[Temperature Check] Blockswap DAO Foundation

[Kentphilly]

Author: Kent Philly

Disclaimer: I am a community member and current Grants Council Member with no affiliation to the Blockswap Labs team.

Abstract

The proposal aims to create an organization to serve the Blockswap community through taking ownership of the protocols created by Blockswap Labs and empowering the community through the Blockswap DAO’s treasury.

Motivation

In light of Blockswap Labs completing the Blockswap roadmap (link) it is imperative that the DAO now take ownership of the protocols given to them. The Blockswap Foundation DAO will serve to integrate the Blockswap Lab’s products and technical support with the community of Ethereum staking infrastructure participants to maximize the value for the community.

The Blockswap DAO Foundation will provide support, guidance, and funding for all future investment and growth into the community to help the community thrive with a robust group of buliders, hobbyists, professionals, researchers, financial organizations, entrepreneurs, and investors who have the best interest in mind for the Blockswap community.

Current Status

The Blockswap protocols are actively being used today by global investors and users without active BSN incentives. This validates the organic interest in the protocols.

The Stakehouse, Stakehouse - Common Interest Protocol, and LST Optimnizer aka the Protocols have set a new standard for an Ethereum Staking Operating System owned by the community.

The Community has owned and driven the liquidity for the protocols to date, without an airdrop or liquidity support from the Blockswap DAO. With a robust community of participants, we’ve seen individuals and groups add value to the community without incentives. Here are a few examples:

1. Ykplayer - runs the largest LSD Network & actively issuing grants, and promote liquidity for BSN tokens
2. JohnBrown - actively producing additional protocols to be used by community members
3. DappNode - distributing DappNodes to community members staking from home

Rationale

Blockswap Labs have completed their creation of the best technical implementation of Ethereum staking infrastructure possible (in my own opinion). Now It is time for the community to leverage these tools to enable one billion individuals to be successful with Ethereum staking through Blockswap.

This Foundation is being proposed now to ensure the community can grow and thrive ahead post Blockswap Labs’ completed engagement mandate. The protocols and applications development has completed and they are fully self functional. Here are the top 5 reasons why for the DAO Foundation.

1. This is a fantastic time and opportunity to jump start the community with re-engagement of old/current community members and to bring in new members.

2. A legal organization and entity is required for the DAO to operate and move tokens out of the treasury to be used by the community. Without a foundation, certain activities are not possible such as liquidity support (market-making), empowerment of community leaders, and grants disbursements at scale.

3. The Blockswap DAO will still vote and have control over technical operations and the Foundation will execute the DAO’s ideas and vision.

4. The BSN token has not had a “real token launch” yet and this has resulted in low global liquidity. BSN Liquidity is a top priority for the community and the DAO Foundation will enable BSN liquidity for a market-making proposal quickly to help jump start growth.

5. The Blockswap Labs team has completed their commitments to finalize the protocols and products (highlighted below) with the full details in this Governance forum (link).

• Stakehouse dApp
• Stakehouse LSD Networks
• Stakehouse Monitoring
• Common Interest Protocol Stakehouse Application
• Fren Delegation
• dETH Gateway
• LST Optimizer

The Foundation will serve as the liaison for the procools and products moving forward to be the voice and force to enable current and future participants to be successful with Ethereum staking infrastructure through Blockswap.

Community Feedback - Rewarding Early Users

Taking into consideration the voice of the current community, this proposal will also provide current cBSN and SHB holders an additional opportunity to convert to BSN. cBSN and SHB holders had 100 days to convert over to BSN (Forum Link) and some community holders missed this opportunity. The conversion rate is to be determined by the community.

The intention here is to reward the legacy OG community members who missed the opportunity to convert to BSN. Blockswap is community driven and it is important to reward early contributors who helped get the community to where it is today.

Steps to Implement

This Temp Check proposal will move to a Tally vote after consideration and updates have been provided by community members.

Passing of the Tally vote will be deemed as a ratification of the DAO Foundation.

Foundation Structure

The Blockswap DAO Foundation will be composed of members for each area of the community. Each member will represent a different part of the ecosystem. Here are some examples and proposed members.

