Fund A Builder-First Legal Activism DAO

Proposals
1

LIP: TBD
title: Fund a Builder-First Legal Activism DAO
status: LIP
authors: tracheopteryx; lex_node; judge_jowday; sh_brennan; birdman_haxxor
created: 2021-08-04

LIP-TBD: FUND A BUILDER-FIRST LEGAL ACTIVISM DAO

Authors

tracheopteryx; lex_node; judge_jowday; sh_brennan; birdman_haxxor

Preamble/Summary

Amidst intensifying regulatory scrutiny of DeFi, we propose that Lido contribute $1M in stablecoins from Lido treasury to a new LeXpunK_DAO dedicated to legal advocacy for Lido and other builder-centric DeFi communities. The LeXpunK_DAO will be governed by builders from contributing communities (including Lido) and practicing lawyers from the LeXpunK Army. 5% of the current supply of L3X, the non-transferable reputational token of the LeXpunK Army, would be airdropped to the Lido DAO, to enable direct sentiment polling on relevant legal issues from the Lido community. LeXpunK will effect additional airdrops from time to time, proportionally in line with the relative contributions of other builder communities, with the goal of forming a broad coalition to pool resources for funding shared advocacy goals.

A similar proposal was made yesterday to the Yearn governance (here) and to the Curve governance (here). For links and support, please see those proposals. Shortly thereafter, @Lomashuk and CryptoCobain suggested that we submit this proposal to Lido, another value-aligned DAO and prominent ecosystem builder.

Motivation/Rationale

Growing mainstream awareness of DeFi is coinciding with institutional outrage over the “Wall St. Bets” phenomenon and political change in the United States to brew a perfect storm of aggressive legal threats against DeFi:

  • mainstream media calls DeFi a “shadow financial market” and warns that regulatory action is imminent
  • new SEC Chair Gary Gensler concludes a recent speech to the American Bar Association Derivatives and Futures Law Committee with a warning that many DeFi platforms may involve securities swaps
  • CFTC Commissioner Dan Berkovitz, having googled DeFi, positioned DeFi as being squarely incompatible with the policy of ‘mandatory intermediation’ enshrined in CFTC regulations on leveraged retail commodities transactions and commodities swaps and referenced unfair advantages DeFi has to TradFi due to the lack of regulated intermediaries
  • many blue-chip DeFi projects have already been called in front of regulators or are receiving SEC subpoenas and are forming organized political lobbying efforts which may have distinct and zero-sum goals

DeFi is a DAO of DAOs. These DAOs have many shared goals. For instance, we all aim to build, use, and enjoy open financial technologies. However, DAOs also compete with one another and often differ in ethos and strategy.

Existing advocacy orgs like the Blockchain Association, Coin Center, and the Uniswap-funded DeFi Education Fund have mutually overlapping membership and staff which are heavily intertwined with Silicon Valley venture capital funds and traditional crypto businesses like Coinbase. Many of the teams most directly represented by these organizations have pursued dual token/equity strategies, which means they also seek to accrue value to their equityholders through KYC-gated and censorable forks of their protocols which will cater to institutions and ‘fintechs’.

Builder-centric, bottom-up communities like Lido, Yearn, Curve, and SushiSwap have a different cultural ethos and a different story to tell. We are spontaneous, cryptonative communities of builders that have no TradFi backup plan and value openness, lack of hierarchy, and creativity above all else. Thus, we should have our own unique voice in the evolving regulatory landscape, and by doing so we may be able to make or emphasize lines of legal argument that are not as available to other kinds of projects. After all, the former head of the SEC’s CorpFin division views “sufficient decentralization” as the point where traditional regulations end, and there is nothing more decentralized than a community of builders, users and investors that come together with no contracts or rules, no board of directors or stockholders to answer to, yet somehow build remarkable innovations together.

We believe that cryptolaw should be done in the crypto spirit. If DeFi communities want to show regulators, lawyers, and politicians what is special about DeFi, then Orwellian-named trade associations and non-profits staffed by D.C. insiders are not the best way to go. Instead, we should present ourselves as we are–as DAOs, as token communities, as builder communities. The values underlying these modes of expression are too important to cast aside in the name of expediency when the going gets tough and there are legal threats. On the contrary, the values of openness, transparency, and decentralization are DeFi’s greatest defense to traditional regulation and should be front-and-center when regulators and politicians interface with DeFi communities. This is why LeXpunK was created–to bring lawyers and builders together under a shared ethos that is as disruptive to law as it is to finance.

Through a new, community-funded LeXpunK_DAO, we will not merely hire existing lawyers or fund existing traditional advocacy groups–We will bootstrap a new community of lawyers and builders working side-by-side to legitimize and protect shared creative values. This community will become a flywheel unto itself and yield benefits long after these initial donations are spent and far beyond the benefits of the specific projects these donations end up funding.

