After observing the ongoing discussions on the community forum and understanding the position of Wonderland and the expectations of the community, below we outlined some of the key observations.
In line with the Community discussions, our main goal is to restructure Wonderland DAO. The restructuring shall be done in a manner that supports the original mission statement of Wonderland. The DAO should be structured to protect the community members from the unnecessary legal and tax liabilities. Safeguarding the community members from unlimited liabilities is beneficial for the project in the long run to bypass the regulators’ scrutiny and attract new investors.
- Structural inability of the Wonderland DAO to fulfill its mission statement.
For the DAO to achieve its true objective of deploying its capital into selected projects, it needs to have a structure that allows it to function in compliance with regulations surrounding VC investment and reduce any future legal risks.
The mission statement of the DAO investing in other decentralized projects. Even though with the structure, the investments would be made in tokens, the traditional regulations relating to such investments would be applicable. What’s relevant here is that the organization is investing in other organizations, thus, even though the means of investment would be tokens, the financial regulations become applicable.
We can support that initiative by providing in-depth legal assessments to determine the regulatory and governance risks and liabilities associated with the current governance structure.
Legal Research would cover the following points.
- CFTC, AML and laws in regards to the source of funds, for the investing party
- AML requirements in regards to the source of funds for the receiving party
- Regulations around VC investments
- Regulation around investing of 3rd party money
- Clarity of the structure of the investment vehicle
- Clarity of the investment mandate
List of the applicable laws that we will be looking into, but not limited to, can be found HERE.
- The Scope of relationship between members and leadership.
Presently, the overall decision-making mechanism of the DAO has unintentionally become centralized due to the voting mechanism. There is a need for establishing a fair voting system that creates a balance between the number of tokens held and the period of time the token has been held. Under this structure, more fair power would be given to the Wonderland community and the votes are aimed at the project developments.
Legal Research would cover the following points.
- Level of centralization in the decision-making process
- Level of control that a central authority really has
- If Wonderland is a DAO, what type of contractual relationship can the DAO members have with decision-makers.
- Level of influence of project initiators.
For the success of the DAO, full transparency and trust are a necessity. The DAO funds need to be decided by the community and the community needs to be aware of how the funds are being used and should have a say in that. Instituting transparency around the usage of funds would help in structuring the investment in an AML compliant environment and will mitigate the risks of shadow finance. A selected team of members managing the DAO does not imply that the members do not have a saying in the fulfilment of the DAO’s goals.
Deliverables of the Assessment would entail the following.
- Enabling the structure that will allow the Wonderland DAO to fulfil its mission:
- Establishing a corporate governance structure that supports the project and is compliant with the applicable AML and CFTC regulations.
- Creation of a registered and compliant DAO structure including a notifiable party
- Structuring the treasury for the benefit of the DAO.
- Creation of a compliant investment vehicle
- Definition of the scope of such vehicle
- Structuring a management team and establishing a vetting procedure for the individuals that would take on the managerial roles
- Definition of the scope of the decision makers and fund managers involved in such a vehicle.
- A designated individual responsible for coordinating and monitoring day-to-day compliance (MLRO)
- Defining the scope of the relationship between members and leadership.
- Putting forward a contractual agreement between the DAO, its members and the selected management team
- Decentralization of the DAO, transparency
- Defining the DAO redistribution mechanisms
- Recouping and repairing in delinquencies or misappropriation of the DAO’s funds.
- Mitigation of the tax and legal liabilities from the members
- Implementation of the above mentioned points.
WACEO can provide support by performing a thorough assessment and produce a roadmap that will entail recommendations on the best practices in regards to the structure, jurisdictions, and steps to bypass liability risks and providing legal support for compliance with the applicable regulations.
As part of our assessment we will review and analyze the jurisdiction favorable for incorporation to fulfil the goal of VC investing. Although DAOs are not widely recognized or specifically regulated worldwide, there are jurisdictions that are favorable both for tax and corporate compliance.
To support the restructuring initiative of the Wonderland DAO, WACEO would work closely with the Frog Nation to establish a structure and process that benefits the larger community. Being an international non-profit, we leverage our status to work with competent service providers globally and with regulators to support our cause.
As stated above, this is collaborative work and we wish to hear your opinion and what other issues you would like us to address further. We aim to establish ongoing and transparent communication with the Frog Nation and take necessary actions to save the DAO