HIP - 1.3: Legal structure

Abstract

In addition to the new structure, the contributors propose a new legal framework that will enable true decentralization on both the blockchain and legal fronts.

With the focus to bring the full power to the DAO participants.

Introduction

A Purpose Trust (PT) is a legal structure typically used to hold and manage assets for a specific purpose or set of purposes. In the case of Hodl Finance DAO, the particular purpose of the trust is to own the shares of the LTD, and therefore by extension ultimately hold the assets of the company for and on behalf of the DAO.

DAO Legal Structure

Hodl Finance DAO, as its name suggests, is a decentralized autonomous organization where token holders collectively make decisions regarding the organization's operations. Currently, the legal recognition of DAOs varies by jurisdiction, and in some cases, existing structures do not fully support decentralization. However, various structures are being used to seek to maintain decentralization while always complying with the respective legal requirements.

To operate efficiently and effectively, the DAO must be structured in a way that preserves token holders' rights and allows for the management of day-to-day operations by external entities. It is crucial that this structure does not compromise the security or decentralization of the organization. The proposed legal structure of the DAO is further detailed below.

HODL Finance Limited (HFL)

HFL will work with the core contributors and external subcontractors to do the daily operations and ensure it can act in accordance with the constitution. As a legal entity, it can open accounts on behalf of the DAO and hold assets on behalf of the DAO (such as tokens, equity, and IP). The DAO will permit HFL to handle its official social activities and channels. HFL will be requested to handle all relevant accounts on behalf of the DAO. It has permission to use these accounts in collaboration with other DAO contributors to produce content on behalf of the DAO. Furthermore, they shall manage and structure the channels on behalf of the DAO. The DAO will at all times retain full ownership of all accounts. It can revoke the permission to use all or any of these accounts at any time. It may also permit other parties to use the accounts in a specific way. The shares in HODL Finance Limited will be held by a trustee.

What is a Purpose Trust?

A traditional trust is a fiduciary relationship in which one party, typically known as a settlor, transfers the legal title of something to another party, the trustee. The trustees are mandated under the terms of the trust to hold the assets for and on behalf of the described beneficiaries. A purpose trust is an evolution of the traditional trust which enables a trust to be established for a particular purpose (typically advancing some non-charitable purpose(s)) instead of having beneficiaries. A trust deed governs this relationship between the trustees and the purpose. The HFD Purpose Trust will have as its purpose to hold all the shares of HFL for the DAO.

Enforcer

Unlike traditional trusts, a Purpose Trust is required to have an enforcer whose duty it is “to ensure that the trustees act in accordance with their duties and always having regard to the purpose.” Accordingly, the role of the enforcer is to ensure that the trustees utilize the trust funds for specified purposes. This involves monitoring the activities of the trustees and being prepared to bring the trustees before the court if necessary, for instance, where there is concern that trust funds are not being used properly. The duties of the enforcer are usually described in terms of the trust instrument so that the enforcer is certain about what he is required to do to fulfill his role.