CIP-64: Incorporation of a legal structure for CoW DAO

[Mooderator]

Authors: Core Team
Status: Draft
Created: 2025-02-27 as continuation of Temp check (dated 2025-02-13)

This CIP is the seamless continuation of the CIP-Temp Check that was posted on 13th of February. The differences are the explicitly assigned mandates, triggered consequences if successfully passed and the attached incorporation documents, with the balance of powers as highlighted below.

All incorporation documents are currently in review with a local law firm. No major changes are expected to the herein shared version, else it will be highlighted in the thread.

Simple Summary

This proposal establishes a robust 4-entity legal structure for CoW DAO by incorporating a Cayman Islands Foundation and three British Virgin Islands (BVI) companies—CoW Core, CoW Hosting and CoW Business. The structure is designed to isolate and mitigate tax, regulatory, business, and liability risks while ensuring that all major decisions and operational mandates flow from CoW DAO’s governance mechanisms. The framework also sets out clear roles for directors, supervisors, secretaries, and service providers to create a balanced relationship between decentralized governance and day-to-day management.

With the successful passing of this CIP, the Service Providers will receive the mandate and community instructions for the incorporation of the below legal structure, on behalf of CoW DAO, with the mandates and split of activities set out below. It further triggers the termination of Defou’s mandate as Service Provider.

The one-time set-up costs are estimated of around $50’000 (+/- 10%) and first-year running costs of $130’000 (10 months). Following years running costs are estimated to be $180’000 (for the entire structure. Additional cost savings over the current setup are estimated at roughly $100’000 (mainly due to savings in offboarding of funds and payment providers).

Motivation

Current Challenges:

• Risk Concentration: The current unincorporated model exposes core contributors and large token holders to significant tax, regulatory, and operational risks.
• Operational Limitations: The current unincorporated model limits CoW DAO’s ability to engage with institutional service providers and manage specialized operational functions efficiently.

Objectives of the Proposal:

• Risk Mitigation: Distribute revenue, operational functions, and liabilities among four distinct legal entities.
• Enhanced Credibility and Efficiency: Create entities with appropriate legal forms that can sign formal contracts and engage with traditional institutions and counterparts.
• Decentralized Oversight: Maintain unified DAO control over strategic decisions while granting directors the operational flexibility needed to manage day-to-day activities.

Entity Structure and Legal Form

0 CoW DAO (unwrapped DAO)

CoW DAO operates as an unincorporated organisation that is self-governed by its governance mechanism. This design maximizes decentralization and ensures that ultimate decision-making power—including the authority to direct, modify, or dissolve affiliated entities—remains with CoW DAO.

• Key Components:
  • Governance + Delegation: CoW DAO sets strategic direction and approves mandates that are transmitted to the affiliated entities. The governance systems and settings, mechanisms and Delegation Program remain unincorporated.
  • Settlement Contract & Tokenomics: CoW DAO’s settlement contract (core and fully decentralised part of the product) and tokenomics framework remain out of the scope of the legal structure (unwrapped).
  • CoW DAO’s MultiSig: CoW DAO remains exclusive owner of the COW token supply which shall not be attributed to any of the newly created entities. The signer structure remains unaltered and unwrapped.

Changes going forward:

• Governance mechanisms will remain in place, unaltered, as they currently are;
• Through the incorporation documents (cf. below), CoW DAO (unwrapped) will remain the ultimate decision maker of the legal structure - with full flexibility to change, increase or decrease scopes mandated to the entities listed below
• CoW DAO grants power to “Delegated Committees” (cf. below) that in turn will be mandated by the legal entities to perform the functions and assignments as decided through governance
• CoW DAO improvement proposals that pass through governance, will be assigned, where required, to the right entity within the structure, if fitting with the mandated activities
• CoW DAO’s Participation Agreement (CIP-1) remains in full force.
• Delegated Committee means the committees or groups that have a mandate from CoW DAO to oversee specific functions within the legal structure. These committees include the existing Grants DAO Committee (CIP-63), Treasury Committee (CIP-62), and Legal Defense Committee (CIP-50), or any successor elected by a future CIP or newly formed committees mandated by CoW DAO.
• Where possible, assignments and mandates will be retroactive.

