YIP-63: Fund Builder-First Legal Activism DAO

[lex_node]

YIP-63: FUND A BUILDER-FIRST LEGAL ACTIVISM DAO

Authors

@andre.cronje @tracheopteryx @lex_node @judge_jowday @sh_brennan @birdman_haxxor

Summary/Abstract

Amidst intensifying regulatory scrutiny of DeFi, we propose that Yearn contribute to a new LeXpunK_DAO dedicated to legal advocacy for yearn and other builder-centric DeFi communities. The LeXpunK_DAO will be governed by builders from contributing communities (including yearn) and practicing lawyers from the LeXpunK Army. 5% of the current supply of L3X, the non-transferable reputational token of the LeXpunK Army, would be airdropped to YFI holders who support this proposal, to enable direct sentiment polling on relevant legal issues from the Yearn community. LeXpunK will effect additional airdrops from time to time, proportionally in line with the relative contributions of other builder communities, with the goal of forming a broad coalition to pool resources for funding shared advocacy goals.

A similar proposal is being made to Curve governance, here: Fund a builder-first legal activism dao - Proposals - Curve.fi Governance. We also aim to make similar proposals to other value-aligned DAOs and prominent ecosystem builders if the Curve and Yearn proposals are successful.

Status

This proposal is currently in the voting phase.

Cast your vote on Snapshot.

You can learn about our voting rules in YIP-55.

Motivation/Rationale

Growing mainstream awareness of DeFi is coinciding with institutional outrage over the “Wall St. Bets” phenomenon and political change in the United States to brew a perfect storm of aggressive legal threats against DeFi:

• mainstream media calls DeFi a “shadow financial market” and warns that regulatory action is imminent
• new SEC Chair Gary Gensler concludes a recent speech to the American Bar Association Derivatives and Futures Law Committee with a warning that many DeFi platforms may involve securities swaps
• CFTC Commissioner Dan Berkovitz, having googled DeFi, positioned it as being squarely incompatible with the policy of ‘mandatory intermediation’ enshrined in CFTC regulations on leveraged retail commodities transactions and commodities swaps and referenced unfair advantages DeFi has to TradFi due to the lack of regulated intermediaries
• many blue-chip DeFi projects have already been called in front of regulators or are receiving SEC subpoenas and are forming organized political lobbying efforts which may have distinct and zero-sum goals

DeFi is a DAO of DAOs. These DAOs have many shared goals. For instance, we all aim to build, use, and enjoy open financial technologies. However, DAOs also compete with one another and often differ in ethos and strategy.

Existing advocacy orgs like the Blockchain Association, Coin Center, and the Uniswap-funded DeFi Education Fund have mutually overlapping membership and staff which are heavily intertwined with Silicon Valley venture capital funds and traditional crypto businesses like Coinbase. Many of the teams most directly represented by these organizations have pursued dual token/equity strategies, which means they also seek to accrue value to their equityholders through KYC-gated and censorable forks of their protocols which will cater to institutions and ‘fintechs’.

Builder-centric, bottom-up communities like Yearn, Curve, and SushiSwap have a different cultural ethos and a different story to tell. We are spontaneous, cryptonative communities of builders that have no TradFi backup plan and value openness, lack of hierarchy, and creativity above all else. Thus, we should have our own unique voice in the evolving regulatory landscape, and by doing so we may be able to make or emphasize lines of legal argument that are not as available to other kinds of projects. After all, the former head of the SEC’s CorpFin division views “sufficient decentralization” as the point where traditional regulations end, and there is nothing more decentralized than a community of builders, users and investors that come together with no contracts or rules, no board of directors or stockholders to answer to, yet somehow build remarkable innovations together.

We believe that cryptolaw should be done in the crypto spirit. If DeFi communities want to show regulators, lawyers, and politicians what is special about DeFi, then Orwellian-named trade associations and non-profits staffed by D.C. insiders are not the best way to go. Instead, we should present ourselves as we are–as DAOs, as token communities, as builder communities. The values underlying these modes of expression are too important to cast aside in the name of expediency when the going gets tough and there are legal threats. On the contrary, the values of openness, transparency, and decentralization are DeFi’s greatest defense to traditional regulation and should be front-and-center when regulators and politicians interface with DeFi communities. This is why LeXpunK was created–to bring lawyers and builders together under a shared ethos that is as disruptive to law as it is to finance.

Through a new, community-funded LeXpunK_DAO, we will not merely hire existing lawyers or fund existing traditional advocacy groups–We will bootstrap a new community of lawyers and builders working side-by-side to legitimize and protect shared creative values. This community will become a flywheel unto itself and yield benefits long after these initial donations are spent and far beyond the benefits of the specific projects these donations end up funding.

