This proposal is based on the initiative of @mlphresearch
Proposal: Transfer the Aragon Project Funds to an Aragon DAO Governed by (Delegated) ANT - #3 by mlphresearch - but proposing an alternative structure.
Ronald_k is a Swiss qualified seasoned Web3/ FinTech-lawyer and tech-enthusiast working at a large business law firm in Zurich. Ronald_k represents many of the large layer 1 and layer 2 DLT-software protocols and DAO projects and helps them implement proper governance structures through decentralization.
Request the Aragon Association to accept ANT holders as members, adjust the articles of association for proper checks and balances, and merge the Aragon Association with the Aragon Network DAO.
The Aragon project is one of the first and leading projects that believed in decentralized autonomous organizations. In the first test phase, the Aragon Network DAO has been launched as a simple partnership under Swiss law based on the Aragon Network DAO Charter. Like other DAO 1.0 projects, the Aragon Association has decided not to wrap the Aragon Network DAO into a legal entity. After a successful test phase of the Aragon Network DAO, the community seems to desire that the Aragon Association is handing over the control over the main funds to the DAO to become more decentralized. This proposal addresses such desire and proposed a possible step-plan taking into account current market trends for DAOs 2.0 as well as legal and regulatory certainty.
Switzerland as a jurisdiction
The Aragon Association is a Swiss association established in Zug, Switzerland. Switzerland is a leading jurisdiction for Web3-projects because of technology-neutral laws and technology-friendly authorities. By having published guidance by authorities and the possibility to request no-action letters and rulings, Switzerland provides a lot of legal and regulatory clarity and allows to roll-out projects in a secure way.
Switzerland is a politically neutral country with strong checks and balances. Switzerland is one of the most decentralized and federalized countries in the world and therefore the most suitable jurisdiction for decentralized ecosystems.
Associations, such as the Aragon Association, are legal entities under the Swiss Civil Code (article 60 et seq. CC) with limited liability that are governed by its members. An association cannot be owned by equity and all assets within an association belong to the association and leaving members have no rights in this regard.
The basic bodies of the association are (a) the members’ assembly (b) the board (governance council) (c) the auditors (if elected or required by law by reaching the threshold given by law). This is how currently the Aragon Association is set up.
Swiss association law provides great flexibility and only contains minimal mandatory legal provisions. The structure of the associations, the powers, the voting rights, as well as the type of members and bodies can be freely defined and thus can be adjusted to the needs of DAOs. This circumstance has led many DAOs to decide to move the DAO into a 2.0 Version by wrapping it into a Swiss association to gain legal certainty and secure the project’s long-term perspective.
The proposal provides a step-plan with multiple stages according to which the Aragon Association shall become fully decentralized and governed by the current Aragon Network DAO.
STEP 1 – Request to the Aragon Association:
The Aragon Association is currently a separate legal entity. The Aragon Network DAO has no power to vote on anything about the Aragon Association. As a first step, a vote by the Aragon Network DAO is required that request the Aragon Association to become more decentralized by accepting ANT holders as members of the association.
IF accepted by the Aragon Association
STEP 2 – revision of the articles of association:
The articles of association of the Aragon Association shall be fully revised to accommodate the needs of a modern DAO. The main pillars for decentralization are the following that can be incorporated in a draft of the articles of association for discussion and comment after STEP 1:
All ANT holders shall become members of the Aragon Association with voting rights at the members’ assembly (the highest body in the association).
Option: to provide comfort to the founders of the project, the articles of association may set out that changing the purpose or dissolving the association during the next 5 years, requires next to the approval of the members’ assembly also the approval of the founding members. This provides comfort to the founders that the association will not be hijacked immediately after it has been opened to the ANT holders.
Bodies of the Association (naming of the bodies can be chosen freely):
The Aragon Association shall introduce the following bodies (committees) to decentralize the powers within the association:
Members assembly – the highest body within the association that is responsible for all matters not specifically defined in the articles of association; As a standard, all members (in the future consisting of ANT holders) have 1 vote, unless defined otherwise in the articles of association.
o the members’ assembly can control the treasury of the association
o Voting rights for ANT holders can be based on quadratic voting instead of 1 ANT 1 vote or 1 member 1 vote or based on any other mechanism.