I CoW DAO Legal Representation – Cayman Company Foundation (“CoW Foundation”)

• Legal Form:
  • A Cayman Islands Company Foundation that is shareholder-less and member-less.
• Key Characteristics:
  • May generate treasury yield and receives profit generated from subsidiaries to be included in the treasury management mandate;
  • Foundation allocates funding to all entities of the structure in order for them to pursue their respective activities.
• Activities & Mandates:
  • Legal Interface: Acts as CoW DAO’s legal interface with the real world, formalising governance.
  • Ecosystem Promotion: Promotes the CoW ecosystem and CoW DAO’s products
  • Treasury Management: Manages financial assets on CoW DAO’s behalf through the already mandated community committee Treasury Committee, including activities as specified through CIP-62.
  • Grants: Manages grants distributions either directly or through the existing dedicated community Grants DAO committee (CIP-63);
  • Tasks allocation: The allocation of the tasks resulting from an approved CIP within the legal structure will be conducted by the Foundation in coordination with the Core Team.
    • CIP-58 remains in full force and is assigned to the relevant new entities by the Foundation.
    • Unconsumed funds from CIP-58 will be assigned to the Foundation, for the Service Provider to bill quarterly.
  • Intellectual Property (“IP”) Ownership: unequivocally owns all Intellectual Property Rights originating from or related to the CoW DAO. This ownership is comprehensive and perpetual, extending to all IP Rights created or conceived at any time, including but not limited to, those IP Rights originating from the CoW DAO since its inception and pursuant to article 12 of the participation agreement, and all IP Rights created or conceived by the CoW DAO in the future.
  • Operational CoW DAO Safe: Owns the Operational CoW DAO Safe (CIP-43), mandating the Core Team, together with the Operator, on the operationalisation of the mandate, including running the bounty program, funding ETH flow and other smart contracts.
  • Legal protection of the CoW Ecosystem: With the migration of the Defense Reserve (CIP-50), the CoW Foundation will become the steward to the legal protection of the COW Protocol and contributors, taking the mandate under CIP-50.
  • Solver Competition Rules: Contributes to the solver competition rules independently from solver team operations.
  • Tool management and coordination mandate: The Foundation will be owner of most non-developer tooling, in order to allow for coordination amongst the different entities and various service providers.
  • Community Management: With the ultimate goal to foster CoW DAO’s ecosystem, community management (and the related tools) will sit with the Foundation.
• Governance:
  • The Foundation operates based on mandates issued by CoW DAO through governance mechanisms.
  • CoW DAO ultimately retains the power to amend the Foundation’s mandate or dissolve it if necessary.
  • Additional Mandate: The Core Team will coordinate the relations between the newly created legal structure, through the Foundation’s service providers and CoW DAO, including an ongoing communication directive that director and involved operators are kept up to date with CoW DAO’s decisions.
• Documentation
  • CoW Foundation Memorandum of Association
  • CoW Foundation Articles of Association

II Core Protocol Activities – CoW Core Limited (“CoW Core”)

• Legal Form:
  • A BVI Company Limited by Guarantee.
• Key Characteristics:
  • No shareholders are present; instead, the company has members whose liability is limited to a nominal guarantee ($1).
  • The Cayman Foundation is the sole member and guarantor, ensuring that CoW DAO’s interests are fully represented.
  • CoW Core operates based directly on mandates issued by CoW DAO through governance mechanisms.
  • The Director of CoW Core is CoW Foundation.
• Activities & Mandates:
  • Solver Operations Management: Oversees the technical and operational aspects of solver management, including vetting, onboarding, allow & deny lists and managing the solver bonding pool. Overseeing participant eligibility for CoW DAO’s bonding pool. Social consensus rules enforcement.
  • Backend Infrastructure: Maintains critical functions such as the order book, autopilot features (incl. solver ranking) as well as managing the Reference Driver.
  • Solver R&D: May research and develop solver-related technologies, either through internal services or outsourced, including running solvers.
  • Infrastructure: CoW Core is mandated to own and update all critical development-focussed infrastructure.
  • Analytics: CoW Core will provide analytics services, where needed.
• Documentation
  • CoW Core Constitution