1. Voice of the Ethereum Ecosystem Stewards
   Example: Extend an offer to the Ethereum staking community members

2. Voice of the Protocol’s Technical Support
   Example: Extend an offer to Blockswap Labs as a technical adviser

3. Voice of the Blockswap Organization
   Example: Extend an offer to Blockswap Foundation members

4. Voice of the Hardware Community
   Example: Extend an offer to DappNode community

5. Voice of the Distributed Validator Technology (DVT) Community
   Example: Extend an offer offer to DVT ecosystem leaders (SSV, Obol, +)

6. Voice of the Education Community
   Example: Extend an offer to community leaders (ETHStaker +)

7. Voice of the End-User Community
   Example: Extend an offer to Kent Philly.

Foundation Objectives

1. Increase the global liquidity of the BSN tokens to increase the opportunities for community engagement and growth.
2. Provide funding and hands-on support for the Blockswap community through the Blockswap DAO’s treasury.
3. Manage the Blockswap DAO grants to validate and ensure successful completion of commitments.
4. Grow the community with strategic guidance and support from all participants in the community.
5. Explore the best way to airdrop BSN and/or other tokens to the current and future community

Overall Costs

The total cost for this proposal is 253,000,000 BSN tokens. These tokens will be awarded to the Foundation founder and Foundation members based on completed objectives.

Entity	Payment	Payment Schedule	Objectives
Foundation	250,000,000 BSN	250,000,000 BSN on vote approval.	Use for foundation operational budget.
Proposal Steward	3,000,000 BSN	2,000,000 on vote approval. 1,000,000 on foundation formation.	Coordinating the proposal from temp check to foundation formation

Closing Notes

This is not yet a “perfect” plan. Input is required on the all areas, especially on the point of extending the cBSN and SHIB conversion.

All input, feedback, and criticism is welcome. We are building in the open and intend to leverage the best structure, organization, and processes already developed by the EVM ecosystem to empower the Blockswap community. Thank you for your feedback and input on this initiative.

[Cryptolife]

What’s the difference between BlockSwap Foundation and BlockSwap DAO Foundation? It would be confusing, no? DAO is DAO…we need to form a formal DAO structure and run it and that’s it…why a separate DAO Foundation?

[derek]

i believe that is what the proposal is about. the dao needs a structure, it could be a foundation or it could be something else. this is what many big projects do.

i’d be curious what you think is another structure to consider?

[Cryptolife]

I think the BlockSwap team should appoint someone from BlockSwap to lead the DAO formation and propose a structure with the rest of the board membership come from the community. The benefit of having someone with experience from BlockSwap team and deep industry knowledge cannot be understated.

[Kentphilly]

The feedback from the Blockswap team thus far is that they don’t want to be involved and this should be a community lead organization.

What if a Blockswap team member was automatically appointed to the Foundation and the creation was made by the community @Cryptolife?

In my view, we need progress now and if the Blockswap team doesn’t want to own this, I’m happy to push forward until a more qualified candidate comes into the community.

[Kentphilly]

Here is a starting place for a second conversion of cBSN to BSN.

As a current BSN holder, I suggest we reward the early members who missed out with a reduced conversion for 50 days starting on January 1, 2024 to February 19, 2024. This is 1/2 of the time of the first conversion with 50% of the original conversion valuation.

This would be a conversion rate of: 1 cBSN to 0.5BSN and 525 SHB to 1 BSN.

This will reward early members more closely to the current market rate for BSN.

[Kentphilly]

Why should a DAO (legal wrapper) be created? Here are thoughts from the core team…

*Establishing a DOA wrapper will accelerate this protocol-driven growth and foster collaboration among various actors. Consequently, more users from diverse backgrounds will engage with the protocol, contributing to a value-driven BSN ecosystem, creating a positive feedback loop. *

Furthermore, Blockswap’s protocols are fully autonomous and trustless on-chain, making them work without the need for oracles and committees.

[Cryptolife]

Having a BlackSwap team member would be a plus. Thanks for stepping up. I’ll monitor and see if this is something I want to do. All members should be doxxed so we know who we are voting for to drive the future of BSN.

[Cryptolife]

I think the team ended the work too soon. The protocols should have been made mobile friendly. Today’s world is mobile first. I understand that if you run your node you need desktop to setup (be great if can be done via mobile too)… but if you just want to stake or use LST Optimizer, you want to be able to do it from your mobile.

[Kentphilly]

I agree on Mobile first and this can be prioritized as a grant funding objective in 2024. Thanks for sharing your alpha with the community.

