Proposal: Fund Nouns Foundation setup and 2022 operations

Proposal: Fund Nouns Foundation setup and 2022 operations

Why the Nouns Foundation?

Nouns was initially created as an experiment by 10 Nounders. Shortly after launch, it became clear that the idea had ‘product-market-fit’ and the Nounders collectively agreed that it would not be feasible or safe to have an on-chain organisation at Nouns’ projected scale without a real world counterpart to address potential legal and regulatory concerns.

Additionally, it would be unlikely that Nouns would succeed in building ‘the world’s largest open source brand’ without a legal entity to interface with non-crypto-native organisations. With the assistance of legal counsel and global tax advisors, the Nounders set out to create the Nouns Foundation. The Nouns Foundation permits the DAO to have (by proxy):

  • Credibly neutral hosting for centralised infrastructure
  • Lawyers and Accountants on retainer that work in the interests of the DAO
  • A bank account and other fiat-based infrastructure
  • A crypto-friendly jurisdiction to call home

What is the Nouns Foundation?

The Nouns Foundation is a Cayman Foundation Company:

Cayman Foundation Companies take the form of a traditional company limited by shares or guarantee but with certain characteristics of a civil law foundation. A Cayman Foundation Company is a body corporate with a legal personality distinct from its directors and other connected persons. As it does not normally have a shareholder or member Cayman Foundation Companies are considered effectively “ownerless”. Day-to-day management of a Cayman Foundation Company, including the investment of the foundation company’s assets, is conducted by its board of directors in accordance with its memorandum and articles of association.

The directors of the Nouns Foundation are obligated by its articles to ‘at all times act in the interests of the Foundation Company and its objects’. The objects for which the Nouns Foundation is established include facilitating the growth and development of the Nouns DAO and Nouns Protocol.

As a Cayman Foundation company, the Nouns Foundation has some special constraints:

  • The Nouns Foundation is not meant to accumulate wealth. Any amount sent to the foundation will be spent for the benefit of the ecosystem. Funds that are sent to the Nouns Foundation can’t be sent back to the DAO.

  • While we have no intention of winding up the Nouns Foundation, should it happen, the Foundation will have a named beneficiary that will receive its assets. This named beneficiary has not yet been selected but will be a charitable organisation that accepts cryptocurrency.

How was the Nouns Foundation Created

Who is currently on the Board of the Nouns Foundation

Noun 40

Noun 40 is the cofounder and CTO at Bitwise, a crypto specialist asset manager working to bridge crypto and traditional finance. Before Bitwise, Noun 40 served in the Korean military doing software security research.

Dor Levi

A founder in the crypto space with an established record of tech leadership. Prior to crypto, he served as an executive at Lyft, working on Shared Rides, transit and micro-mobility.

Campbell Law

Campbell is the founder of Silverside Management, and one of the founders of Provenance Ltd and has over 25 years’ experience in the financial services industry in the Cayman Islands, including 11 years as a VP at Goldman Sachs.

Vapeape

Vapeape is a technical entrepreneur and investor in the crypto space and has managed product and engineering teams building in CEX, DEX, L2 (Lightning), DeFi, staking, and MEV. Co-founder of Nouns.

4156

4156 is an entrepreneur, investor, prominent NFT collector, and the ‘inventor’ of the Nouns protocol. He has been active in the crypto space since discovering Bitcoin in 2013.

Dom Hoffman

Dom is an artist and entrepreneur. He is the creator of the NFT projects Blitmap, Loot, and Corruptions. In a previous life, he was the creator and founder of the short video app Vine.

[TBD]

We are in the process of appointing a second Cayman-based director

How did we select the board of directors?

The initial board members were selected for their integrity, proximity to the project, and a demonstrated track-record of entrepreneurship in the crypto space or expertise in the relevant jurisdiction.

What will director compensation look like?

In year one, directors will be compensated in line with fair market value for Cayman-based foundation directors. Each director will receive 30,000 USD equivalent for the first year of directorship, unless otherwise specified in a services agreement.

Should the DAO elect the board of the Nouns Foundation?

Given the complexity of initial Foundation setup, and time constraints related to creating the Foundation, the initial board was not elected by Nouns DAO.

The Foundation is requesting funding for 2022 with the current board of directors, and asking the DAO to evaluate our performance and use this information to determine a suitable process for board selection in 2023.