III User Interface Activity – CoW Hosting Limited (“CoW Hosting”)

• Legal Form:
  • A BVI Company Limited by Guarantee.
• Key Characteristics:
  • No shareholders are present; instead, the company has members whose liability is limited to a nominal guarantee of $1.
  • The Cayman Foundation is the sole member and guarantor, ensuring that CoW DAO’s interests are fully represented.
  • CoW Hosting operates based directly on mandates issued by CoW DAO through the governance mechanism.
• Activities & Mandates:
  • Hosting & Maintenance of the UI: Ensure stable and secure public-facing access to the protocol’s interface including CoW Widget. Owner of the domain.
  • User Support: Provides user assistance and handles certain non-financial, user-facing tasks.
  • Token List Management: Will be the manager of the token list and token-selection related topics.
• Documentation
  • CoW Hosting Constitution

IV Business Entity Activities – CoW Business Limited (“CoW Business”)

• Legal Form:

  • A BVI Limited Liability Company organized as a company limited by shares, and a subsidiary of CoW Foundation.

• Key Characteristics:

  • The Foundation is the sole shareholder of CoW Business.
  • CoW Business operates based directly on mandates issued by CoW DAO through governance mechanisms.

• Activities & Mandates:

  • Protocol-Related Payments: Handle incoming and outgoing transactions (incl. solver reward calculation and distribution) and manage the payout Safe and protocol fee Safe. Operate MEVBlocker related payments.
    • Payout Safe & Protocol Fee Safe: Manages safes for operational payouts and protocol fees.
  • COW Token Buybacks: Executes market transactions for token buybacks (As per CIP-36 and CIP-48).
  • Business Relationships: Enters into commercial partnerships for swap integration and MEV Blocker integration (and other business deals, where applicable), overseeing any broader business relationship, including marketing efforts.
  • Fee Agreements: Negotiates and signs agreements on behalf of CoW DAO with partners regarding fee structures (based on CIP-61).
  • CEX Listings & Market Making: Manages relationships with centralized exchanges and Market Makers.
  • Solver operations: May operate solver-related technologies, either through internal services or outsourced, including running solvers.

• Transition of Service Providers:

  • This entity will assume and integrate activities formerly performed by Defou under CIP-59. The current mandate to Defou will be hereby terminated as its functions are fully transferred to CoW BusinessCo, which will assume and integrate the activities previously handled by Defou. Any existing agreements will be passed to CoW Business. Accumulated funds net of tax provisions will be donated to CoW Foundation.

• Documentation:

  • CoW Business Constitution

Summary: Roles & Balance of Power

CoW DAO: An unincorporated, self-governed, on-chain entity. It autonomously manages its governance mechanisms, and tokenomics. CoW DAO gives mandate to the 4 legal entities to recognize and implement decisions, made through its established governance mechanism. To the extent permitted by law, CoW DAO has the power to give directions to each entity. CoW DAO may amend and may wind-down the whole legal structure, may remove and appoint the director of each entity as well as the supervisor of the Foundation.

Director: The person that has the power to conduct the affairs of the legal entity to which they are director and have the duty, to the extent permitted by law, to implement CoW DAO’s will on how to conduct the affairs of CoW DAO. The director, by its signature, gives legal effect to the activities of CoW DAO as mandated by CoW DAO. The director of the Foundation is a natural person. The director of each other entity is the Foundation as a legal person (corporate director).

• An independent director from Leeward Management Limited, based in the Cayman Islands, is proposed to oversee CoW Foundation. While appointing multiple directors may be beneficial in the future, the authority to make such changes resides with CoW DAO. CoW Foundation will be appointed corporate director of all other entities part of the structure.

