Proposal: Transfer the Aragon Project Funds to an Aragon DAO Governed by (Delegated) ANT

Hey!

Happy to provide context. I was referring to operational failures, not financial ones or related to the actual vote delegation system proposed (as in miscoordination between Guilds, Strategic misalignment, etc). This should be expected and used as improving opportunities, and hopefully become apparent fast (with small impact).

With regard to the current proposal, I would like to keep intact the core objective of moving the Aragon treasury to a smart contract address controlled through liquid/delegative ANT voting but will be reaching out privately to some people who’ve been active in this thread to help finalize the details over the next couple of weeks (if I don’t DM you today but you’d like to be involved in that process, definitely let me know). I encourage anyone who wants to advocate for a fundamentally different path than the one proposed here to do the same. @ronald_k has already put forward an alternative proposal and there seems to be some appetite for creating a treasury multisig instead of a liquid/delegative system. The way I see it, these three options (and additional ones, should they emerge) are differentiated enough to be included in an initial vote after which the community should gather behind implementing the winning option. Obviously, the goal here is not to factionalize the DAO but rather to make sure that all options receive equal consideration before moving forward.

Based on the discussion thus far, here are some of the topics that the final version of both the current and any alternative proposal might address:

  1. Updating the Charter which, in my personal view, should be done in a way that’s not overly restrictive but does establish the vision, mission, and values of the DAO, as well as the core governance process (incl. treasury, token contract, voting parameters, and fail-safes) under the new system.

  2. Technical details of the initial implementation and, if relevant, any future requirements (in the case of the current proposal, for example, this would focus on the liquid/delegative voting system).

  3. Role of the AA/AL merged entity vis-à-vis the DAO, incl. whether/how ANT holders should be involved in its internal governance.

  4. Details of the vote to decide between the various options.

  5. Tentative roadmap/timeline for all of the above.

The list above is obviously not exhaustive and the final proposals may address other topics/issues that have been raised. That said, let’s not let perfect be the enemy of the good - the winning option doesn’t have to address every imaginable challenge of DAO governance at once. It only needs to establish the foundational principles and processes for this next stage of Aragon’s development.


If there are major objections to the plan above, please share. Just in case, tagging everyone who’ve contributed to this thread thus far: @fartunov @joeycharlesworth @alibama @Tayy @brent @luis @GriffGreen @lee0007 @eaglelex @b3n @AlexClay @ramon @ronald_k @Brian @Anthony.Leuts @Sixto5 @daniel-ospina @Joan_Arus @alex-kampa @mheuer an @Anthony.Leuts @Sixto5 @daniel-ospina @Joan_Arus @alex-kampa @mheuer

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I see. You’re not the first one to highlight that there’s room for improvement in the current operational structure/procedures and that this might be a good opportunity to address the issue. I do see value in maintaining some separation between the core vision/mission and governance processes, which shouldn’t need to be changed very often, and the day-to-day operational details which, although hugely important, are subject to more continuous learning/iteration. In my opinion, the Charter is not the appropriate document for dealing with the latter. But that doesn’t mean operational improvements can’t be included in the final version of the proposal.

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Many thanks for providing the update here @mlphresearch appreciate it. I like the idea of separate options I would also like to see the deadline set as when it will be delivered. Your original proposal had November as the deadline and I would like to see this remain as our commitment to complete any changes that a vote stipulates.

I could not agree more on this

Look forward to the updates.

Thanks,

Alex

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Based on the discussion thus far, the end of November can stay as the full implementation deadline, but I think the initially proposed May 17 vote needs to be pushed back a couple of weeks. If the general direction is decided on at the beginning of June, this would give the DAO six months for implementation, as well as conducting additional votes, if need be.

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Dear Aragon Community

In my function as an external accountant and tax advisor of Aragon Association (“AA”) and Aragon Labs (“AL”), I would like to draw the Community’s attention to certain tax implications of this proposal.

Tax implications:

AA is subject to Swiss laws on taxes, VAT, and social insurances and has to fulfil its current legal and tax obligations in Switzerland.