[JupiterBlock]

Posting here an Education Piece on the Cayman Foundation generally. I hope it may bring a little light to the discussion. This is part of Web3 education and outreach. This is not legal advice since this is not personalized for BlockSwap.

About: JupiterBlock is a consulting & advisory business focused on the digital assets industry, delivering Strategy, Risk Management and Governance Solutions in the virtual assets space, supporting grassroots initiatives, creators, and innovators, and researching the potential synergies between cooperatives and DAOs. Based in the Cayman Islands, we are also involved with decentralized projects (LexDAO - legal engineering, RnDAO - decentralized org design, and currently co-founding a new Web3 and legal engineering firm called Ixian).

Why Cayman is popular for DAOs: The Cayman foundation company structure was created in 2017 to allow for more flexibility for wealth management purposes. A hybrid between a trust and a corporation, the foundation company is a versatile legal container which can be fully customized with respect to corporate governance and decision-making.

It’s been used as a legal wrapper for a DAO for several reasons, starting with Maker:

• wealth generated by the growth of the worldwide community will not be captured and taxed by a single country, and instead will accrue for the benefit of the entire project and community;
• an independent Board of Directors in the Cayman Islands can be appointed, and/or the Board can be elected by the community in accordance with the DAO consensus mechanisms;
• the Cayman foundation can be an orphan structure without beneficial owners and distributions of profits, and structured to function as close to purpose as possible;
• one or several subsidiaries can be established to operate as businesses and the Cayman foundation can contract with service providers worldwide;
• the Cayman foundation can manage grants, etc.

Common features & benefits of the Cayman foundation are:

• limited liability and separate legal personality from members, directors and officers;
• managed by a Board of Directors, with the same standard of care and duties; and
• same requirements as any other company as to books and records, corporate registers, and filings.

However, there are also several key distinctions which make foundation companies a little more special:

• founders can reserve themselves important powers;
• certain provisions and limitations can be “set in stone” so that the Board of Directors has no authority to change them;
• the foundation company must have a Secretary;
• one or more Supervisors are needed if the foundation company has no members (orphan structure);
• amendments to its Memorandum and Articles of Association (“M&A”) can only be made if this is expressly allowed;
• a foundation company cannot pay dividends;
• a foundation company cannot accept an asset contribution unless its Secretary gives a notice of no-objection under the Cayman Islands Proceeds of Crime Act, the Terrorism Act and the Anti-Money Laundering Regulations (as revised).

Bylaws are typically used to tie the workings of the foundation company with the DAO consensus mechanisms.

Founder(s): person(s) establishing the foundation company (and contributing assets). Do(es) not have any automatic rights, but rights can be reserved (amendments, power to appoint and remove directors, designate beneficiaries, and/or call for reports, accounts, information, to cause the foundation company to be wound up, to appoint foundation property, etc.).

Secretary: person licensed or permitted by the Companies Management Act to provide company management services in the Cayman Islands. The Secretary’s office will also be the registered office where the statutory records must be kept, under penalty of criminal sanctions.

Supervisor(s): person(s), other than members, who under the M&A can attend and vote at general meetings. Can also be a director. Typically, the Supervisor(s) can access the files, books and accounts. Foundation companies are required to keep a register of Supervisors at their registered office.

Members: a foundation company can be incorporated with one or more members in the same way as a regular company, but can cease to have members at any time (if it has at least one Supervisor). It may not subsequently admit members, or issue shares, unless expressly authorized to do so by its M&A. Members can be subject to restrictions and/requirements.

Interested Persons: any Members, Supervisors or any other parties having the right to bring an action in the name of, or on behalf of the foundation company, as per the M&A.

Beneficiaries: persons who may benefit from the company carrying out its objects. They have no statutory powers or rights relating to the company, its management or its assets, but may have specific duties, powers and rights, including enforceable rights, if specified by the M&A. They can be, but do not need to be, identified from the start, and they may have different rights from each other. They are not beneficial owners of the foundation company.

Often, the Cayman foundation company will have one or several subsidiaries, either for token issuances, managing operations or carrying out other business. These subsidiaries can be onshore or also offshore, depending on their operations and goals. This allows for the DAO consensus mechanism and corporate governance protections to still be applicable (at the group level), while separating activities and managing more effectively.

A Cayman foundation is managed by a Board of Directors, with very extensive legal powers. However, due to the possibility to customize the M&A with certain provisions to be “set in stone”, and the ability to link the business decisions to DAO consensus, it is feasible to curtail the powers of the Directors and ensure that the initial vision and ethos of the project will not be diluted. Alternatively, some projects choose independent local directors.

