[Proposal] The Gitcoin Foundation - A proposal to represent the Gitcoin DAO IRL by a Cayman Islands Foundation

📜 Proposals
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Introducing The Gitcoin Foundation - A proposal to represent the Gitcoin DAO IRL by a Cayman Islands Foundation.

TL;DR: This proposal outlines why a foundation is useful, how the Gitcoin Foundation is structured, and what powers the DAO has over the Gitcoin Foundation (spoiler, the DAO will have virtually all the control!). This proposal also calls for the community to execute a transfer of ownership of various Gitcoin Holdings assets, including our DAO Treasury timelock contract and public goods funding IP, to the Gitcoin Foundation.

Context: As some within the Gitcoin community know, I recently resigned from Gitcoin Holdings to fully join and focus on our DAO. While at Gitcoin Holdings, I had the opportunity to see our DAO community coalesce into vibrant and productive workstreams coordinating public goods funding thanks to GTC. I’m excited to now focus my energies and experience where it matters most for public goods – within our DAO!

In order for the DAO to fulfill its mission of building & funding public goods, I believe we should be intentional about its corporate structure in doing so. I’ve done some groundwork on this front, and am excited by the prospect of structuring a legal entity around the DAO to better serve our mission.

I am going to borrow some highlights from our friends at ENS regarding why the DAO should have a legal entity:

  1. It provides limited liability to GTC holders for the actions of the DAO. Without a legal entity, holders may be personally held liable for anything the DAO as a whole does.
  2. It is capable of complying with taxation requirements - without a legal entity, the DAO and its participants may be held liable for a proportion of the DAO’s income/gains, even if they are not able to access these funds.
  3. It is capable of entering into contracts with other “real world” entities, of holding assets (including IP rights), spinning up operating organizations, enforcing contracts and so forth.

Here are some high level details on the newly formed Gitcoin Foundation:

The Gitcoin Foundation is a Foundation Company, incorporated in the Cayman Islands. Cayman Foundation Companies can be ideal structures for nonprofit enterprises like our flagship, Gitcoin Grants (see more here), since they do not require equity-like members and instead permit us to follow the wishes of a broader stakeholder pool (our entire community). Currently the Gitcoin Foundation has a single shareholder (a local service provider), but this “subscriber” will soon surrender its share leaving us with an ownerless foundation that can honor the wishes of our broader community.

The Gitcoin Foundation currently has three directors: myself and two independent Cayman residents. The two independent directors are directors of other DAOs and are important to ensure we maintain our status as a true Cayman Foundation Company. Currently, Directors are in charge of the day-to-day management of the Gitcoin Foundation (though much of this will fall to me in the short term).

The Gitcoin Foundation has one supervisor. The supervisor is an administrative role whose job is to make sure that the directors are doing their jobs in accordance with Cayman Islands law. The position of supervisor is filled by a Cayman Islands firm, Hamptons Limited.

The Gitcoin Foundation currently has rather boilerplate Articles of Association, which empower the DAO to vote to (among other powers reserved to the DAO):

  • Appoint or remove a director, member, or supervisor; and
  • Instruct the directors to wind up the foundation, and specify what charity or other foundation should receive the foundation’s assets.

Though not specified directly in the Articles, the DAO may also instruct the directors to take action on behalf of the Foundation - such as signing a contract, engaging a company for a service the DAO requires, or delegating some of the directors’ powers to a DAO working group (so long as a director is part of that workstream). The Articles of Association will likely be revised over the next 30 days to better match our intent to give the DAO nearly full control of the foundation.

