Thanks for sharing the a16z documentation, I’ve gone ahead and given both documents a full read. After reading the doc, my takeaway are the biggest risks to manage are tax liabilities, legal liability, and securities law. Based on that, my gut is that we should go with a UNA. tl;dr is that we can structure a UNA in a way to insulate BANK holders from legal and tax hurdles.
Off the bat, I think we need to pay our taxes. I raised a discussion about Treasury Assets and there are already a $250K in the treasury. If Algofi is successful, that number will only continue to grow. Avoiding taxation is going to make any DAO with substantial amounts of capital a target. If we continue Entityless, there does not seem to be a great way to enable individuals to fulfill the tax obligations incurred by the treasury. Not paying taxes is just putting a target on our back from governments. I don’t feel tax optimizing the jurisdiction is worth it because the report validly brings up that if enough citizens are involved with a DAO and the tax losses are large enough, governments will try to intervene anyway.
Legal liability is a lesser concern to me at the moment because we aren’t handling real world assets or entering into contracts with other organizations at the moment. Maybe the desire for that will change in the future, but at the moment I don’t see apparent risks where holders are worried about being sued.
Securities law is the other elephant in the room. The SEC is ramping up their campaign. Realistically I think any project trying to disperse project revenue via a governance token is going to eventually run afoul of securities law.
it’s dicta, but here the LBRY judge reasons that even if team is completely silent about efforts–no promises, no contracts–but premines tokens, that alone creates a sufficient expectation of profits from their efforts in common enterprise to pass the Howey test
Even if LBRY never said a word about it being an investment…by retaining hundreds of millions of LBC for itself, LBRY also signaled that it was motivated to work tirelessly to improve the value of its blockchain for itself and any LBC purchasers…would lead purchasers of LBC to expect that they too would profit from their holdings of LBC as a result of LBRY’s assiduous efforts.
I don’t believe this dooms every token in existence. As long as a purchaser of the BANK token, does not have reason to believe that holding it would lead to profits based on others’ efforts, it isn’t a security. I believe we can accomplish that by taking the following steps:
- Using treasury funds to register a UNA in a jurisdiction that will not run afoul of US and EU regulation
- The purpose of the legal entity is solely to pay the DAOs taxes
- BANK holders can vote via smart contract on how much incoming revenue is diverted to the legal entity’s wallet for tax payments. This is to be forward looking against rate changes.
- All remaining treasury revenue is rebalanced into Algo <-> Bank LPs and STBL2 <-> USDC LPs
- The split between the LPs and which LPs are voted on by BANK holders
- The only mechanism to extract LP tokens from the treasury is in the event of a “Black Thursday” type of event, where the price of collateral drops so fast that STBL2 becomes uncollateralized or lenders of other tokens can’t be made whole. The LP tokens would be sold to insure against losses.
In the above system, holders of BANK would have no mechanism to disperse the treasury to themselves, so there would be no expectation that holding the token would ever entitle one to any of Algofi’s revenue. Algofi would buy Bank <-> Algo LP simply to stabilize the price, to ensure participation in governance. If Bank is constantly losing value it could threaten participation in the DAO which would threaten Algofi operating. In a perfect world whre the insurance is never necessary, BANK would just be pegged to Algo given a deep enough pool. So buying bank as an investment would be silly when you could just buy Algo. The treasury also has to hold something else other than STBL2 based LPs because STBL2 might unpeg if a “Black Thursday” like crash happened.
I like the above because it creates a legal entity responsible for paying taxes, so individuals only have to worry about capital gains in their local jurisdiction. There is some opportunity for tax optimization if 501c status could ever be acquired. People in the DAO wouldn’t need to be doxxed. The treasury is allocated in such a way that ideally prevents BANK from being interpreted as a security, and as a bonus might limit speculators. The main purpose of BANK should be to participate in making Algofi work sustainably, not pumps. I also like this because Algorand governance itself is run by a US based foundation, while development is controlled by a private company. The dev team took VC investment so they already have a legal entity. Matching what Algorand Foundation/Inc does creates some nice ecosystem alignment.
Happy to discuss, by no means saying this is 100% right but this is where my head went after reading all the documentation. I had an idea, thought I’d through spaghetti at the wall and see what sticks. Rip it apart guys.