Director Fiduciary Duties:

• acting loyally, honestly and in good faith in the best interests of the company (the duty is owed to the company itself);
• exercising their powers only for the purpose for which they were conferred and not for any personal or collateral purpose;
• duty of confidentiality to the company;
• avoiding a potential conflict of interest (if any, it needs to be disclosed, and no personal profits may be drawn from it);
• acting in a manner likely to promote the success of the company;
• exercising independent judgment (and not compromising or restricting their ability to exercise independent judgment);
• not retaining for their own benefit or passing to third parties property of the company;
• not acting beyond the powers allocated to them; and
• acting in accordance with the company’s M&A.

General duty of care, skill and diligence:

Any director must act with the skill, care and diligence that might reasonably be expected of them based on the circumstances. In practice, this implies a certain level of competence, a sufficient knowledge and understanding of the business, as well as a proactive attitude.

If directors are appointed for the foundation company from among the members of the community, we generally recommend additional training for them, with respect to the foundation company structure and their own obligations.

Who can receive payments / distributions?

Directors & Officers: YES, in remuneration of their functions, or as contractors (subject to respect of their fiduciary duties and disclosure of conflicts of interests).

Beneficiaries: YES, beneficiaries can be designated from the outset or at a later stage. A typical example would be to designate the community of tokenholders generally and then adopt a grants program to be managed by the DAO consensus and a formal approval by the Board of Directors (which will ensure no rogue, hostile take-over actions can be implemented, and also that the foundation company complies with its legal obligations). Members can be designated as beneficiaries as well. Beneficiaries do not have statutory rights, but they can be given rights in the M&A.

Founders: YES BUT only to the extent that they reserved the rights to appoint foundation property to themselves.

Members: NO, they cannot receive dividends or distributions and this needs to be specified in the M&A.

1. However, members can:
2. be beneficiaries and receive benefits as such;
3. receive reasonable remuneration as directors, officers, etc.;
4. be indemnified or reimbursed for expenses or liabilities;
5. benefit from a loan or other transaction or relationship on terms that are no more favorable to the members than if they had been negotiated at arm’s length; and/or
6. if specified in the M&A, receive benefits from the disposing of surplus assets on winding-up.

We generally recommend that the foundation company establish a grant programs and distributions policy, to be approved by the Board of Directors and the DAO consensus mechanism. The foundation company will only be able to act in accordance with its objects, and will only be able to carry out operations which are not regulated in the Cayman Islands.

The flexibility allowed to the foundation company in terms of corporate governance carries over to the resolution of disputes:

• the M&A may provide for the resolution of disputes by arbitration or by any other lawful method; and
• the M&A may also include mechanisms for dealing with changes in circumstances.

Upon a request by the Secretary, any Interested Person, or any other person so authorized under the M&A of the foundation company, the Grand Court of the Cayman Islands (“Grand Court”) can also step in and (i) appoint or remove Directors or Supervisors, alter the M&A with regard to such appointment or removal, and alter the powers, duties and other terms of their appointment; or (ii) make orders for the winding up of the foundation company, including on a just and equitable basis.

This ensures that there is a safety net and a way to resolve disputes even if the mechanisms originally included in the M&A do not work for any reason.

We generally recommend that the DAO consensus mechanism be tested, as well as any conflict resolution mechanisms, before the Bylaws are finalized and any provisions in the M&A with regard to conflict resolution set in stone. Although applying to the Grand Court remains a possibility, this has not been tested, and will be an expensive process requiring local Cayman counsel.

I hope this post has been useful and will serve the community. Thank you for reading.

[Kentphilly]

Very helpful, a Caymens entity is my suggestion and once we have more community support I plan to follow up with specific questions.

One question for now, what’s the cost and timeline to get live with your org to setup the entity @JupiterBlock?

From my research and talking with Campbell’s Legal the cost is ~$10k to start and ~$15k total for the first year.

Thanks.