Delegated Committee: the group of persons designated by CoW DAO through its established governance mechanism and appointed by the director of the concerned entity to conduct CoW DAO-related affairs on behalf of said entity.

Supervisor of the Foundation: The person overseeing the activities of the directors of the Foundation and the activities of the Foundation as a whole. May access records, call for reports, and ensure compliance with the Articles of Association. The supervisor has the authority to remove the director from their position if finds gross negligence. This supervisor can initiate investigations or actions independently, and they are also obligated to respond to concerns raised by any interested party. The role of supervisor is mandatory by law. Appointed and, if necessary, removed through CoW DAO governance mechanism

• Independent TraversThorpAlberga’s supervisor firm is proposed as the Supervisor for the Foundation. Means to contact the supervisor will be shared via the Foundation’s website.

Secretary of the Foundation: The person that conducts secretarial work for the Foundation including AML for the funds received by the Foundation. The secretary can be appointed and removed by the director. This role is mandatory by law.

• Leeward Management Limited is proposed to serve as the Secretary.

Service providers. The Foundation as well as the other 3 entities can use service providers to run part of their operations and answer specific needs. The mandate includes operational freedom to decide within their allocated budget. For now, the three main hereby proposed new Cayman-based service providers for the legal structure are:

• Leeward Management, offering the corporate services to the legal structures,
  • With the successful passing of this CIP, Leeward Management Limited will be mandated to incorporate the 4 entities.
• TraversThorpAlberga as the law firm, and
• Lemma Solutions covering the operational needs of the legal structure:
  • Execute the operational tasks related to the structure such as bookkeeping, transaction initiation, agreements discussion and support to the Director
  • MutliSig creation and alignment on operations with the different committees.

Summary: Mandate Flow from CoW DAO to the New Entities

• DAO Strategic Direction:

  • CoW DAO sets the overarching strategic goals and specific mandates for each entity by means of governance mechanism. This is reflected in the mandate documentation within each entity’s incorporation documents.
  • If any Service Provider requests a specific mandate or scope of work (for instance, through CoW DAO’s governance mechanism such as CIP-58), they are assigned to the appropriate structural entity, which then adopts their updated mandate.
  • MultiSignature Wallet set-ups that were done on behalf of CoW DAO, will remain as they currently are. Wallet operators will receive this mandate from the director.

• Delegated Committee:

  • Already existing decision structures, namely Grant Committee (CIP-63), Treasury Committee (CIP-62) and Defense Reserve Committee (CIP-50) (“Delegated Committees”) remain empowered as is. The respective entity’s director delegates powers within the scope of the named CIP to said committees. The respective director may appoint new Delegated Committees upon CoW DAO’s prior approval and must do so if actively mandated and not against any laws.

• Appointment and Removal Procedures:

  • CoW DAO holds the authority to appoint or remove the Directors of each entity and to remove or appoint the Foundation’s supervisors, ensuring that the board remains aligned with DAO objectives.

• Day-to-Day Operational Mandates:

  • Directors have the operational freedom to manage day-to-day affairs, provided their actions adhere to CoW DAO’s mandates. The operational budget is set as outlined below.
  • The operational budget is auto-renewed yearly - no need for CIP - and the director has the liberty to go over 10% on the budget and re-allocation between the entities. Any excess beyond the 10% buffer or increase of budget would require CoW DAO’s approval by way of CIP.
  • New operational wallets of each entity will be owned by the respective entity and fully managed by director and operator.

• CoW DAO’s decentralisation efforts on the mandates:

  • In the event some parts of the protocol or any infrastructure become sufficiently decentralised, these parts, where possible, may be withdrawn from the mandate of the entity to which it has been allocated and moved back to CoW DAO. The relevant entity will propose and justify such change to the Foundation which will propose CoW DAO of such mandate modification via governance mechanism.