The substance of the proposal:

With The Gitcoin Foundation established, I propose acquiring Gitcoin Holdings’ assets that serve public goods funding in a formalized way. The Gitcoin Foundation can host these philanthropic assets and ensure their independence from Gitcoin Holdings. Here is why this makes sense for our community and for Gitcoin Holdings:

  1. Legal personality will help rather than undermine our decentralization – though we operate globally, we still need to be able to enter into contracts (for instance to host our Discord) and take ownership of our treasury and IP legally, and for these privileges to be recognized in the terraverse we need a legal face that’s familiar to other legal entities, jurisdictions and their courts. A legal structure over our assets will showcase that we coordinate and collaborate across the globe
  2. We have global stakeholders – our contributors and our mission are global, which favors a neutral jurisdiction like the Cayman Islands (i.e., rather than a jurisdiction where any specific stakeholder contingent calls home)
  3. We need flexibility - Cayman ownerless foundations look and feel like non-profit LLCs (as compared with more restrictive corporations), which favors an evolving DAO like ours - activities within the DAO (grants, workstream funding) are constantly evolving and will continue to do so with future pivots, mechanism design innovations to accelerate automated public goods funding, treasury management needs, impactDAO vision
  4. We need a legal solution that is fit for purpose - our DAO’s mission is charitable and its legitimacy depends on credible neutrality, and a foundation structure serves these ends by minimally intervening with the will of our community
  5. Our mission deserves tax efficiencies - the DAO’s mission is charitable and should therefore benefit from maximal tax efficiencies, and securing tax exemptions under IRC 501(c) are challenging in the United States, time-consuming and not ideal for a global group like ours

The Gitcoin Foundation would acquire various domains, code repositories (incl. Treasury smart contracts), trademarks, social media accounts as well as some seed capital. Gitcoin Holdings could perform services for our DAO that we determine are in our best interest according to our normal governance decisioning process but would otherwise be formally separate from ourselves. Gitcoin Holdings will continue to operate as an independent organization but by virtue of this vote, if passed, The Gitcoin Foundation will now be formally recognized as a separate entity that represents our DAO and philanthropic efforts we undertake.

Next Steps: All feedback and thoughts are welcome. Would love supporting the acquisition of the DAO Assets. Here is what immediate next steps would be:

  1. A vote is proposed (once we hit the threshold set out in the Governance process) to adopt the Gitcoin Foundation as the legal owner of the DAO and its assets.
  2. If the vote passes, the directors of The Gitcoin Foundation would begin discussions with Gitcoin Holdings Inc. with the goal of obtaining the philanthropic assets Gitcoin Holdings currently controls, for the long term benefit of the DAO and Foundation now having ownership
  3. A second vote may be proposed with the final negotiated terms, but this proposal will entrust the Directors of The Gitcoin Foundation to fully negotiate this business transaction (while providing frequent updates to both Stewards, Workstream Leads and the community)

To be sure, there is no perfect legal structure. Although DAOs are a completely new frontier whose recognition varies across jurisdictions, this formalized structure will better protect our community assets and ability to use them to build public goods sustainably.

22 Likes
2

Thanks for this thorough outline Kyle.
For all the reasons mentioned above I fully support this, no questions for now.

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An exciting development for Gitcoin and for public goods funding more generally. Grateful :pray: for your work on this.

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Great move for the public good from gitcoin. Should there be a constitution in place to formulate the foundation’s running?

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A long time coming. Definitely needs to be addressed soon. I will be voting yes.

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Yes! Thanks for asking about this. As noted in the original post, we do have a fairly basic constitution in place right now, and we will be amending it to ensure it empowers the community to direct the foundation and all of its efforts.

We will have an updated version to share soon, but given the intent to obtain assets from Gitcoin Holdings, we will need to make sure they are okay with it as well (ie, we will not ratify the new constitution for a couple weeks until we are close on terms with Gitcoin Holdings). So, the boilerplate constitution is a means to ensure we can facilitate a successful transfer or philanthropic assets from Gitcoin Holdings.

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This all makes sense and is another step for Gitcoin’s path to decentralization, I am a yes.

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This should say it adds retroactive limited liability back to the date of deployment of the DAO and indemnifies all past and current participants/contributors for any action taken prior the establishment of this much-needed legal entity.