Specification

Overview

LeXpunK_DAO will mix long-term strategic advocacy campaigns with rapid-response ‘guerilla lawfare’ raids. LeXpunK_DAO will be structured either as a Moloch DAO, Gnosis multisig, or other DAO implementation; in any case, with balanced representation of LeXpunK Army members and representatives of the contributing DeFi communities. Un-committed contributed funds will be ‘ragequittable’ at the discretion of each community’s representatives. We estimate that $1M from Yearn and $1M from Curve would provide a sufficient starting point to get the ball rolling (this is far less than the massive warchest recently raised from Uniswap to fund already heavily VC-/Silicon-Valley-backed advocates).

A. Campaigns

Campaigns are major strategic initiatives, such as:

• a landmark position paper advocating for positive analysis under securities law, commodities law or tax law of Yearn-relevant DeFi primitives such as flash loans, vault strategies, CDPs, and deposit-claim tokens (e.g., yAssets)
• a legal defense of DeFi developers against regulatory litigation;
• proposed ‘safe harbor’ legislation legalizing key aspects of DeFi;
• if/when the SEC files a case premised on a novel, expansive view of securities laws that could adversely affect DeFi builders (for example, that all project participants are collectively responsible as an ‘unincorporated association’); the LeXpunK_DAO would file an amicus curiae brief in the litigation

Campaigns will be defined with thorough specifications and funded with pre-announced bounties. Campaign fulfillment will be by teams hand-picked by the Advocacy Fund Multisig. Relevant experts–both lawyers and developers–will be recruited from within the LeXpunK community, other DeFi communities and, if needed, from traditional law firms; these will be our ‘MandDAOlorians’ working for a piece of the bounty. A ‘taskmaster’ will be assigned from the most trusted ranks of the LeXpunK Army–typically an experienced attorney–who is not eligible for the bounty, but receives a flat fee to monitor the working group’s progress, help remove blockers and make the final determination of when the project has been completed to spec and the bounty is due to be paid. Upon project completion, the team members themselves will decide how the bounty should be allocated, using another yearn ecosystem offshoot–coordinape. Campaigns will be pre-checked with the LeXpunK community through L3X snapshot polls.

B. Raids

Raids are rapid-response initiatives tailored to respond to current events in realtime. Examples of raids would be:

• a politician like Elizabeth Warren sends an adversarial public letter regarding DeFi to a regulator; the LeXpunK_DAO funds a rapid public response detailing community views about her questions;
• a contributing DeFi protocol suffers from a hack or exploit and the team needs help coordinating with law enforcement or CEXs to help block or recover funds
• builders from a contributing community receive an informal SEC inquiry; the LeXpunK_DAO helps strategize and marshal a legal team to defend the builder

Raids will be funded on an emergency, ad hoc basis at the discretion of the LeXpunK_DAO.

Conclusion

The time is now. Let’s do cryptolaw the crypto way.

Vote

Non-Binding Forum Poll

• Yes, I support this proposal.
• No, I am against this proposal.

Binding Snapshot Vote

Voting is live!
https://snapshot.org/#/ybaby.eth/proposal/QmPK9AqeoV6v5xeuiTeFcj9Px7y87KMQ1gGhvHft2GMtqE

References

Read up on LeXpunK:
(1) LeXpunK: The New Legal Praxis
(2) Autonomous Lawyering
(3) Rise of LeXpunK Army

Copyright

Copyright and related rights waived via CC0.

[banteg]

Considering the alternative of VC-affiliated lawyers speaking on behalf of all DeFi, while at the same time investing in privacy-destroying tech to maximize their profits, I see this proposal adding a well-needed balance to represent builders’ voice.

@lex_node has a solid track record in our space, unlike some student org plucked out of nowhere. I’ve seen his transformation into a fully crypto-pilled person in real time and it’s been mesmerizing. LeXpunK is an order of magnitude that, it can recruit an army of lawyerghs and make them use Github and discover new amazing forms of activism.

He’s been a long time supporter of Yearn, for example, he wrote a recereational memo which has helped a DAO full of imaginary characters onboard several high-caliber partners.

It’s also great to have such builder-centric project as Curve being pitched that proposal. It’s a great choice and a great alignment of values with Yearn. I hope both our communities support it, the future is dire, but we are in this together.

[lefterisjp]

I am not really present in yearn governance and hold very little YFI but I would wholeheartedly support this proposal.

Having a guild of people with legal background and builder background empowered to help builders in this space is going to be paramount. It’s the missing piece of the puzzle so to say.

Every single thing we do, in every project has the hovering question, “but what about legal?”, “what about regulations”? Projects have died or faded to obscurity due to inability to comply with regulations or due to paralysis and fear of legal matters.