Winding Down

For the sake of completeness, the winding down chain is included here

• Wind-down process:
  • Decision command:
    • CoW Foundation: by governance mechanism
    • CoW Core: by governance mechanism
    • CoW Hosting: by Director and/or governance
    • CoW Business: by Director and/or governance
  • Asset Disposition:
    • CoW Business: to the Foundation, which is the sole shareholder of the entity
    • CoW Core and CoW Hosting: donated to the Foundation, as designed in the incorporation documents.
    • CoW Foundation: Move financial assets to a DAO owned wallet as dictated by governance.

By passing this CIP, CoW DAO authorizes the respective Director to wind down HostingCo and BusinessCo solely for the purpose of efficiently liquidating these entities in response to legal or regulatory requirements. This authority shall be strictly confined to such legal and regulatory obligations as outlined in the bylaws of these entities

If CoW DAO opts to wind down all entities simultaneously, it is advisable to proceed gradually, with the Foundation being the final entity to be dissolved. In this scenario, CoW DAO and its members acknowledge that tax, regulatory, and liability risks will revert to CoW DAO and affiliates. Wind-down costs are estimated to be similar to the setup costs (while there are no exit tax implications).

Costs

Cost (for entire structure)

• Setup: $50’000 (+/- 10%)
• 2025 Running Costs: $130’000
• Following Yearly Running Costs: $180’000

Above costs are gross and an additional of around $100’000 USD in cost savings relating to crypto-off-ramp and payment providers is expected yearly.

The cost for the setup is to be borne by the service provider under the mandate and budget allocated by CIP-58.

The yearly running costs will auto-renew unless withdrawn by CoW DAO (and the structure wound down), with the treasury committee mandated to transfer funds as needed and requested to the legal entities operating wallets (within the scope of the running cost budget). The director has a discretionary scope to go over 10% of this budget as well as re-allocate between the different entities.

Accountability and transparency

For the new structure, there will be a complete, regular transparency report for the community. Lemma will be assisting in creating one similar to Balancer for our community (cf. Forum Post and their Transparency report (Linked in Post)).

Any permanent increase in the budget needs to be approved by the governance mechanism.

Closing remark

While CoW DAO voters will mandate the incorporation, re-assign existing activities within the structure, it will also reside with CoW DAO voters to amend, expand or wind down this structure or parts thereof. It shall be noted that even in a fully decentralized product version of CoW Protocol, some real-world facing entities may continue to provide benefits as listed above.

[Kowrigan]

A a Core Team member I express my strong support for this CIP. The proposed structure is a game-changer! It paves the way for CoW DAO to truly excel and compete with the leading DeFi DAOs – we’re talking about moving into the ivy league of DeFi.

This framework will be instrumental in achieving the DAO’s core mission: to build the most protective products in DeFi. Think about the strategic partnerships we can forge, the operational agility we’ll gain, and the reduced risks compared to our current setup – this CIP is a vital step forward.

[middleway.eth]

The main takeaways from the above proposal AFAICT are:

• The proposed legal setup is expected to help in mitigating legal liabilities for contributors.
• It’ll allow more flexibility in interfacing and engaging in legal agreements whenever needed.
• The proposed setup maintains decision power with CoW DAO and its governance mechanism.
• There are tax advantages (which at least help to partially offset the costs)

I’m expressing my intention to support this proposal.
I’d love to see more discussion especially from participants with subject matter experience.

[fleupold]

I fully support this proposal. Giving the DAO a comprehensive legal structure will strengthen its ability to grow both from a business but also technical perspective.

By having a clear legal separation between the different products and responsibilities, the DAO receives a solid setup to deal with operational, legal and business challenges while the core development team can continue to focus on building software and shipping protocol improvements.

[annageorge]

I am supporting the proposed legal structure laid out here as it allows for a more agile engagement with institutional partners and service providers. By clearly segmenting responsibilities across the four entities, we can secure valuable partnerships and streamline our commercial processes more easily.
At the same time, the set up allows us to strategically align the operational framework with the evolving demands of the industry and ensures the continued focus of the technical team on improving and growing the core protocol.

[Tane]

We have reviewed the proposed structure for CoW DAO and have some questions regarding the specific risks it is designed to mitigate.

