TMP-4: Establish Legal Defense Fund for Jade Protocol DAO

Title: Establish Legal Defense Fund for Jade Protocol DAO Author(s): Jon Ray & Avicenna Created: 3/17/2023

Summary

Given the shifting regulatory landscape and Jade Protocol DAO’s (the “DAO”) efforts to stay informed while aiming for ongoing compliance, this Treasury Management Proposal seeks to establish a Legal Defense Fund for covered participants of the DAO.

Disclaimer

Jade Protocol is a decentralized autonomous organization, which means that all treasury management proposals are discussed with the community and voted on as a collective. No single member of the DAO shall be held responsible for the positive or negative outcomes of the TMP should it pass. This proposal put forth by the author(s) was synthesized in good faith as a result of due diligence and community discussion on Jade Protocol’s governance platform. There are no guarantees of financial gain and the DAO collectively assumes responsibility for both the positive and negative outcomes that may result from executing this proposal. This proposal does not constitute investment advice, but rather presents opportunities available to the DAO.

Should the community vote to pass this proposal, then the DAO and its contributors are authorized to carry out the suggestions set forth in this proposal. If the proposal represents an investment opportunity, the community accepts the risk that the DAO may lose the entirety of its deployed funds. If new information comes to light prior to the execution of this proposal (i.e. a change in the investment thesis) then the DAO reserves the right to not deploy funds even with the successful passing of this proposal, as it may pose an outsized risk to the DAO and its collective community.

There are risks associated with modifying token economics, moving funds across blockchains, yield farming, investing in seed stage projects or liquid tokens, including but not limited to: complete loss of funds, counterparty risk, de-peg risk, economic exploits, smart contract exploits and/or the risk of impermanent loss. Due diligence is meant to mitigate these risks, however the DAO must still acknowledge and accept that these risks exist.

Abstract

This proposal seeks to allocate 500,000 USDC to a Legal Defense Fund for covered participants of the Jade Protocol DAO. This self-insurance mechanism will protect covered members while fostering continued growth and open participation in the DAO.

This fund may only be used to reimburse qualified legal defense expenses incurred by covered participants in the event that they become the target of adverse legal or regulatory action. This is part of a multi-phase due diligence campaign to further develop decentralized systems while retaining and attracting qualified and knowledgeable DAO contributors.

Definitions

Covered Participants - Core contributors of the DAO who are actively drafting and submitting governance proposals, managing DAO operations and developing the framework for which Jade Protocol can function as a decentralized autonomous organization.

Qualified Legal Defense Expenses - Any legal defense expenses specifically related to legal action that arises against a core contributor due to their participation in Jade Protocol DAO.

More Key Definitions to be outlined in the claims process manual by the elected committee.

Motivation

Risk management is an appropriate part of any well-functioning decentralized ecosystem. Risks to both the DAO and its membership can be reasonably anticipated, and offset, by setting aside funds for covering costs if those risks are realized. This self-insurance mechanism protects the contributors of the Jade Protocol DAO and serves as a tool for continued retention and open participation in the ecosystem.

Because protection from certain risks cannot be accessed from traditional sources or methods, the self-insurance mechanism proposed here solves this gap. The Defense Fund will help the DAO’s Core Contributors by offering direct support to qualified legal defense expenses where and when members may be exposed to novel legal risks that may be associated with participation and management of a DAO.

Defense Fund and Claim Specifications

The Defense Fund will be used as a contingency budget with the purpose of covering qualified legal defense costs in the event that a Jade Protocol DAO core contributor becomes the target of certain adverse legal action due to their involvement within Jade Protocol DAO. Qualification, claims process, specifications, and payouts will be managed according to the Claim Process Manual, which is currently being developed by DAO community members, Jon Ray & Avicenna, with guidance from legal counsel. This manual is being developed borrowing the best industry practices and utilizing the latest information available.