Also, I would modify the second sentence to say, “Without a legal entity, holders who are not operating through an LLC may be personally liable
”, because that’s more accurate. Better yet, I would simply strike this second sentence as it adds nothing substantive to the bullet point.

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Trust your expertise here. What you have outlined makes sense.

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Hey TJ,

there are two parts to this sentence - One is for token holders and their liability, and the second is for DAO contributors as you are referencing. The sentence you quoted clarifies this is of the benefit of token holders (and breaks the legal argument that all token holders are in a partnership). The later, is something we will still need to address and I agree that it is not yet represented in the proposal. You appropriately noted some of those concerns which needs more work.

Protection for the workstreams is something I am researching to offer more guidance in the next couple of weeks. I personally could not recommend workstreams to create an LLC yet, has it creates other implications for the LLC members, but I am still working with Deloitte and other general counsels for details on how to proceed with limiting liability of contributors as well.

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I see. You can remove ‘contributors’.

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I’m excited to see this proposal live; this is a foundational development for the DAO and its mission. Eager to see this come to fruition!

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Kyle, we give you kudos for constructing this important proposal, aiming to address a number of very real concerns. But one needs to look at these concerns separately, to validate the efficacy of the offering.

Exempted Foundation Company in Cayman Islands, incorporated on February 11th, 2022, solves well, at least under current agreements between the UK and the US tax authorities, a typical tax liability, related to the receipt of a large number of fungible tokens, of non-trivial present value.

It may also address joint liability issues, though to which extent that would cover semi-anonymous and passive token holders, as compared to the key DAO operators, is open to interpretation. This lack of clarity can be seen in ENS indicating “limited liability to DAO participants”, and your “limited liability to GTC holders”.

As Gitcoin would continue to represent strongly that the tokens are not securities, and not related to any equity or income interest in the enterprise, the liability to the token holders is somewhat tenuous anyways.

How well the Foundation solves joint liability concerns of the major DAO contributors would likely depend on the arrangement between the DAO and the Foundation. You describe it variously as “a legal entity around the DAO”, “DAO may also instruct the directors to take action on behalf of the Foundation”, “ownerless foundation”, “give the DAO nearly full control of the foundation”, “permit us to follow the wishes of a broader stakeholder pool”, “the will of our community”, “Gitcoin Foundation [] legal owner of the DAO”, “DAO and Foundation now having ownership”.

These sound great individually, but may not all to be possible at the same time. We need one set of precise language, that documents the structure and the interaction.

Neither interpretation of limited liability universally protects against all types of actions originating with the token holders, DAO contributors, Stewards, or the DAO itself, and will need a separate treatment. My understanding is that today, the only firm legislative framework for on-chain votes to control an incorporated entity is the Wyoming LLC, with the ‘blockchain’ election.

In the proposal you advance two additional causes, not immediately tied to the formation of the Cayman foundation and then capturing very specifically its relationship with the DAO, in a purpose-build set of Articles of Association, or similar.

  1. “community to execute a transfer of ownership of various Gitcoin Holdings assets, including our DAO Treasury timelock contract”. Also mentioned are IP, trademarks, repos, domains, accounts, and seed capital.

You want three Foundation directors, two of whom are unnamed and unrelated to Gitcoin, entrusted “to fully negotiate this business transaction”, confirming that “much of this will fall to me”. By comparison, all three ENS Foundation directors are core team members.

In combination with vague terms for the final approval vote, the Foundation having already been incorporated three weeks ago, and you assuming such an exclusive role, one may be concerned how well the DAO side of the negotiation has been or will be represented. It would bring more legitimacy to the process, for someone with less history and commitment to Gitcoin Holdings and more history and commitment to our DAO, to lead the DAO side of negotiation. Would also be wonderful if the contingent contributing full time to the DAO since August, 2021, is better represented among the Foundation directors, say 2 out of 3.

By way of example, someone with a DAO-first outlook would ask about the GTC stuck in the airdrop. Some 2 million tokens, of the 15% designated for the airdrop, have not been claimed. Seems intuitive that the DAO would be better equipped to steward these tokens, than a commercial entity would.