• Could you please provide a more detailed explanation of the risks that this new structure aims to reduce? For instance, what particular legal, operational, or other risks are being addressed by this approach?
• How does the proposed structure specifically mitigate these risks compared to the previous setup? What changes or improvements are expected in terms of risk management and liability reduction?
• Are there any expert legal or tax opinions available that can offer further insights into the effectiveness of this structure in managing these risks?

We would appreciate any detailed elaboration or resources on these matters.

[c3rnst]

Thank you, everyone, for your engagement in this discussion, and thanks to Tané for your questions - this clarification process is invaluable at this stage:

Without a clearly defined jurisdiction, CoW DAO - or its closest DAO-adjacent entities and members - could risk being construed as the DAO itself and subjected to taxation in jurisdictions that claim tax substance. This risk increases as profitability grows. The proposed legal structure aims to mitigate this by establishing clear jurisdiction, defining profit attribution, and ensuring substantive operations (and substance) within the new entities.

Beyond tax considerations, regulatory and operational risks are also significant. By structuring activities into distinct entities located in jurisdictions with established guidance on VASP/CASP, the DAO can reduce exposure to regulatory uncertainty. However, given the evolving legal landscape, continuous monitoring and adaptability will remain essential. This rationale underpins the proposal to establish multiple entities, each with well-defined and limited functions.

While no formal tax opinions have been issued (as taxation is determined independently by each jurisdiction), the proposed structure has been developed in consultation with TTA. Their advice considered jurisdictional suitability, specific operational activities, and, most importantly, the need to maintain CoW DAO’s decentralized governance model. Additionally, the team benchmarked structures used by other Web3 projects and identified this approach as a well-established path aligning with CoW DAO’s needs.

In my view, while the structure serves to mitigate risks, it does not alter CoW DAO’s fundamental operations or governance framework. Instead, it preserves flexibility - allowing activities within the structure to be adjusted, outsourced, transitioned back to the DAO, or even dissolved if the community decides. Hence, transparency and accountability will be critical. Voters need access to clear information, and delegates will play an increasingly vital role in providing expertise. This may be an opportune moment to consider forming a dedicated working group to enhance communication and coordination, ensuring that all ecosystem participants are well-informed and engaged.

[tokenwood]

As a solver for Cowswap, I highly support this proposal. Receivig payments from another incorporated entity brings necessary clarity for fiscal & KYC/AML-related purposes.

[0xdanko]

Quick intro: I’m a core contributor at Balancer, Director Member at the Balancer Foundation, and manager of our BVI operating company (quite similar setup).

Excited to see this CIP-draft. I must say, this framework has been working well for us for the past ~3y. Although we have a less sophisticated setup, we’ve been advised to further decentralize operations to other companies or subDAOs in a very similar fashion. @c3rnst comment is on-point, really nothing to add and I would encourage monitoring developments under MiCA and now the US for guidance - hopefully regulation by enforcement is behind us, but we shall wait and see what the future holds.

@c3rnst

Hence, transparency and accountability will be critical. Voters need access to clear information, and delegates will play an increasingly vital role in providing expertise. This may be an opportune moment to consider forming a dedicated working group to enhance communication and coordination, ensuring that all ecosystem participants are well-informed and engaged.

At Balancer, we have Director seats for kyc’d community members, to cater for decentralization and checks/balances. The additional cost is minor on top of the Cayman/BVI footprint and gives the assurance of DAO representativeness at the same level of the Cayman Directors. Transparency reports are also published regularly for accountability.

The Foundation model has been serving tradfi for years without many challenges. The Cayman/BVI jurisdiction shows itself welcoming to crypto business, and a lot of resilience/confidence. Leeward and Lemma are also an exceptional partners, and I’m happy to put a good word for both of them.

[Silkenoa]

Establishing four entities entails high legal costs and significant administrative burdens. This is justified only if it effectively mitigates CoWDAO’s risks and any newly created attack vectors do not outweigh those benefits. Widespread adoption of this structure within the ecosystem does not inherently prove its effectiveness in achieving its intended aims.