If we can solve that with a way that is aligned with the web3 values of openness and transparency as is suggested here I strongly believe it would be one of the best things to happen in this space. Nobody here wants to be illegal or break the law in any jurisdiction. All we want is the ability to operate under a clear legal framework. Clarity, clarity, clarity above all.

Also really love the idea of pitching this all to other value-aligned communities and can’t wait to see their response.

[saltyfacu]

This proposal is great and I think we need this. We need to protect builders from regulatory litigation.

My only concern is that it only refers to the US and at Yearn there are many devs that do not reside in North America.

Is LeXpunK_DAO going to be able to protect them also?

[lex_node]

this is a great question

my $0.02 is that very few projects & builders are beyond U.S. jurisdiction:
(1) many countries (other than ‘havens’) will follow U.S. lead; we are already seeing this with regulatory pressure on Binance in the UK
(2) SEC successfully throttled a project launched by a BVI entity owned by two wealthy Russians (Telegram)–this is because crypto trading is permissionless, and launching a token without precautions against it winding up in U.S. hands is probably enough to establish U.S. jurisdiction for many purposes
(3) historical havens (Caymans, etc.) are tightening up and passing crypto regs; in some cases they are more burdensome than current rough consensus around interpretation of U.S. law (for example, Cayman VASP rules come straight from FATF, vs. FinCEN’s interpretation of BSA which seems a bit more flexible)
(4) U.S. is investing by far the most resources into enforcement and is thus the biggest ‘threat’
(5) U.S., while having heavier financial regulatory regime, also has one of the most powerful civil rights regimes–constitutional arguments against some of the more expansive proposals for regulation might ultimately be the thing that saves many aspects of DeFi / crypto from regulation, albeit it will be a long battle

that being said:

• policy is global, not local–this means that “Campaigns” should inherently bake in a global strategy when articulating the right policies
• I absolutely think the issues are ultimately international and that LeXpunK_DAO should fund cryptolaw advocacy in other jurisdictions and relevant to law of other jurisdictions–this comes in more at the ‘raid’ level and so it is important that we form some non-U.S.-centered working groups in the LeXpunK Army community so they are ready to go when a raid is needed in other parts of the world

[lex_node]

somehow messed up the threading, but see reply below

[lefterisjp]

Thank you for this answer. As a German resident I have the same concerns. But couldn’t LexDAO have jurisdiction-specific chapters? For example in Germany we have the Bundesblock which is trying to affect policy around blockchain and educate regulators: https://bundesblock.de/

LexDAO could have chapters on each jurisdiction with people with skills/knowledge in the respective jurisdictions who can help.

[tracheopteryx]

I just added the non-binding forum poll – apologies for the delay. Please signal how you feel about this proposal by voting above.

[lex_node]

this would be a great approach as LeXpunK expands

[topcat]

Agree with everyone about making sure there is international focus. If there is a set of countries like El Salvador then the US will be highly likely to follow and have a model that can be pointed to. In the absence of that it will be an uphill battle against the lobbyists representing legacy interests.

[monet-supply]

@lex_node

Many of the teams most directly represented by these organizations have pursued dual token/equity strategies

Unless I’m mistaken, Curve’s IP is controlled by a private company for the benefit of equity holders, not the DAO. I’m not sure if there’s a meaningful distinction between Curve and eg. Uniswap in this regard.

How does lexpunkdao plan to determine which orgs are “community driven” and worthy of membership or defense?

I fear this will be driven by narratives and other extraneous factors rather than operational realities. eg MakerDAO is fully decentralized (from an ops perspective), but still has significant ownership in the hands of past private investors (including Paradigm, a16z, and other silicon valley VCs). Should a potentially exposed contributor like myself expect solidarity from this initiative?

[0xau]

How about we coordinate with the EFF on this one?

EFF

[onlylarping]

i’m thrilled to see this effort. thank you, fully supportive.

it seems like half the battle might be getting our message seen and heard by the right people. at some point i’d be curious to hear how LeXpunK_DAO’s strategies on message distribution evolve. reading the YIP above, it feels to me like the spirit of LeXPunK_DAO is probably lighter on traditional lobbying than some of the advocacy groups established to date. if that is correct, i wonder if that means we’d need to go a bit heavier into media production and public relations to be effective?

on a somewhat related topic, i’ve noticed that some well funded crypto cefi firms like blockfi and celsius might be intentionally conflating their business models with decentralized finance. perhaps this is just their own marketing or fundraising spin. but it appears to have already confused the wsj, the nj ag and even perhaps, reading the tea leaves, the SEC. i’m not sure if this is a threat or an opportunity, but it feels coordinated and it’s been bugging me.