Currently, the AA has a very favourable tax ruling in place with an effective tax rate of just over 5%, computed based on expenditure rather than revenue or capital gains… For example, if the AA‘s yearly spending totals CHF 2 million, 5% of that is allocated as profit and is taxed accordingly. The resulting total tax burden for CHF 2 million is approximately CHF 26’800 instead of a potential CHF 260’000 without the tax ruling.

The tax ruling has one condition: the funds have to be spent in relation to the initial by-laws and project cause. Should the AA be dissolved or liquidated, the entire remaining assets are taxed as profit at the standard rate of 11%, and not the 5% agreed in the tax ruling. In other words, if you transfer CHF 200 Mio to a DAO outside the AA’s control, the AA will likely be deemed as “de-facto liquidated” and the entire transaction may be subject to taxable profit. Based on the above example, the resulting tax liability for the AA would be approximately CHF 19.5 million. In contrast, if the AA continues to spend the funds in the current manner and under the control of the AA, the total tax burden would result in CHF 1.16 million.

Up until now, the AA has been funding the Network DAO in small instalments of grants. Such grants have been accepted under the tax ruling and are considered normal spending, in part because the Network DAO is still supervised by the Swiss Association and in part because the majority of the funds still remain in the AA.

The tax department may consider a one-off transfer of all or most of the AA’s assets as the equivalent of the AA being de-facto liquidated. Furthermore, such a transaction may not be considered “spending” according to the by-laws. Some important considerations are to what extent the AA may be able to block use of funds that go against its purpose (perhaps by the implementation of veto right on AN DAO expenditure) as well what immutable provisions the charter may include that prohibit use of funds that go against the AA’s cause. If there are no veto rights, and no control mechanisms to prevent funds being used for activities other than the purpose set out in the bylaws, there is a high risk the funds would not be considered “spending” and would instead be taxed at the effective rate of 11%.

We are currently in close conversations with the tax department to see whether we can make them understand/accept that transferring funds to a DAO does not mean the end of the AA - even if it would continue to operate, without significant funds.

Solutions/Options:

I fully support and understand the need for more involvement of the Aragon community. Should we be unable to find a workable solution with the Swiss tax authorities, there is this alternative proposal for the AA, or a new Swiss Association to be formed and fully controlled by the DAO.

From my perspective, I think the AN DAO should probably have a legal wrapper (the AA) so that:

  • It is capable of complying with taxation requirements - without a legal wrapper, participants may have to pay taxes on a proportion of the DAO’s income and assets, even if they are not able to access the funds.

  • It provides limited liability to DAO participants for the actions of the DAO. Without a legal entity, participants may be individually held liable for anything the DAO as a whole does.

  • It is capable of entering into contracts with other “real world” entities

The Swiss government has created a great environment over the last 4-5 years for crypto projects in Switzerland, not just on the legal side but publishing very clear guidelines for their taxation and VAT and even allowing payments in crypto for taxes. Unlike in other countries, we can talk directly to our tax and VAT departments and find solutions together.

I have lived abroad myself for many years but came back to Switzerland permanently since I realised that Switzerland not just provides a very stable and safe environment for companies and individuals but actually lets me as a person vote every quarter on any relevant subject of our country.

A DAO wrapped in a Swiss Association provides the same: stability, transparency and the ability as a member to vote on any relevant subject!

Gabriela Mäder

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Thank you for these clarifications. When do you think the DAO can have a formal answer from the tax office regarding this issue? I’d be surprised if the crypto-friendly Swiss authorities decide to take a hard stance on this but, if they do, this is obviously something that voters can take into account as they signal their support for the various options on the table, plus it would clarify the context for anyone who might be considering Switzerland as a jurisdiction to tie their DAO with.