In the Voter Guide you indicate $100K of quarterly funding by Holdings to the DAO streams. Only dCompass and FDD apparently stand on their own financially. Before affecting the split, we need to figure out this impending severe budget deficit, compared to which entity formation is just window dressing.

  1. Obliquely, you indicate a plan for carving-up Gitcoin into multiple “nonprofit enterprises like our flagship, Gitcoin Grants”. Similarly, there would be no issues for the workstreams, unless you see them operating independently, making their own deals and incurring their own liabilities. While these are curious ideas, there is no reason to drag them into the Foundation formation decision, particularly after creating a sense of urgency to get it approved. DAO can and will decide, at its own pace.

Your enthusiasm and drive are outstanding, but there are things that simply have to be done properly, for the lasting benefit of every party to this transaction. Can you guide structuring the DAO configuration with the Foundation first, including democratizing the directorship?

Then, arrange and chair the DAO and Holdings negotiations, letting the sides work out the details. Everyone’s already with you on the wants and the concepts, and may only want a bit smoother incremental process. Still only two steward votes required, and feels like it should all be doable before the month is over, even with some lawyer meddling.

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Hey @kyle

Huge thanks for your proposal, and this is very fundamental for GitcoinDAO and definitely we need this.

I support this proposal!

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Hey Walter, Thanks for the questions and thoughtful review.

This is likely semantics as a DAO participant is (usually) a token holder. I wanted to be more explicit that our foundation does better protect token holders, but does not offer full-proof protection for DAO contributors.

This isnt exactly true. Any organization can put into its bylaws that no major action is taken without a vote of some sort. In most traditional organizations this is the vote of share holders, and in our case it would be token holders. The important part is to make sure the constitution of the foundation spells this out. FWIW, Wyoming LLC is not tenable given the 99 member limitation on specific protections (among lots of other reasons).

I cant speak to why they decided to set up this structure. I can tell you this is not a structure we felt was tenable for Gitcoin. Having a major in the Cayman Islands is important to ensure the legitimacy of the structure IMO.

These were returned to the DAO treasury when the airdrop experience expired.

I dont quite follow some of your other assertions - they seem unrelated. Let me know if you have other questions.

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Thank you @kyle for your work on this matter and for outlying this proposal in such detail.

This is a very interesting proposal. I definitely agree that a DAO needs to have a real-life entity representing it. Even when we made “The DAO” we had created a Swiss entity, DAO.LINK to get into “meat-space” agreements for the DAO and be able to handle taxes and other obligations.

For the liability part as a token holder and as a contributor I can’t really tell. Depends on your jurisdiction. Here in Germany it’s all unclear 
 but especially as a simple holder sounds farfetched to have any form of liability. If having a real life entity helps there (can’t say – ask a lawyer in your respect jurisdiction) then that’s good but I doubt you have consulted with lawyers in multiple jurisdictions.

I have some questions on the details which I will outline below.

myself and two independent Cayman residents

Who are these residents? And what are their affiliations/credentials? I believe if we as a DAO are asked to choose someone to represents us in meatspace we should know who that someone is.

The Gitcoin Foundation has one supervisor. The supervisor is an administrative role whose job is to make sure that the directors are doing their jobs in accordance with Cayman Islands law. The position of supervisor is filled by a Cayman Islands firm, Hamptons Limited.

Afaik the supervisor’s position is a paid one and Cayman firms charge a lot. How much does it cost and I suppose this will be expensed to the DAO?

  1. We have global stakeholders – our contributors and our mission are global, which favors a neutral jurisdiction like the Cayman Islands (i.e., rather than a jurisdiction where any specific stakeholder contingent calls home)

Reading this the sanctions matter came to my mind. Would we eventually be able to get around having the need to block our crypto brothers from countries that suffer under repressive regimes with a Cayman islands foundation or the same problems we have with a US company would still persist?