Currently, the claim process will follow these principles and system process:

• A covered participant who becomes the target of adverse legal or regulatory action as a direct result of their participation in or management of the Jade Protocol DAO and who qualifies for reimbursement of related legal expenses (a “Beneficiary”) will be reimbursed for relevant legal costs. The Beneficiary must first assume and pay for all legal expenses. Once those legal expenses have qualified for reimbursement from the Defense Fund, the Beneficiary must submit a claim to the Defense Fund for reimbursement, which must be accompanied by supporting documentation of the claim, qualification requirements, and relevant expenses (a “Claim”).
• All Claims must first be submitted to an external technical committee (the “Claims Committee”). The Claims Committee will verify and qualify the eligibility of the Beneficiary, assess the claim, and evaluate the supporting documentation. The Claims Committee will then issue a recommendation that approves or rejects a Claim within 14 days from the complete submission of the Claim (the “Committee Recommendation”).
• The Committee Recommendation must then be submitted to the members of Jade Protocol DAO’s treasury multi-sig (the “Comptroller's”) for verification (the “Committee Recommendation Submission”). If the Comptrollers verify that the Committee Recommendation Submission accepts the Beneficiary’s claim, the Comptrollers will then authorize the Claims Committee (in writing) to initiate a transfer transaction for the approved amount from the Legal Defense Fund to the Beneficiary’s designated wallet address. Prior to the transfer, the Beneficiary must verify that the wallet address is in fact owned by them. All transactions will be approved by a 3 of 5 multi-signature wallet controlled by the Claims Committee.
• If the Committee Recommendation Submission is rejected, the Comptrollers must provide a rational basis for their rejection supported by facts in the Claim within 14 business days. The Comptrollers may request additional information or opinions from the Claims Committee, which may in turn request additional information from the Beneficiary. The Comptroller’s decision is final and if a Claim is rejected it cannot be filed again unless there is substantial new information or facts that would have a material effect on the outcome of the claim.

The Claim Process Manual will define and include all relevant operational aspects for submitting, evaluating, and processing claims, including:

• User guide
• Definition of terms
• Claim process
• Terms of use
• Qualification description, coverage amounts, and exclusions
• Claim process, timing, and evaluation criteria
• Supporting documentation and claim requirements
• Process for updating the Claim Process Manual

Funding Specifications

• Funding for an approved claim will only be paid out when the Comptrollers have verified and approved the Committee Recommendation Submission in writing.
• Funds in the Legal Defense Fund are designated as contingency budgets for covering legal defense and legal representation expenses.
• The Defense Fund does not cover the operational costs of the DAO.
• Claim approvals and rejections will follow the Claim Process Manual.
• A new multi-sig wallet (“Claims Committee Multisig”) will be created on the Arbitrum network which will hold the Legal Defense Funds in USDC [address TBD].

Pros

• Creates a legal fund that is within best practices for DAOs operating in an uncertain regulatory environment.
• Promotes the activity of active, engaged and experienced contributors.
• Allows for a transparent system to reimburse eligible users who become the target of regulatory scrutiny.

Cons

• Utilizes funds from the investment treasury that could otherwise be invested for a return.

Next Steps

A high level summary of how the investment strategy will be implemented:

• Create a Claims Committee, Claims Committee Multisig, and assign Claims Committee members as signers to the Claims Committee Multisig.
• Transfer 500,000 USDC from the Jade Protocol DAO Investment Treasury [0x02944e3fb72aa13095d7cebd8389fc74bec8e48e] to the Claims Committee Multisig.
• Appoint the following individuals to the Claims Committee: jonray#0639 - Core contributor; Avicenna#7448 - Core contributor; Mac Tonight#0001 - Core contributor; 0xEntheox 🔺💎#0253 - Community Moderator; cryp-rod#8127 - Contributing Developer
• Establish the Claim Process Manual
• Assign Claims Committee Members to the Claims Committee Multisig

Voting

This is a Core Proposal that was presented to the community on 3/17/2023. After 7 days of community discussion, the proposed edits were incorporated and consensus was reached. This vote will be subject to a 24 hour warmup period, followed by a 3 day voting window.

If you agree with this proposal, a [YES] vote would confirm the implementation of all next steps highlighted above.

If you disagree with this proposal, a [NO] vote would result in the continuation of operations as is.

Copyright

Copyright and related rights waived via CC0.