Dear community,
This update is another step forward for Paladin’s growth.
Context:
The Paladin team and community has always been dedicated to decentralization and innovation, and the creation of a legal wrapper for the Paladin DAO is a natural next step in order to continue to grow while ensuring that the DAO is the primary beneficiary of the future developments.
This structuring constitutes a major challenge for our future prospects, as much with our community as with regulators. In the next few posts (and proposals) we will detail our ambitions with the highest possible transparency.
The vision we carry for improving governance in DeFi tends to be long-term and will not be fully successful without consideration of the following underlying regulatory assumptions:
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Liability of DAO participants. Evolving regulatory debates in Europe and the United-States (e.g Ooki DAO case, Alexey Pertsev held in detention for his role in Tornado Cash) expose the core team and hPAL token holders to significant regulatory risk, including the risk of being considered as an unincorporated entity (i.e. de facto company).
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Intellectual property protection. The applications deployed and governed by Paladin DAO are not protected and are exposed to risks of industrial theft by its competitors.
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Contractualization of agreements between DAO and third parties. The DAO does not currently have an ad hoc vehicle acting in the general interest of the DAO in the real world in an appropriate manner, so it cannot act in a formalized manner by contracting with more institutional actors.
Rationale:
With this in mind, the proposed legal wrapper, called the “Paladin Association”, will have two main roles:
- Being the legal owner of various IP elements (such as trademark, logos, domain name, and code) that are ultimately the property of the entire DAO. As such, the legal wrapper would serve as a “steward”/”guardian”/”safekeeper” of these assets, owning them “in trust” for the DAO.
- Enter into legal agreements with third parties (such as contributors or partners), and reduce their liability by providing them with written and enforceable agreements.
What is the value of this legal wrapper for Paladin?
Paladin’s legal wrapper is an ad hoc legal entity. It has its own identity and legal personality - in parallel to the DAO which has no legal nature (at least in France) and acts as a protocol.
The legal wrapper is not the DAO. The legal wrapper does not “own” the DAO or its on-chain assets (such as the treasury). The holders of hPAL do not automatically become members of the legal wrapper. The legal wrapper is only a tool to improve the decentralization and resilience of Paladin.
The legal wrapper can thus be used by the DAO to manage activities that cannot be done on-chain, such as hiring developers, securing code, maintaining the main front-end and marketing alternative front-ends, awarding grants, and entering into legal agreements with more institutional players. It can also be used to hold and manage assets outside the chain, such as a portion of the PAL or strategic assets, intellectual property rights, trademarks, domain names, etc. Finally, the legal wrapper protects DAO members and multi-sig controllers from liabilities related to their daily activity.
The main objective of the Paladin Association is to act in the general interest of the hPAL holders, ensuring that the DAO continues to operate in a transparent and decentralized manner while also providing legal protection to the community.
Structure of the Paladin Legal Wrapper:
The legal form chosen for the Paladin Association is an ad hoc Association under French law. We chose France considering the fact that the IT development company of the core team — Mithras Labs — is already established in France and that it is a precursor country regarding crypto-assets regulation.
The Association will be an association under the French law of 1901.
The proposed bylaws of the legal entity will be available shortly in the comments and will remain accessible to all.
In the same vein, the governance mechanisms of the DAO will be embedded in the internal governance mechanisms of the Paladin Association, which is unprecedented to date. More detailed documentation on the Paladin architecture will be presented soon.
Purpose and Control of the Legal Wrapper:
The Association is organized through its bylaws, which establish its purpose and the powers of Association members who act in the interest of the DAO.
Members of the Association are responsible for managing the Association in accordance with the terms of its bylaws. They are subject to general obligations, including the duty to always act honestly and in the best interest of the DAO. Mechanisms in the bylaws will seek to ensure that the Members uphold in their votes and their behavior the decisions made by the DAO through the community proposals on the forum and Snapshot. Members of the Association may use crypto-assets transferred by the DAO for any purpose that supports the objectives of the DAO. Members of the Association are allowed to receive compensation for their roles for the benefit of the DAO, as long as the compensation is approved by the hPAL token holders.
Making the right choices for the structure and management of the Paladin Association is important as in the future it may hold and manage certain strategic assets of the DAO - after a formal process to transfer assets to the legal vehicle for a specific purpose.
With respect to the powers of the Association’s members, the Association’s bylaws will limit the power of the managers to hold and administer tokens and intellectual property held by the legal vehicle, conclude certain transactions (below a certain threshold which will be specified in the bylaws), and perform certain other actions. As a general rule, the management of the Association will not be allowed to make significant commitments or decisions (such as entering into strategic agreements with partners, hiring contributors above a certain amount, selling strategic assets, etc.) without the prior consent of the DAO.
Finally, the DAO may, at any time, propose the replacement of the Association’s managers if it deems it necessary.
In any case, if the regulatory context in France becomes hostile to DeFi and DAOs, the Association will retain the ability to disband itself and transfer all its assets to another non-profit organization or foundation based abroad.
Next steps:
- Publish a draft of association statutes
- Vote a PIP to validate the model association
- Introduce the list of founding / honorary members (anyone with hPAL can become a member of the association)
- Create the legal entity
- Elect representatives
We remain available in the forum to obtain any recommendations on this legal wrapper or to give you any useful information. @hu_bo, the lead on the topic internally will give more context in case of any questions.