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Thank you for the clarity on tax position. Just so I’m referencing the right documents

  • Are the bylaws you reference the Articles of Association?
  • Can you please share links to the relevant bylaw and Articles of Association
  • Is it possible to quote the “project cause” is this the same as the “purpose” currently being discussed here

I feel like these have already been shared but for the life of me can not locate them via the search function of this forum which has always redirected me to the footer as opposed to specific posts. Not normally an issue, but at almost 100 posts it is…

Due to the length of this discussion thread can I request @Gabriela if you might also post your tax advice with relevant links as a separate forum post please for 1) transparency 2) so that the tax conversation can be expanded within its own thread if needed and 3) more easily referenced across future conversations.

I’d second that. Also, for anyone interested, this is a topic that’s been discussed extensively in the context of MakerDAO (happy to post these links also to the dedicated thread once it’s been created):

Hey @ronald_k! I know you’ve just addressed this, but can you please confirm if article 67/1 of the Swiss Civil Code can be derrogated by the Articles of Association? I’d consider the provisions of the CC in any jurisdiction as mandatory, meaning that parties cannot specify differently from the general law. This would be a blocker to having quadratic voting of ANT holders in the General Assembly of the Verein (differently that 1 member = 1 vote).

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Yes you can derogate from 1 member 1 vote. The distinction must, however, be bases on objective criteria. There are already associations existing with quadratic voting see HOPR (zefix.ch)

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Thank you, @ronald_k Perhaps you could please provide a copy of the Articles of Association of HOPR? There is also HOPR as a commercial company (HOPR Services AG), but the Aragon Association is a Verein. It’s fine having distinctive voting rights in a commercial company, as we all know. However, the scope of any association is that all members should be treated equally, and have the same power, as one member, one vote. At least this is the understanding in EU jurisdictions. The Swiss CC is also very clear on this subject and IMHO does not leave any space for anyone to construct against this: (67/1 “All members have equal voting rights at the general meeting”). I may be wrong, obviously, and I’m keen to learn from you, but I’ve never seen differently in any association (not even in FIFA). I’d suggest quadratic voting is implemented in the DAO, not in the Verein, and the DAO members elect delegates to the Verein Executive Committee (or even the GM). Thanks, @ronald_k! I appreciate your patience, but I believe it’s worth discussing it in advance. Best! JN

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The post that started this thread now presents an updated version of the proposal, together with a link to the initial draft. The next step would be for the DAO to get to a soft consensus around the vote text that will include several multiple choice questions. I’m hopeful that the initial draft of the vote text will be published for community review some time in the first half of next week.

@fartunov @joeycharlesworth @alibama @Tayy @brent @luis @GriffGreen @lee0007 @eaglelex @b3n @AlexClay @ramon @ronald_k @Brian @Anthony.Leuts @Sixto5 @daniel-ospina @Joan_Arus @alex-kampa @mheuer @Gabriela @josenuno

Thank you all for contributing to this discussion!

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Would ANT Incentive package beneficiaries be able to delegate unvested ANT?

I believe this would be a must if we want to ensure that contributors can meaningfully participate in the direction of the project.

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My initial reaction would be yes, definitely.

EDIT: But also see @josenuno’s comment below.

They have answered and they do see such transfer as an ending of the initial Aragon Association project and therefore the normal taxation applies, meaning for the transfer of CHF 200 Mio to the Network DAO the taxes of approx. CHF 19 mio. would need to be paid.

They are actually not taking a hard stand they are just following the initial tax ruling according to which the funds were not taxed upon receiving but only upon spending and upon termination of the project within the Association.

here you go for the separate forum for a tax discussion or better understanding:

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Non-vested packages may never be received by the beneficiaries (eg. in case their contract is terminated by any reason, including incompetence, non-delivery, etc., before the vesting period). Therefore, granting a beneficiary of future and eventual tokens the right to vote, or to delegate, in any decision, would represent that the he/she has fullfilled all commitments to the project, what may never be the case. If so, then also all duties and responsibilities attached should correspondently be assumed concerning the same tokens, such as declaring as voting rights and paying taxes accordingly.

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Important clarification, thank you! This topic may need a separate discussion.

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Gm @mlphresearch! It would be greatly appreciated if we could get some more transparency who requested this change (from 2 years runway to 6 months) and on what grounds. This is not apparent neither in the thread here nor in the working drafts I and others contributed towards.

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