[JupiterBlock]

Sorry, I am just a consulting firm and do not provide setup services. The quote is not the cheapest option, but is reasonable if it includes the budget for the legal work for the M&A and Bylaws being customized for your DAO consensus mechanisms and the Government, registered agent and Secretary fees. Cayman foundations are not the cheapest structures to maintain but so far they are superior to other legal wrappers for DAOs. I know the Web3 industry has been looking at various options. Where I can support if there is interest is with education, and I am also developing a decentralized risk management framework - so far the risk management for DAOs has been siloed with most of the work focused on financial, legal, security audits, etc., but I want to help DAOs apply an integrated approach via Risk Dashboards and Guardian Roles development.

[Kentphilly]

Terrific, your insights are very helpful and look forward to hopefully working together ahead on education and risk frameworks. Thank you.

[Kentphilly]

@JupiterBlock - are you available for a call to discuss some of our open questions on getting the Caymen Foundation started? If yes, can we connect via email (i’m help@cryptostakingguide dot com) or Discord (@kentphilly) please?

I’m hoping to get some help with template suggestions for the M&A and suggested (generic) by-laws and advice on how to pick the legal counsel for this project. If all goes well, the DAO can allocate some of this grant to retroactive payment for some of your help in assisting the DAO to get the foundation setup with best practices and lower costs than only working with a law firm to get advice.

[JupiterBlock]

Happy to connect and set up a call to discuss. Together with a few others, we are building a few projects which could serve communities such as this.

[Kentphilly]

Thank you all for helping to approve this Temp Check with 100% unanimous support.

Now we get to define the foundation and the open questions for the entity.

Here and below is a working document to help the community answer the open questions for the Foundation.

Blockswap DAO Foundation Notes [Public]

Please provide your input and suggestions on our open questions and share your ideas for how best this entity should be setup to serve the community.

Once the foundation’s constitution, by-laws, and outstanding questions are answered then we can move to an official Tally vote on-chain. Thank you.

[Kentphilly]

Here are estimated costs to get the Foundation started. I’ve had two calls with leading law firms in the Cayman and I suggest we move forward with the smaller, less expensive, and also experienced firm Loeb & Smith.

Please see this document for all of the costs estimates. The management fees are the largest part of the budget and also the most unknown. If the community has limited involvement it may require more time for a few community members to get this launched and managed correctly.

To get started the Legal fees are $4,580 and the management cost is $3,000 for a total of $7,580. The payment will go to this address below, then converted to USD and then sent to the law firm (Loeb and Smith).

Payment address: 0xf0da4128a4ed2ed3ffe5d8618a6e002f338b8e52

If anyone wants to help get the foundation off the ground, help identify the board of directors, or be a board of director, please respond here.

All comments, suggestions, and feedback are welcome.

Cheers,
Kent

P.S. Since there is very little liquidity of BSN on the market the payment amount will need to be increased to account for slippage, transaction fees, and conversion into the traditional banking system. See below for the current exchange rate to get ~$4,600 of BSN in crvUSD on Curve

[Kentphilly]

The first payment for the Foundation is underway. This payment is 4,260,820 BSN of which the minimum amount will be converted to USD to pay the law firm.

The law firm, Loeb Smith, also suggests that the Blockswap DAO setups up a management entrustment agreement between the Foundation and DAO. This will be an extra ~$4,600. I am investigating if we need to have this agreement and how we can minimize costs while also being compliant.

The total estimated costs will continue to be updated in this Foundation Budget and once finalized, will be presented to the community to approve or advise on how to manage.

Lastly, I believe Gitcoin’s Cayman Foundation is what we may want to follow as it is a simple model, with limited influencers, and control of the Foundation lead by the BSN token holders. You can see the Gitcoin’s Foundation strategy here.

[Kentphilly]

Updates on the Foundation

Requests for Help

The DAO is looking for BSN Community members to join the Advisory Council and/or fill other important roles for the Foundation.

Strategy

Our legal team (Loebb Smith) advises that the Blockswap DAO needs a management entrustment agreement between the Foundation and the DAO. This will ensure that the Foundation has to follow the on-chain voting decisions of the BSN DAO.

Budget

This additional legal agreement will cost ~$4,000 and now the total budget for the foundation has been updated below. The management costs are still low and likely off.

As a note. It will be great to be able to pay market rates for top talent of the BSN DAO one day. For now keeping the costs as low as possible and building up demand for BSN will lead to more options for the community ahead.

Next Steps

I am working on the KYC process with the law firm and preparing to pay for 1/2 of the legal costs to get started.

Afterwards, I’ll need to raise another grant for more funding for the 2nd half of the legal fees and management costs to meet the above budget.

All questions and comments are welcome. Thanks