Just to add a few comments to @Immutablelawyer on the legal design:
Firstly - this is not legal advice. I’m just a humble, working-class boy from the backstreets of Sydney. You’ve got some sharp lawyers on this, so consider this purely for entertainment value.
Overall Design
- I’m a big advocate of KISS when it comes to an OpCo. Run it lean—these entities are internal service providers to the DAO.
- Don’t get caught up in buzzwords. Though I admire our industry’s innovations, “BORG” is just a branding term for any DAO-aligned entity.
- The “dark magic” in a DAO-aligned entity lies in its Memorandum and Articles of Association and intercompany agreements. Make sure to engage a specialist for drafting; only a handful of lawyers truly understand this space—do your research.
- The proposal seems light on details about the level of deference to DAO governance (via qualified code deference mechanisms). I’d like to see more depth here.
Economic Substance
- Whichever structure you choose, you’re likely to face economic substance issues—fortunately, the existing Foundation is a resource you should leverage.
- A core challenge for DAO-aligned entities is structuring intellectual property ownership, licensing, and payment flows. Done correctly, this enables a streamlined operation; done poorly, you risk excessive on-the-ground overhead and administrative costs in response to local Economic Substance rules. Missteps here could lead to costly de-registration.
- Intercompany and service agreements with the Foundation and contributors will play an important role on the IP and funding flows and therefore the Economic Substance impact. Make sure you have budgeted for these and they are drafted appropriately.
- Each jurisdiction has quirks, but I usually stick to the tried and tested. Personally, I avoid Panama (see Sushiswap), Switzerland (see Diem), and any U.S. state (for obvious reasons). More details on this here.
Intellectual Property
- Beyond economic substance, intellectual property deserves its own focus.
- This extends beyond code copyright to encompass domain names, trademarks, patents, internal tools, processes, and innovations. All these elements need a permanent home with proper succession planning—thinking with a “what if we get hit by a bus” mindset is essential, especially early on.
- Consider the full scope of assets, from email templates to password management tools, all of which require clear, long-term ownership and maintenance plans.
- If you recall the WordPress litigation, you’ll understand the importance of covering all bases. Don’t be WordPress.
Legal Risk Mitigation
- Arbitrum DAO’s decentralization is beneficial for transparency but not ideal for rapid off-chain legal response.
- My experience with the Maker DAO patent case has informed my thinking a lot here: without an authorized entity to defend the DAO, it nearly faced a default judgment. Luckily, a colleague on the DAI Foundation board spun up a dedicated SPV at the last moment to handle the litigation.
- The takeaway? Establish a legal defense and guardian strategy from the outset, and ensure Arbitrum DAO explicitly endorses it so the OpCo can act swiftly.
- I believe the Arbitrum constitution could be enhanced to authorize the Foundation or OpCo (or both) to act on the DAO’s behalf and clarify the DAO’s role in funding or indemnifying legal action. Launching an OpCo could be an opportune moment to address these gaps and define the OpCo’s role relative to the DAO.
- DAO contributors and delegates are legally exposed, a risk that exists across most DAOs. To address this, I developed the Legal Defence scope with Layer Zero at Maker DAO to protect ecosystem participants. Even if we can’t extend that level of coverage to Arbitrum DAO participants, consider how similar protections might apply to the OpCo. This goes beyond E&O insurance; it’s about anticipating legal risks for the entire DAO, with a specific focus on the OpCo.
There’s much more to cover under each point, not to mention tax issues better left to specialists—so that’s probably enough for now.
Cue the gigabrains over at Axis and @immutablelawyer to crack open some Zyn and give us the good sauce!