Specification

Overview

LeXpunK_DAO will mix long-term strategic advocacy campaigns with rapid-response ‘guerilla lawfare’ raids. LeXpunK_DAO will be structured either as a Moloch DAO, Gnosis multisig, or other DAO implementation; in any case, with balanced representation of LeXpunK Army members and representatives of the contributing DeFi communities. Un-committed contributed funds will be ‘ragequittable’ at the discretion of each community’s representatives.

A. Campaigns

Campaigns are major strategic initiatives, such as:

  • a landmark position paper advocating for positive analysis under securities law, commodities law or tax law of liquid staking. Notably, LeXpunK_DAO’s @lex_node contributed the legal portion of a widely disseminated liquid staking report, which was the most comprehensive legal breakdown of liquid staking legal issues to date;
  • a legal defense of DeFi developers against regulatory litigation;
  • proposed ‘safe harbor’ legislation legalizing key aspects of DeFi;
  • if/when the SEC files a case premised on a novel, expansive view of securities laws that could adversely affect DeFi builders (for example, that all project participants are collectively responsible as an 'unincorporated association; the LeXpunK_DAO would file an amicus curiae brief in the litigation

Campaigns will be defined with thorough specifications and funded with pre-announced bounties. Campaign fulfillment will be by teams hand-picked by the Advocacy Fund Multisig. Relevant experts–both lawyers and developers–will be recruited from within the LeXpunK community, other DeFi communities and, if needed, from traditional law firms; these will be our ‘MandDAOlorians’ working for a piece of the bounty. A ‘taskmaster’ will be assigned from the most trusted ranks of the LeXpunK Army–typically an experienced attorney–who is not eligible for the bounty, but receives a flat fee to monitor the working group’s progress, help remove blockers and make the final determination of when the project has been completed to spec and the bounty is due to be paid. Upon project completion, the team members themselves will decide how the bounty should be allocated, using coordinape. Campaigns will be pre-checked with the LeXpunK community through L3X snapshot polls.

B. Raids

Raids are rapid-response initiatives tailored to respond to current events in realtime. Examples of raids would be:

  • a politician like Elizabeth Warren sends an adversarial public letter regarding DeFi to a regulator; the LeXpunK_DAO funds a rapid public response detailing community views about her questions;
  • a contributing DeFi protocol suffers from a hack or exploit and the team needs help coordinating with law enforcement or CEXs to help block or recover funds
  • builders from a contributing community receive an informal SEC inquiry; the LeXpunK_DAO helps strategize and marshal a legal team to defend the builder

Raids will be funded on an emergency, ad hoc basis at the discretion of the LeXpunK_DAO.

Conclusion

The time is now. Let’s do cryptolaw the crypto way.

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Read up on LeXpunK:
(1) LeXpunK: The New Legal Praxis
(2) Autonomous Lawyering
(3) Rise of LeXpunK Army

Copyright

Copyright and related rights waived via CC0.

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Does LeXpunK DAO have a twitter or discord for finding out more information? Also do you guys plan on working with the Crypto Council?

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Their twitter.

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Apologies for the lack of links in the post, as it only allowed two. The Curve and Yearn proposals have full links so you can check those out too. But, in the interim or in lieu of that, you can check us out here:

website: lexpunk.army (you can join the Army TG via the intake form there)
twitter: @lexpunk_dao @judge_jowday
medium: https://judge-jowday.medium.com/

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Does LeXpunK docs page or something equivalent? If not, are you planning on implementing something like this in the future? Is there a DAO research or forums page?

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We currently have documents up on our website and on github but we will have a DAO forum and are certainly open to suggestions as to what else would be helpful for the community.

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Are we still considering providing additional funds for this LexPunk group? How much money do they need – especially because they already received 1mm Dai from Yearn.

For one, I don’t think the borderline arrogant/petulant outsider approach of people like Lex Node is the best way to interact with US regulators and legislators. It’s fine to be a firebrand on Twitter, but with people in DC and other national capitals, it requires a level of humility and self-restraint that this group of individuals does not seem to have. Case in point, watch their interviews and panel discussions (which, if you are a lawyer watching the space, are really not illuminating or realistic).

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Hi All - Below is the first slate of proposed projects for the LeXpunK Builder Defense DAO.

We are submitting these to the community for feedback and approval. We welcome your thoughts, which can be posted here or on an ongoing basis in the LeXpunK forum, on additional pursuits and considerations as we pursue an initial slate of projects. Each project will be fleshed out with additional qualitative criteria and specifications when the working group applications process is announced.

As you can see below, most projects have a budget range. The Multisig will decide the amount of actual payment to be allocated to each project based on the actual work product produced and we will be utilizing Coordinape to pay the bounties to those who worked on the projects.