A non-exhaustive list of key questions:

1. How does this legal structure ensure compliance with MiCA, particularly its full decentralization requirement to remain outside its scope?
2. How does the structure explicitly minimize taxation risks, given its reliance on tax havens without meeting OECD substance requirements?
3. How does it align the Foundation with CoWDAO, considering the director’s ability to refuse in its sole discretion to refuse implementation of DAO governance decisions (see 4.16 Foundation Articles of Association)?
4. Have legal opinions been obtained, particularly from US and EU jurisdictions, to confirm that the structure meets its intended purpose and mitigates identified risks?
5. Which law firm is advising on these documents, and does it hold any role within the structure that may present a conflict of interest? For instance, TTA is named as a supervisor—are they also the legal advisors shaping the structure and defining the supervisor’s powers?
6. Is it prudent to delegate these powers entirely to professional service providers who may have limited understanding of CoWDAO’s ecosystem?
7. How swiftly can the structure be dissolved or restructured in response to regulatory changes in the Cayman Islands and BVI?

[leeward_ky]

Leeward is thrilled to collaborate with CoW DAO in establishing its Cayman Islands/BVI foundation structure. The Cayman foundation company model is the leading structure for token issuance, ecosystem development and decentralized governance, used by many leading projects, many of which we support.

[Kowrigan]

Hi @Silkenoa, Odran here, thank for your thorough and expert review of the proposal. Your questions precisely capture the challenges faced by DAOs and DeFi in a highly uncertain legal and regulatory environment because traditional legal frameworks have not evolved to address their inherently decentralised, permissionless, and borderless nature. As a result, existing legal structures are far from perfect, with significant uncertainties still surrounding both the operational activities and the governance models of these entities.

The main objective of the proposed structure is to reduce liability—whether tax, legal, or regulatory—by segregating activities and implementing legal layers that serve as buffers, ultimately adding layers of protection to the DAO and its members against potential risks. The points you raised are vital and we’ll try to address them one by one:

1. Full decentralisation under MiCA’s recital 22 is unfortunately not black and white—it exists on a spectrum. National and EU regulators have noted that decentralisation has two dimensions: technical decentralisation (the on-chain protocol) and organisational decentralisation (off-chain governance). Though at this stage full decentralisation remains largely undefined and at the discretion of each national regulator at least until the Commission regulates decentralised systems as mandated by MiCA. For the time being while some other CoW DAO projects aim at reinforcing MiCA’s full decentralisation exemption by emphasising technical decentralisation, this proposal is built with organisational decentralisation in mind, ensuring that token holders retain ultimate control. Additionally, if technical and organisational decentralisation is insufficient to secure the exemption, the DAO and its legal structure may also opt for the reverse solicitation exemption to remain outside MiCA’s scope.

2. The proposal tries to mitigate substance risk by appointing a local director and a local operator. This approach demonstrates that the entities are actively managed within the jurisdiction and are not merely shell companies. The local director is tasked with overseeing day-to-day management and ensuring compliance with local regulations, while the local operator provides a tangible operational presence. Although this approach may not be perfect, it establishes a sufficient level of economic substance by anchoring key management functions locally. Further and has explained in another answer above, creating a tax nexus to a jurisdiction is reasonably a better defence posture than having each DAO member liable for the tax obligations of the DAO. In terms of burden of proof, the connection to a tax jurisdiction, inverts the burden of proof of any claiming jurisdiction, hence requiring that contesting jurisdiction that tax rights are on its grounds, instead of the Cayman and BVI, instead of simply declaring taxation rights. Lastly, OECD’s Economic Substance Requirements under BEPS Action 5, define Core Economic requirements and a Directed and Managed test, which were the basis to the economic substance regulations enacted in these countries. Looking ahead, the structure allows for the appointment of additional local directors and the direct hiring of local workforce as needed. These future measures may further reinforce the entity’s operational substance, helping to further meet OECD standards and safeguard the tax-neutral benefits.