Proposed 2022 Budget:

Please note that this budget contains significant one-time setup costs.

8 Likes

Re: the Veto rights (“Proposal Veto Power” in IP transfer section), can you speak to whether the Foundation will be positioned to wind down the Veto rights? This has been a sticking point for some in the community and my sense is that it would be easier to get an ad-hoc group of Nounders to dissolve that right than for a Foundation like this to do the same

Could we get some form of pre-commitment as to when and/or under what conditions the Foundation would dissolve the veto power as part of funding this consideration?

The director compensation and budget look fine to me. But a question on that – were we to fund X ETH worth $1.42M, would all of that ETH be sold to cash as soon as executed? If not, and there’s a surplus or a deficit when it comes to actual fund $'s what happens to that surplus/deficit?

Also, thanks for all the hard work blazing this trail by the Nounders, Nouners, helpers and Cayman professionals involved!

Cheers,
12, 24, 156

Fascinating to read, thank you for sharing.

image

Nice :pinched_fingers:

5 Likes

i think the veto issue is very complicated, and to me it’s the single largest flaw in current design of the organization. at the time we created the project, our naive thinking was that we could simply abolish the veto once the token supply was sufficiently large, because it would be too difficult for someone to acquire a majority of votes to attempt to withdraw the treasury. i think we were very naive about the power of bribery (in the form of ‘i’ll pay you to vote yes to help me withdraw the treasury’) and voter non-participation.

our current thinking is that the organization would be 10-100x more likely to fail in the absence of the veto than it would by the hands of a malicious vetoer. that said, i agree that the veto in its current form is not satisfactory, and that we need to find a better solution (easier to discuss via voice, but i don’t think rage_quit() is it).

so given that we (imo) aren’t currently ready to remove the veto, and we also don’t yet have a credible way to improve the veto, the question becomes: is the foundation more or less trustworthy than the nounders with the veto.

in some sense the question is moot, because for legal and tax reasons the nounders don’t want the veto. our advisors can speak more eloquently here, but the veto is the most obvious form of ‘control’ of the organization and could possibly confer tax or other legal responsibilities that represent too much personal risk at the current scale of the org.

for some of the same reasons, it’s beneficial for the foundation to own the veto, because it places that element of control inside a jurisdiction and organizational framework that is the friendliest in the world to what we’re trying to achieve.

as a fellow crypto-native / decentralization maximalist, i understand that none of these answers are really satisfactory, but imho they’re currently the best we can do. figuring out a secure way to upgrade the veto so that it’s maximally decentralized, but still executable in the face of a bribery attack is probably the best long term solution, and the thing we should work towards to maximize the odds of the long-term survival of the project.

re: your second question, the foundation probably isn’t in the business of speculating in ETH, but to the extent that the DAO is, we might reduce future funding requirements and therefore maintain (net) leverage by holding ETH in the foundation too. there’s a note in the initial doc about what happens to excess funds - they will either be spent to the benefit of the DAO, carry over to next year, or in a wind up scenario, be donated to a crypto charity of the DAOs choice

4 Likes

I know this was a huge amount of annoying work & appreciate the substantial time/financial risk assumed in getting the proposal to this point.

hope dao members insist the memorandum/articles of assoc & any operational docs/bylaws be made available to members of DAO for review. I’d think personal information could be removed if that’s sensitive… DDC may also want to review legal expenses etc

2 Likes

It seems that a large part of the rationale for setting up such a foundation is to hold veto power that Nounders don’t want for “legal and tax reasons.”

Perhaps it makes sense for the Nounders to compensate the foundation with some percentage of their share of future Nouns issuance.

1 out of every 50 nouns (1/5 of Nounder allocation) seems reasonable to me. This roughly works out to 7 nouns per year, which, at current market prices of 75 ETH/Noun and $3000/ETH, could continue to fund the foundation at current burn rate in perpetuity. I see this as an endowment the foundation could use towards its ongoing operational costs.

