If you want to start a DAO, it’s essential to think about its legal structure from the outset. Having a (well thought through) legal structure/strategy determined pre launch should enable you, post launch, to avoid any liability being pinned upon DAO members’. Additionally a well considered DAO Legal structure also protects the DAO treasury, AND it can assist to implement DAO governance – in an automated fashion. Most Lawyers refer to this developed legal system as a DAO Legal Wrapper.
Benefits of incorporating a DAO in the Cayman Islands
The Cayman Islands is one of the most popular jurisdictions to create a Legal Wrapper for DAO. Here’s why:
- The country adopted special regulations for Virtual Assets Service Providers: this means that there are specific rules for working with virtual assets, and companies know what they need to prepare for;
- The flexibility of the common law system: The Caymans corporate legislation is largely based on American and English law, which makes it highly universal in its application and operation around the world;
- Low cost: it is at least two times cheaper to set up a DAO foundation in the Cayman Islands, compared to European domiciled Foundations (eg Switzerland, Liechtenstein); also, there are no mandatory minimum contributions that can affect the cost;
- Speed: it usually takes as little as 2-4 weeks to create a Caymans foundation.
- Reputation: the Cayman Islands is a well regulated jurisdiction and is highly regarded internationally by Banks, Brokers, investors and more.
Foundation as a legal form for DAOs
One of the common legal forms of DAO wrappers are Trusts and a Foundation is essentially a Corporatized Trust. Trusts – and Foundations in particular–are a good option for wrapping a DAO because the concept of DAO implies that there are no centralized owners (shareholders) and all-important decisions in DAO must be made by the community. The Cayman Islands have developed legislation on Trusts, and its Foundations law was adopted in 2017, which makes Cayman Islands a popular destination to register a foundation for a DAO.
How does the foundation work as a DAO Legal Wrapper?
A Foundation is a type of Trust that was created so that Trustees could manage certain people’s assets for the benefit of others but with the protection of legal/corporate personality. This is highly complimentary to the concept of DAO, which includes:
- DAO Founders (Foundation Founders) who launch a smart contract and organize the initial issuance of tokens;
- DAO Members (ie Foundation Beneficiaries) who are the tokenholders and deposit their own virtual assets in the foundation treasury to participate in the development of the DAO;
- DAO Managers (Board of Directors/Foundation Council) who are elected by the Founders and make decisions in the interests of the DAO members;
- A DAO guardian (Foundation Supervisor) ie a Trustee who ensures that the DAO’s managers do not act against the will of DAO members in the decision-making process.
How is decentralized governance organized in a foundation?
One of the goals of a DAO is to organize decentralized governance. This means that founders and investors and the team, protocol validators, product users, and other tokenholders play important roles in the DAO. They can influence the decisions about changes in the rules of operation of the smart contract, the management of treasury assets, the blockchain product, or protocol development strategy.
The procedure for voting of DAO members, counting of votes, implementation of decisions by DAO Managers – as well as the participation of a DAO Guardian in this process – are reflected in the DAO constitution and must be properly implemented in the bylaws of the Foundation so that these rules become legally binding for all DAO Members.
How to implement DAO members’ engagement in a foundation
Usually, tokenholders who have received the right to vote in the DAO are considered DAO Members. Each DAO independently determines the procedure for granting voting rights to tokenholders:
- In some DAOs, tokenholders must stake their own tokens in DeFi.
- Other DAOs provide the issuance of a separate type of governance token.
- In the third type of DAOs, only DAO protocol validators can be DAO members.
Each DAO maintains a register of its members, which must be synchronized with the register of Foundation Beneficiaries. In the case of a Cayman Islands Foundation, the register is maintained privately, which provides flexibility and scalability for the DAO itself.
Summary
A Cayman Islands Foundation is a popular form of Legal Wrapper for a DAO due to the flexibility of the Caymans legislation, the definite rules for working with virtual assets in the Caymans, and the speed of its creation and optimal budgets.
Costs & Set Up
Each DAO will need to seek advice on certain aspects to ensure compliance with Cayman law and we can advise on this prior to setting up a legal wrapper as there might be registration requirements in Cayman.
Our fees to set up a Caymans Foundation DAO Company are as follows:
- Incorporation/registration of Cayman foundation company: US$2,250 (includes express registration fee)
- Annual Registered Office: US$1,650
- Annual Secretary Fee: US$2,990
Total: US$6,890
Fees due yearly as and from January 2024:
- Annual Government Fee: US$854
- Registered Office fee: US$1,650
- Annual Secretary Fee: US$2,990
- Economic Substance filing fee: US$200
- UBO filing fee: US$330
- Annual Return Filing: Waived
Would you like to know more? Then please Contact Us:
info@offshorecompaniesinternational.com
DISCLAIMER: OCI is a Company/Trust/LLC/LP/Foundation Formation Agency. We are not tax advisers or legal advisers. You are advised to seek local legal/tax/financial advice in regards to your local reporting/tax requirements before committing to set up or use an Offshore Company or other entity.