I assume it would still persist, correct?

Also have a question about the liabilities that Gitcoin holdings has. Unless my memory completely deceives me right at the launch of GTC it also received ~$10M USD in investment, right? Does it have any liabilities towards these investors or were they paid back in GTC tokens? Would transferring ownership of the assets of Gitcoin holdings to the Foundation in the Cayman islands also transfer any obligations to those investors that we, the DAO, would have to repay?

On the same note would we inherit any other debt/liabilities from Gitcoin holdings as a DAO with this transfer?

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I understand this is not a satisfactory answer, but I need to confirm they are okay with me sharing their identity. They both work with multiple DAOs, but in an effort to prevent doxxing them, I need to confirm they are okay with me sharing details. The goal is to write the constitution such that it doesn’t really matter who these folks are as they are merely following the will of the DAO (like myself). I will come back to this next week when I can confirm with them.

This will likely be $30K a year. I will have more formal details once we get further along in the process. This number will fluctuate based on the services we ask them to provide, but this fee is really not that much more expensive than services other firms charge in my experience.

I am not sure. Most sanctions run through the global finance system and not just the US. I will have to speak with our cayman counsel for more details though.

I dont want to speak too much for Holdings as I am no longer employed there, but I know this would likely be tenable to them as they are able to hand off the costs for the philanthropic work to the community and focus on becoming more profitable for shareholders. It reduces their cost footprint and helps them focus on core products that generate revenue, which is a win for shareholders.

No, there are no string attached like that. They are absolving themselves of the assets and we would be taking them clear of any obligations from that organization. They have made it clear that the community needs to support this and that they are willing to begin negotiations once the community has made its will known.

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@kyle Thank you for the great work with this detailed proposal and great leadership on the matter. I think this is a good step forward for the Gitcoin DAO and its token holders. I support the need for a legal entity, aligned with DAOs ethos, that can provide a space for the DAO to operate more “freely” and efficiently.

Reading the proposal and the comments below a couple of questions come to mind;

  1. From your previous response I understand the possibility of two of the directors remaining anonymous but I just wanted to emphasize that I believe it’s important for the community to know the directors who play a great role to ensure the maintenance of our status as a true Cayman Foundation Company.
  1. Regarding the Articles, I believe this is a very important part of the proposal. Could you please specify how are you envisioning this to shape up (timeline, accountable working parties, decision-making process, what are the specifics of "giving the DAO nearly full control of the foundation, etc.)

And lastly, I want to emphasize what @lefterisjp brought up which, I think, is one of the most crucial pain points of Gitcoin DAO as an exemplary organization that stands for Public Goods. And I believe this is the perfect timing to have this issue in mind and seek a solution (even if its temporary) if the proposal passes.

Thank you,

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This is a well thought out proposal and it has my support, I am interested to follow the direction as GitcoinDAO undergoes this process.

In order the establish legitimacy and a legal precedent for this new type of entity I think this is needed move and I trust the stewards to execute this transparently and for the benefit of all members of the DAO.

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Here is the current working plan:

  1. Work with the community to discuss and ratify our intent to procure assets from Gitcoin Holdings, and adopt the new Gitcoin Foundation to represent us (the DAO) - This is happening now
  2. Continue to revise the current constitution and present to CSDO (Cross Steam DAO Ops) and then Stewards during the April Stewards meeting for ratification - A new draft is in progress now
  3. Assuming #1 passes a vote, we will begin to negotiate for assets and transfer from Gitcoin Holdings to the Gitcoin Foundation - I am optimistic this will happen at the end of March
  4. Final closeout and ratification will optimistically finish in April, ahead of S14. The goal is to have all IRL infrastructure in place (Bank accounts, Operating Subsidiaries, etc.) ahead of this final closeout and ratification by the community.

There are a lot of details that we are still discovering as we go because this is not a well charted process, but I am committed to being as transparent as possible for both others to learn from, and for our DAO to understand what’s happening.

2 Likes