3. The director holds statutory duties not to execute unlawful decisions and may only refuse a DAO resolution if it clearly violates legal obligations. This power, intended to shield both the director and the DAO from wrongful actions, is balanced by Articles 1.4(j) and 4.13 of the Articles of Association. These provisions mandate that the director give legal effect to DAO resolutions and act in the best interests of CoW DAO, as set out in its governing documents. Moreover, any refusal to implement a DAO resolution must be properly justified and promptly communicated to the DAO, ensuring transparency and ongoing alignment with community mandates. Another mitigation measure to the current sole director power is that CoW DAO can at its discretion incorporate multiple directors—such as independent, core team, and ecosystem representatives—to further distribute decision-making power. This is something that has been specifically thought of when building this proposal.

4. No, legal opinions from US and EU jurisdictions have not been obtained at this time. This decision reflects the inherent uncertainty surrounding DAOs and their innovative structure, where various potential attack vectors remain unknown. Given that regulatory frameworks in the US and EU are still evolving in response to decentralised technologies and organisations, pursuing definitive legal opinions could create a false sense of security. Instead, the focus has been on designing a structure that shields the DAO and its members from liabilities by segregating activities and implementing protective legal layers. This approach acknowledges the dynamic landscape of crypto regulation and is intended to provide flexibility and resilience in the face of emerging risks.

5. In many legal structures, both the director and supervisor roles are often handled by the same service provider, which can blur the lines of independent oversight. In our proposal, we deliberately separate these roles to ensure that the supervisor functions as an independent check on the director’s actions. While TTA’s dual role as legal advisor and supervisor might initially raise concerns, this separation reinforces our commitment to accountability and transparency. The director is responsible for day-to-day operations, while the independently appointed supervisor focuses solely on ensuring that the director adheres to DAO mandates and complies with legal obligations. This clear division mitigates potential conflicts of interest and minimises the risk of unchecked managerial decisions, aligning with best practices observed in both traditional corporate governance and innovative DAO legal structures. Moreover, TTA is recognised for its expertise and reputation in the crypto legal arena, which further underpins the decision to engage them as a legal advisory while maintaining a separate, independent supervisory function. This approach also grants the DAO flexibility and community control, as it retains the power to remove or replace the supervisor if necessary, thereby safeguarding the DAO and its members from risks associated with unilateral decision-making.

6. Delegation of powers to professional service providers is essential for ensuring compliance and smooth operation of the DAO’s legal structure. In this proposal, all service providers—including the local director, local operator, and related entities—are chosen specifically for their significant experience in DAO and DeFi environments. A thorough round of interviews with various service providers (corporate services, operators and law firm) led to the proposed service providers. Their deep understanding of both traditional regulatory frameworks and the nuances of decentralised governance ensures that operations are executed with due diligence and tailored expertise. This level of experience minimises the risk of misinterpretation or operational errors and enhances the overall robustness of the structure. Additionally, the DAO retains oversight through regular reporting and retains the power to replace any service provider if necessary, ensuring that while these experts handle day-to-day operations, ultimate control remains firmly with the community.

The proposal details a robust wind-down process to ensure that the DAO can swiftly terminate the structure through a DAO resolution. Additionally, the incorporation documents explicitly grant the DAO the right to amend them, providing critical flexibility to adapt to unforeseen risks and evolving regulatory or operational needs. This mechanism allows the DAO to tailor the structure to its future requirements, ensuring it remains both agile and protective of its community’s interests.

[notsoformal]

Excited to see so many stakeholders contributions!

Highly support this proposal, as having a structure Real World entity is key for fostering key business partnerships with industry leaders and to reduce individual risk of contributors.

Strongly believe this proposal makes for a good effort and balance between structure and flexibility.

[Mooderator]

This now moved to Snapshot:
https://snapshot.box/#/s:cow.eth/proposal/0x7bdf94cd8688a9baed7df2599ede5aaca6d931353d2765bb71519d97e478db80

[Mooderator]

Full version is pinned to IPFS: https://ipfs.io/ipfs/bafkreiepdqfd7hblxbw6undnqon7onhvsj2ow7as5ws5fey7ucshxxsi4m