Proposed Spend on Contributed Funds - Tranche 1 (start of Q4 2021 - end of Q1-2022)

- Operations | $150k (fund coordinator pay ($3k per project) & misc. expenses)

- DAO Structure & Risk Mitigation Bounties:
o Build DAO Coop / Labor Union Model | $15k min, up to $150k
o Model Foundation / DAO back-to-back docs / structure | $15k min, up to $100k
o Limited liability for DAOs, forking California nonprofit unincorporated association statute | $20k min, up to $100k
o DAO tax safe harbor (cross-category) - proposal to establish a safe harbor for smart contract systems that if they pay a ‘greater of’ %-based or flat tax, they will fit into safe harbor for certain tax-related risks
o Guidance paper regarding DAO legal claim standing, attorney client privilege issues, and proposed model structures and parameters for proper DAO legal defense funding | $25k min, up to $60k

- Model Legislation/Regulation Bounties:
o Section 409A amendment to improve tax treatment of vesting token awards + fork of yearn vesting contract that complements the amendment proposal | $25k min, up to $50k (legal) ; $50k flat (smart contract)
o Fork of Hester Peirce Safe Harbor (address lack of smart contract coverage & other issues) | $20k min, up to $100k
o Amendments to Beyer Crypto Bill (carve-out algo stablecoins, improve desecuritization process, better - clarity on not covering DeFi) | $10k min, up to $50k
o DAO tax safe harbor (cross-category) - proposal to establish a safe harbor for smart contract systems (i.e., if pay a “greater of” %-based or flat tax, a safe harbor for certain tax-related risks will apply)

- Policy/Legal Position Paper Bounties
o Position paper on why DeFi smart contract transactions do not meet definitions of ‘swap’ | $50k min, up to $200k
o Why Worker-Driven DeFi communities are different from VC-backed communities and legal ramifications | $10k
o DeFi Functional Overview (functional overview, review against risk frameworks, discuss implications/application of CEA) | $50k
o Position paper on the MiCA Commission’s proposal, its potential application to DeFi protocols and basis for why its application should be limited in scope and recommendations / modifications of the existent rules to cover risks posed | $30k min, up to $40k
o Workable AML/KYC Compliance Model - compliance for regulated entities at fiat on and off-ramps | $15k

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Hi @motiondesign - added a forum to our site, working on a set of explainers and planning on putting together status updates and circulating these/posting to our forum as well.

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This is a really well thought out proposal with some clear goals it wants to achieve . Another alternative model to consider vs California is a Swiss non-profit association which is easy to spin up and unlikely to cost that much.

Other interesting bounties could be on the following policy/thinking;

  • Position paper on why security transfer law simply doesn’t work or make sense for on-chain digital assets.

  • Paper on how decentralised on-chain asset management (without intermediaries) improves on investor protections (the thing that that regulators are supposed to care about/focus on), discuss implications - new/other risks and how top possibly resolve those.

  • Maybe some kind of push back on what operating a protocol means. Pushing back on the need to regulate operators or make them subject to any unnecessary license requirements if they are non-custodial

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LEXPUNK UPDATE TIME!!
Hi All - Just wanted to drop in and make sure everyone is aware of the LeXpunK work product that is dropping and available as a resource.

As part of our “DAO Structure & Risk Mitigation” efforts, LeXpunK recently pushed out the LeXpunK Legal Defense Protocol v.1

This work product has several integral pieces that we want to highlight as the scope of this effort increased dramatically from what we origially set out to do. Quick reminder that all of the resources we produce are open-source available on the LeXpunK GitHub but selected links here to the 2 Defense Protocol resources the Lido forum will allow me :melting_face: for ease of reference:

  1. The Operator’s Manual. The manual summarizes the legal threat landscape for DAOs/Multisigs and provides within the manual guidance to address these. NOTE: read the disclaimers, we are not your lawyers and you will need your own on this - goal is that you wont have to invent the wheel, that is the objective of the manual - it is a good faith effort at creating the wheel.
  2. LeXpunK Form of DAO Charter - model DAO Charter to allow DAO members to set certain ground rules about the nature of the DAO’s purposes and rules.
  3. LeXpunK Form of DAO/Multisig Joint Defense Agreement - a really important type of agreement that enables persons participating in unincorporated DAOs/Multisigs to obtain the benefits of attorney-client confidentiality and attorney-client privilege when prosecuting or defending claims where they share a mutuality of interest, claims or defenses. Note: This agreement also includes a Joinder Agreement and Non-Disclosure Agrement as exhibits.
  4. LeXpunK Form of Multisig Participation Agreement, which enables Multisig participants to set certain ground rules about the nature of their activities, responsibilities to their communities and responsibilities to one another.
  5. LeXpunK Model Yield Disclaimers for yield-bearing DeFi protocols.

The LeXpunK Legal Defense Protocol is intended to be an evolving open-source community-driven legal risk management toolkit. Accordingly, we are calling this first batch of documents “v. 1.0” but anticipate there is much room for improvement of these forms, as well as adding new tools, as cryptolaw evolves and the LeXpunK Army continues pursuing its mission.

We love feedback - let us know what you think and what you would like to see added to the Protocol next!

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Could you share proof of transaction against this grant?

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Hey!
This is the link to on-chain vote on this proposal.

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