1 Like

i see the attempted rationale here, but from where i’m sitting it doesn’t feel fair. even if the org had no additional utility to the DAO (as per bud light etc. it most certainly does), the nounders brought this project into the world at great personal risk and with compensation significantly below fair market value. i’ve spent the last 2 months setting up the foundation with ~200k of my own personal funds. the organization we created is sitting on 50m+ and aggregating 300k per day. the least it can do is use 5 days worth of auction proceeds to bootstrap its own foundation

6 Likes

does the FC have any natural /enforceable alignment with the dao beyond the circumstance of 3 nounders (and some others with varying levels of skin in the game) sitting on the current board?

if dao/fc are unable to reach a funding agreement, what long-term mechanic ensures the FC continues to use the veto to secure/protect the treasury?

I am wholly supportive of this

Simply put, I think we need these structures in place to take action and get shit done. I appreciate the concerns other members have raised, and I totally share their sentiments regarding long term incentivization and decentralization related to the foundation and the nounder veto specifically

I think the foundation can work to address these issues over time, but at the end of the day I view this in the same way I view my decision to join the DAO. I trust in the Nounders and their vision for this project, I think they are acting in good faith and I think the foundation is just a piece in the larger vision that I signed on to support/further

7 Likes

Love this. This is where many crypto based companies/projects fall short; not having an IRL entity. At the end of the day, we are still very early, so the need to bridge between crypto native and non-crypto native people/groups/businesses is very real.

Having a well structured entity such as what you’re proposing is necessary in my opinion and I wouldn’t be surprised to see other projects follow suit.

6 Likes

hey wag, i’ve given this a great deal of thought since you posted it and i think we’re not inclined to circulate these to the broader group for the following reasons:

  • the documents represent the aggregate expertise of many individuals across 3 different firms (tax consulting, U.S. law, Cayman law). it seems unlikely to me that individuals from the DAO reviewing the documents word for word will contribute meaningfully to the conversation around how the organization should be structured

  • there are considerations here not just around the privacy of the individuals on the board, but the private practices of the firms that we’ve engaged. the investment of time to clear broad publication of the documents with all stakeholders is not something i’m willing to commit to right now

  • while the DAO itself is maximally trustless, on-chain, and transparent, the Foundation is ultimately controlled by its directors. these directors have a great deal of managerial discretion within the org, and constraining their abilities with the founding documents should not be one of our goals. rather, our goal should be to put in place directors that we think are the best possible stewards of the organization. we should vett the directors, not the documents

  • once again, open to re-vising the above if there is broad consensus from the DAO. we did the best we could with the constraints we were given, and i think the org will fulfill it’s promise of being a good steward of the veto power and providing real world infrastructure for the org and a home in a suitable jurisdiction.

On the question of showing receipts for legal expenses, happy to do so (with personal details redacted) if the DAO prefers, but the brain damage feels high relative to risk that this was an elaborate (and highly inefficient) plot to steal eth from the org.

3 Likes

gladly relent on the expense/reimbursement issue.

the FC is effectively now part of the NounsDAO Protocol. If broad circulation is not possible, then maybe a compromise through the DDC is.

1 Like

This is great. A foundation.
Nouns on its mission to be the Ethereum equivalent of PFP NFTs.
Best of luck to the team.

1 Like

This was an immensely interesting discussion. Corporate governance law has been an iterative process for a very long time and it seems unfair to assume that DeFi would have figured out all of the right answers already. I am not a lawyer, but do sit on on corporate boards, and can attest to the complications involved in traditional finance governance even today. I will offer my opinion here that the Nounders are attempting something completely new and deserve both the benefit of trust and compensation for their creation.

3 Likes

thanks for the feedback everyone. this is now on-chain here:

This proposal clearly seems like a much needed step to advance Nounders initiative, particularly when doing deals IRL.

However, I think Nouns would benefit if there was a bit more clarity around some of the expense line items here and the one-time setup costs.

I think transparency should be first and foremost, particularly since funds sent to the Foundation can’t be sent back to the DAO. In no way do I think this is an elaborate nefarious scheme, but disclosing details feels important to clear any doubt whatsoever.

It would be great if we coould get clarity around these issues:

1- How is this organizational structure different from a more traditional Cayman Island Foundation company that costs ~$10K?

2- Can we see the receipts backing 4156, Dom and 2021 reimbursements?

3- The contingency piece is a bit broad. Could you share how many people you plan to hire, hourly rate, and expected hour commitment?

This is the most reasonable DAO I’ve ever seen, hope to see a project that can change the crypto world with my own eyes