[crabsinger]

Yes! Would love to see a group of different entities all signing on together to “don’t do this”. Power in numbers!

[silent_avenger1]

“The only thing necessary for the triumph of evil is for good men to do nothing.”

In favor. Help face the final boss.

[zenzen-sol]

I fully support this proposal. It’s critical to adopt a builder-first approach. This effort can’t be delegated to mercenary experts who stand to gain from a protracted fight in closed-door sessions.

On the contrary, the values of openness, transparency, and decentralization are DeFi’s greatest defense to traditional regulation and should be front-and-center when regulators and politicians interface with DeFi communities.

This is so important, and I would take it even further. I’d like to see this collaboration grow into a full-blown self-regulatory effort. Ideally, the collaboration between Yearn, Curve, and LeXpunK (and other communities) should result in thoughtful, actionable self-regulatory guidance for the decentralized economy at large.

To date, the efforts of activists in this area have been mostly reactive. Lawmakers or regulators float some flawed rule, and the decentralized community scrambles to make it “not fatal”.

Rather than letting the agents of the status quo take the first shot, we should be drafting the rules. Unlike other self-regulatory bodies or policy think-tanks, this collaboration would be driven by broad consensus of builders and users—not a star chamber of experts with dubious incentives.

At this point, the legitimate objectives and priorities of lawmakers and regulators are well-known. It’s all over the talking points: protecting investors from hidden risks, collecting taxes, avoiding obvious criminal activity, etc. We know the days of being “left alone” are over, so the task at hand is to make reasonable compromises on terms that we can live with.

The proposal covers the necessary tools to do this effectively:

1. Builders and users with deep domain knowledge of how the decentralized economy actually works.
2. DeFi-friendly lawyers with deep domain knowledge of the legacy rules and a reasonable budget for enlisting other experts, purchasing access to lawmakers, etc.
3. A fair and reliable mechanism (LeXpunK_DAO) for hosting debate and establishing community consensus around thorny issues.

Decentralized finance should be the proving ground for application and improvement of these self-regulatory rules and testing them against real-world experience…before they become laws on the books.

After 20+ years of conducting all sorts of negotiations as a transactional lawyer (often on behalf of the TradFi giants), my experience is that the best way to get your adversary to concede is to make it very, very easy for them to agree with you. Specifically, give them a way to concede their position without doing any work or feeling like they lost anything.

If we do this correctly, lawmakers will work from the foundation we build for them, and everyone comes away with mutual respect intact and goodwill for the next time we need to work together.

[Eagle]

This is a very important proposal that I fully support, given also the skills and high quality of the involved proponents.
I agree with everything written in the post.
Nevertheless, in the light of the important aim, I would avoid LexPunk to assume a too aggressive approach with respect to traditional lawyers and regulators. In the end, the goal is to impose a DeFi friendly line of reasoning based on the deep understanding of the ecosystem and a solid legal preparation. In my opinion, LexPunk should not appear as the revolutionary niche of cryptolawyers fighting for the independence of the DeFi movement.

[lex_node]

This is a great question; one, ultimately, that should be answered by the LeXpunK Army as it evolves, as well as by the representatives from each contributing community when considering adding new contributors to the LeXpunK DAO.

I don’t think it’s possible to define an a priori formula, but my own view is that VC money as such is not a problem and VC input as such is not only not an inherent problem, but could in many cases be helpful. The question is whether there are binding structures in place–such as discounts, NVCA-style veto rights, information rights, fiduciary obligations the dev team owes to VCs, a ‘board of directors’ operating in private, a business plan focused on driving value to equity that could redound to the detriment of other members of the community, etc.–that create a systematic bias that doesn’t jive with the ‘builder-first’ mentality.

I am sure every community could do some things better in terms of openness, preventing role entrenchment, avoiding or disclosing conflicts of interest, improving governance process, etc. In the case of yearn and curve, I personally feel confident that they are naturally synergistic, not rigidly hierarchical and not beholden to off-chain stakeholders in a systematically biasing way. Thus, it makes a lot of sense for them to collaborate on this. I think at this time this is almost certainly true of MakerDAO as well, especially given its massive push to decentralize into separate autonomous teams this year (I don’t know whether at earlier times VCs had concerning types of rights over the relevant entities/people, but seems irrelevant now in any case).

[jmylibby]

Hey guys, I love this.

Note1 .I’ve been discussing with a lot of lobbysists about how to approach keeping this industry alive as we begin facing this question. Here was my feedback. Gather 3 - 4 legislators and get them strongly behind defi. The ones you lock-in need to have a base. 1 one the people you lock in should be from the opposite party.

Note 2. