collaborations”

This committee, also led by one Special Council member, would be responsible for aiding proposals in this category.

So when ETH SF is happening and we need people to go and create promotional materials for the booth and present prizes to the hackathon winners, this is the group the AIP Author leverages for this need. Or whenever we need any ApeCoin representation in person at events, we should have a dedicated team of individuals for this.

A big problem with all of this is finding raw volunteers. It’s my opinion that community members should be paid for what would essentially be full-time work obligations. Starting the conversation around these two working groups first, I think, is a good first step towards having more active contributors and more meaningful DAO initiatives.

4 Likes

Yes, this is critical infrastructure that is needed to mitigate risks to DAO and participants that also drives a utility feedback loop.

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Thanks so much for this proposal! This is something I’m really interested in and would love to volunteer to help however I can if you still need help.

I had a chance to ask @bc a little bit about this. If I understood him correctly, there’s multiple problems that need to be solved and would be very costly to figure out. What he told me is very similar to what you’ve outlined.

If money comes into the DAO, you have to figure out where it is coming from. Revenue would be generated from different countries so taxes would needed to be filed in each place it comes from. The DAO would have to register in every country it does business. Right now regulations are not clear across the globe, so figuring out how to be legally compliant in each country will differ and won’t be cheap or easy.

For example, in the US alone, someone would have to figure out how to do tax returns for the IRS and how to comply with the laws. That would cost a lot of money to do. If the DAO starts taking in money, it starts to look like an investment DAO instead of a grant DAO and then may be considered a security. If it’s considered a security, then it must comply with SEC’s rules for registration and reporting. The issue of whether or not someone needs to be an accredited investor to trade $ape starts to come into play as well. Also, would KYC be needed in order to be compliant?

There may be other considerations as well. Thanks again for taking the initiative on this, and if I can help out in any way, please let me know!

10 Likes

After thinking on this, I have to change my opinion a bit. Much of my new perspective comes from a desire to protect the DAO’s “d” and “a”.

I also want to challenge others to consider: Does the desire to allow the DAO to accept profits come from an assumption that changing the DAO’s structure to resemble a VC will improve its sophistication in the global marketplace or connectivity to legacy investors?

And is this necessary?

What new choices are created from this? What new, better financial structure? What alternative to the shortcomings of the current financial system?

First, in its current state, can the DAO pass through what would be profits as fees to platform administrators or roll that value immediately over into other projects? If so, I would argue the DAO fulfills its basic tenets without a need to hold profits. With no profit motive but an ever-growing, stable economy, the DAO becomes a job and value creator of a higher efficiency. It is literally forced to find talent to pay and projects to back instead of trying to enrich itself, and encourage policy to that end.

And yes, if the DAO is allowed to enrich itself, policy will creep slowly to prioritize that end. This is the inevitable path of all governance structures wherein a store of value may be held in escrow to a group of core administrators. It seems the DAO is moving towards setting in stone this core administration group as final policy arbiter. A value store is all that is necessary to create a slippery slope back to a centralized power, and one that also seeks compliance with legacy finance. There will be no difference between this DAO and legacy finance in 3 years in this case.

The alternative: Set the DAO on a path to freedom from legacy regulatory compliance, that it may become the unassailable centerpiece to a consistently growing multitude of freedom-based financially sustainable technology, that creates opportunities for job-seekers around the world. Funding projects from yield rather than capital greatly reduces the possibility of capital drain. Directing “profits” into people or ancillary yield pools creates growth in mindshare and utility with no need to drown the DAO’s “d” and “a” in legacy legalese for the sake of compliance.

For instance, is it too late to propose a decentralized node structure for all ApeDAO projects to move the DAO away from being subject to any single nation’s regulatory tidal shifts? The sustainability of Gala Games bodes well for this idea, but would people even care to do this, or is it not the real purpose of this DAO? Thoughts here would be welcome.

I know this ideal may be impossible because the DAO is already too twined up in legacy finance to escape to the ideal degree. However. If we start from this position, the tug-of-war creates the opportunity for a fairer compromise. Start from the center for no reason, and you lose all leverage.

Remember crypto’s promise. I personally did not experience the miracle of bitcoin, in all of its decentralized and autonomous wonder, to find the fastest path I can possibly find back to the status quo — if this is what the passage of this proposal implies. We are in fertile new ground, and I challenge everyone reading this to scour your minds for the fertile ideas that provide brand new opportunities only available in web3!

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