Hello everyone,
This is Sergey from Daobox (daobox.io). We stumbled upon this thread as we learned about the ongoing set-up of the Arbitrum DAO legal wrapper.
(1) After reviewing the draft articles of association for the proposed foundation, we noticed a few aspects that could potentially pose risks or not fulfil the intended purpose of the DAO legal wrapper. Based on our experience in this field (see the justification in item (2) below), we’d like to offer several friendly suggestions to the Arbitrum DAO in this respect:
(a) The foundation does not seem to be adequately subordinated to the DAO, as evidenced by the following:
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The appointment and removal of directors and supervisors can be executed without DAO consent. This allows directors to replace supervisors (who are meant to oversee the board, creating a [directors > supervisor] situation) and change the board composition at their discretion, even if it contradicts the DAO’s intentions. Given that the change of directors/supervisors does not take place every day, a more suitable approach would be to make an appointment and removal of directors and supervisors subject to DAO consent, except for certain emergency situations where temporary appointments can be made.
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The articles do not define a list of “restricted matters” that require prior DAO consent, such as disposition of significant property or IP, major transactions, entity dissolution, transactions with related persons, loans, acting as guarantor, and more. Special resolutions of the foundation (on the most important matters) haven’t been made subject to DAO consent either. These safeguards should be implemented to prevent managers from entering into transactions with significant impact on the foundation and DAO without first consulting the DAO and obtaining their approval, as well as from abusing their position.
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The current setup does not clearly outline how the DAO can protect itself if the management acts in bad faith or against the DAO’s best interests. Next, corporate procedures do not take into account the actual [DAO>foundation] situation and hardly address the DAO <> foundation relations.
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The foundation does not directly recognize DAO resolutions and, therefore, the DAO’s authority. While the DAO can appoint/remove directors/supervisors through its resolutions, its influence stops there. The management is not obligated to consult with the DAO or obtain its consent for significant transactions, among other important decisions. If the foundation is intended to be subordinate to the DAO, the DAO should be in a position to have greater influence over decision-making processes.
(b) The definition of the “Arbitrum DAO” says that the DAO is a community of “individuals” holding ARB tokens. The word “individuals” could be interpreted literally, to exclude entities or corporations owning tokens from being recognized as token holders and DAO participants by the foundation.
(c) The definition of the “Token” is unclear. For instance, the token contract addresses are not included in the definition, which might lead to confusion with another token using the “ARB” ticker for governance purposes. Additionally, potential network hard forks are not addressed, which could create uncertainty about which token to consider as ARB after such a fork, etc.
(d) The Arbitrum constitution is defined via a link to a web forum. Given the technical aspects, it might be more appropriate to define it by referring to a DAO resolution adopting the constitution, even if it is yet to be taken, using IPFS or analogue as a storage mechanism, etc.
(e) We, therefore, believe it’s crucial for the ARB DAO to address these matters and conduct a thorough revision of the procedures and rules incorporated in the articles.
(2) Justification for our opinion: At Daobox, we offer services and solutions tailored to DAOs, including the setup and management of DAO legal wrappers as a service. Our team worked with multiple DAOs and blockchain projects, including on the structuring of DAO legal wrappers and DAO transitions. As a result, Daobox is well-positioned to share its experience and opinion on the matters addressed in this post. Perhaps we missed something, as we didn’t closely follow the conversations here and the development of this matter.
(3) This post represents our opinion and is not intended to offend or criticize anyone involved in the foundation’s structuring. The sole purpose of this message is to provide the ARB DAO with supplementary information and insights on structuring issues, allowing them to better align the corporate structure with their needs and intended objectives.
(4) If you have any questions or require additional information, feel free to tag me or send an email to hello@daobox.io. I’ll make an effort to check back on this periodically and respond as needed.
Cheers!