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

No, the current proposal is to avoid creating a multisig and instead have delegated ANT voting control the treasury directly. The delegates with most voting power would essentially be equivalent to multisig signers, the only difference being that ANT holders would be able to override votes or un-delegate at any time.

The first draft of this proposal includes three safety features: (1) delegation (which is functionally quite close to having a select number of multisig signers), (2) annual spending cap (which caps financial loss in case of a malicious governance attack), and (3) implementation delay (which gives the community time to coordinate an emergency response should a malicious proposal go through). Perhaps you can clarify what you mean by “I’m sure there will be failures”? What are some ways that you think the delegated voting system is bound to fail and how do you suggest these failure modes be mitigated?

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Swiss association law is very flexible and allows to introduce the proposed thresholds.

You can have another voting regime in the association than proposed by article 67 (1) CC e.g. quadratic voting or otherwise.

There are others that already use a Swiss association or intend to use a Swiss association for their DAOs such as Sushi Swap, ReSource Network, YGG (on of the largest play to earn community), HOPR etc. Aragon would not be the first, but still an early mover to become a DAO 2.0. Without a legal wrapper there is a high risk of becoming subject to an enforcement action somewhere in the world.

Are these examples of all token holders becoming members in the same legal entity, or simply setting up legal entities to serve specific functions for the DAO, such as housing IP?

Not all, some projects start by allowing the token holders to make proposals to the association e.g. for the further development of the project; or to elect a minority of the association board; or to govern the treasury of the association; the end-goal is always to shift from centralization to decentralization where the token holders finally become members and take full control of the association. Most project strictly adhere to OSS-principles and when speaking grants do not acquire IP rights, but request the publication under a predefined OSS license.

Are there any live examples of DAOs that use a Swiss association as a legal wrapper with all token holders as its members?

Quorum is based on what already exists as well as voter turnout in the past. What would you recommend as a more appropriate quorum?

Support threshold is raised from a simple majority to 60% (the idea being that a highly contentious proposal would indicate a need for a more widely supported option, while a higher threshold than 60% might paralyze decision-making). What’s the rationale for making the threshold higher than 60%?

Delegation is obviously not a panacea but there are also examples of prominent DAOs with reasonably successful delegate programs, e.g. Maker, ENS. Delegation is a slightly more restricted form of “optimistic governance” that some DAOs have started to experiment recently, giving token holders the option to veto anything that a specialized executive council or various sub-DAOs put forward. Off the top of my head, I can’t think of a successful implementation of direct incentives for governance participation, but I know it’s been proposed here and there so it may be worth studying some examples.

If there are big risks that need to be mitigated first, the corresponding steps can certainly be added to the final version of the proposal.

Direct token holder voting is seen as the default option for tokenized DAO governance. However, I don’t think it’s rational to organize the whole governance process around direct token holder voting. Instead, DAOs should empower its members based on merit and reputation to take ownership of various organizational functions. Delegation is simply one aspect of that general idea.

Whenever delegates and token holders assess proposals, they should obviously take into account the specifics of each team/activity. This shouldn’t be an issue as long as the proposal process is open and everyone adds their perspective in good faith. What kind of problems do you anticipate in the “accounting/operational side”?

That is a valid concern. Basically, the DAO should decide whether to accept vote-buying as part of the DAO governance process, or whether to try and protect against it, although I agree that it’s a difficult technical problem. Ideally, the DAO would have a strong and diverse delegate community with insufficient (or too expensive) supply of ANT available on “vote markets” to maliciously attack the system.

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Appreciate the thought process here. I wonder if a multisig is a better way to safely manage the funds as we transition towards this.

I see a large multisig maybe 10 members + that are required to execute ANT voters decisions as a good stepping stone.

As reference some of the large protocols currently use this model such as Balancer - 6:10 Multisig, Graph Protocol - 6:10 Multisig, Decentraland 2:3 Multisig, . I am thinking of the simplest quickest way to get us to the desired effect, we can then implement delegate voting on top off chain with the multisig simply being for execution.

The technical overhead would therefore be lower than on-chain voting and execution where the risks are clearly higher. *I do want to see this happen in a staged way.

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Thank you for the detailed response!

As things are getting noisy here could you please provide some guidelines on the envisioned next steps and timeline as well as the best way to practically contribute towards fleshing out the proposal (in case there is more structure envisioned, beyond commenting in this thread)…i.e. assuming the emergence of relevant related threads maybe linking them in the original post

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As I mentioned in an earlier comment, a well-designed delegation system is functionally equivalent to a multisig with the added benefit of empowering token holders to vote on their own behalf, distribute their voting power among multiple delegates, or re-delegate at any time, should they prefer to do so. DAOs are also increasingly experimenting with “optimistic governance” mechanisms whereby specialized bodies are empowered to make and implement decisions without a DAO-wide vote, subject to a time delay in which token holders can veto the decision or delay the implementation. If Aragon wants to implement such a system in the future, I think it would be much easier in the context of a liquid/delegative voting system than a traditional multisig. That said, if there’s broad enough interest in taking the multisig route, the initial vote can include that option.

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 @AClay @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):