Title: GIP-2 GoblinSax Legal Structure Authors: Ethan Created: 5/31/2023

GoblinSax Legal Structure

To protect the DAO assets, avoid regulatory complications, and maintain the integrity of governance, we need a legal structure that can formalize ownership of assets, IP and legal rights of tokenholders.

Budget

To do this, we intend to pay Travers, Thorp, Alberga, a Cayman/BVI law firm to solve this for us. This will involve creating multiple entities and a capped fee of $30k, but additional costs may be incurred.

Below we outline the intended legal structure, and reasons for it.

Key Design Considerations:

1. All value must accrue directly and exclusively to the DAO. Both ownership of intellectual property and revenue.
2. The DAO must retain ultimate decision making, enforced by strict financial control.
3. Our structure must not inhibit fast paced decision making and normal business operations required to build performant technology in a rapidly developing space.
4. Every entity must comply with local laws and regulations.
5. The legal structure should be battle-tested.

Approach:

The approach GoblinSax leadership and its largest token holders have advocated for is a 3-entity model common in crypto.

That model is:

1. DAO as Ownerless Foundation: An ownerless foundation is created to “be” the DAO. The foundation will own all IP and hold the treasury. Voting rights and governance will sit with the DAO.
2. Token Issuing Entity: A 3rd party issues a governance token that offers voting rights in the DAO.
3. Development Company: This is an ordinary company responsible for technology development and operations.

The DAO:

Structure: Cayman Ownerless Foundation

The Ownerless Cayman Foundation is a unique legal entity that is widely used for DAOs. It is a hybrid entity that combines the features of both a company and a foundation. It can be established explicitly for a purpose rather than profit like a traditional company or corporation. That purpose can be commercial, or non-commercial. The foundation's constitution can provide for decision-making through blockchain-based voting, in line with the DAO's principles.

The Cayman Islands has a strong legal framework, and the foundation is a recognized entity. This allows the Cayman Foundation to hold assets and intellectual property in common protected ownership. Legal personality allows the DAO to enter into contracts and other legal agreements.

Funding and Value Accrual:

As a principal, all funds will flow first into the treasury of the DAO. The DAO will receive all revenue. Token sales will go to the DAO treasury. And anything created or paid for by the DAO will be owned by the DAO.

Intellectual Property (IP) Ownership:

All IP created and funded by the DAO will be held and owned by the Ownerless Cayman Foundation. Contractual agreements will ensure all technology, branding, and other IP is owned by the DAO. Ownership of IP by the Foundation ensures that the value created will benefit the DAO and its token holders, rather than any single individual or group.

Revenue from Operations:

All capital raised from the sales of governance tokens will go toward the treasury of the Ownerless Cayman Foundation. This increases the financial resources available for the DAO to further it's mission, and avoids any misalignment of incentives.

Token Sales:

All capital raised from the sales of governance tokens will toward the treasury of the Ownerless Cayman Foundation. This increases the financial resources available to the DAO and ensures that the value of the tokens is backed by a solid financial foundation. This capital can be used for future developments, expansions, or any other needs as decided by the DAO's governance.

The Token Issuer

British Virgin Islands Token Issuer

The BVI has a permissive and clear regulatory environment for the issuance of tokens. It doesn't classify digital tokens as securities by default, which simplifies the process of token issuance and reduces the regulatory burden. Separating the jurisdiction of the token issuer and the DAO offers additional benefits which will be expanded later.

The Development Company:

LLC

The primary reason for the establishment of an LLC in the DAO structure is day to day operations, and risk mitigation. GoblinSax seeks to provide a suite of connected products and services to support NFT Lenders and borrowers. This involves the need for professional relationships including paying people for work, banking and contractual agreements. These can be difficult to do with a Cayman Ownerless Foundation.

Risk management is another core purpose of the LLC. In case of a lawsuit in the course of business operations, an LLC can limit risk to the DAO's assets. US members would be more protected from recourse if the DAO was found to be in some way legally misaligned.

The LLC also avoids having to force the DAO itself having to comply with many local laws and regulations. This includes employment and tax laws.

LLC Relationships

The LLC will have contractual relationships with the DAO to build and support products, research and technology. The LLC’s only source of revenue will be DAO funds. Some aspects of these contracts must be long term in nature, given that business agreements are frequently more than months in length.