Administrative committee (the current board – power is limited to administrative tasks such as organizing votes and filing documents to authorities).
Treasury committee – is responsible for managing the funds of the association if the control is not with the members’ assembly (see option above).
Membership committee – admission of new members, exclusion of existing members that act against the interests of the Aragon Association, and approval of changes to membership criteria;
Governance committee – provides an opinion on proposed changes to the articles of association and approves regulations of other committees;
Ethics committee - promotes transparency, accountability, and integrity within the association and shall use its best efforts to ensure honest and non-discriminatory conduct by the association, its members, and its bodies;
Technical committee – review all proposals, changes, updates, or patches to any technology developed or supported by the Aragon Association;
Grants & projects committee - designs and maintains the process for submitting, reviewing, and evaluating project applications and for the allocation of project grants.
Appointments committee - constitutes itself temporarily and is responsible for proposing candidates to be appointed to the other committees.
All members of the committees are elected by the members’ assembly. Alternatively, to balance the powers and not to overstress the members’ assembly, it is also possible that the members’ assembly only elects e.g. the members of the membership and the governance committee and the members of the other committees by the appointments committee that is constituted out of different members of the other committees depending for which committee a member must be elected (like an indirect democracy).
Example: The appointment committee for the appointment and dismissal of members of the administrative panel, the treasury panel, the technical panel, and the grants & projects panel could be made up as follows (only a proposal):
o two representatives of the governance committee;
o two representatives of the membership committee;
o two representatives of the ethics committee.
Selected other options (there are many more) that could be introduced into the articles:
higher majorities for changes of important matters in the articles of association by the members’ assembly and/or additional approval by the majority of a specific committee required e.g. to change the purpose of the association or to liquidate the association.
Allowing the different committee to create sub-committees e.g. in the form of guilds that are supervised by such committees. For example, the technical committee could introduce for each guild a sub-committee.
The funding of the development companies of Aragon such as Aragon labs can become subject to a vote by the members’ assembly i.e. the ANT token holders.
STEP 3 – request to the Aragon Association to adopt the adjusted articles of association and merge the Aragon Network DAO into the Aragon Association:
Vote to formally request the Aragon Association to adopt the proposed revised articles of association by Aragon Network DAO and to merge the Aragon Network DAO into the Aragon Association.
Most DAOs do not use a legal entity, as it is the intention to be fully decentralized. Why should Aragon use an association?
Initially, most of the DAOs have been set up without a legal wrapper (DAOs 1.0). Because of legal uncertainty and the likely joint and several liabilities of the participants in a DAO, there is a clear trend to merge DAOs into legal wrappers (examples Sushi Swap – in the process, YGG, HOPR, ReSource Network, Pyth, ENS Foundation, Flamingo DAO, etc.) Many leading projects have chosen the Swiss association, as it provides great flexibility in structuring and legal certainty. DAOs with legal wrappers are seen as Version 2.0. By self-choosing a jurisdiction and paying minimal taxes, the risk of being subject to various jurisdictions worldwide will also be mitigated.
If there is an association in Switzerland, does the DAO not run into a risk of the assets being frozen by the Swiss authorities?
No, authorities can only freeze the assets of an association if there is a legal ground. Such legal ground applies to all companies and not only to DAOs e.g. in case of money laundering or criminal actions. In all cases, the association can dispute a potential freeze in front of the courts. The checks and balances in Switzerland work very well and the likelihood of being subject to an unfavored treatment by authorities just because the association is operated by a DAO is very low/inexistent.
Why are you making this proposal?
I believe in decentralization. As a lawyer, I am keen to create structures that hold up from a legal and compliance perspective. My goal is to find solutions to combine the needs of DAOs with secure legal environments to allow the DAOs to flourish in the best possible way. I neither want to centralize the Aragon Network DAO nor overcomplicate things.
Who owns the IP rights and access credentials to online services?
The association and thus indirectly the members as the highest governing body. The ANT holders therefore have the final say in this regard.
I know that the whole proposal may sound very complicated and is not appealing in the first instance, but when you look at the details, you will see the beauty of this structure and how well it fits to DAOs. Note that many ideas proposed in this proposal habe been tested in practice and are not experimental. To provide further explanations and to address all concerns, I am happy to hold an AMA session.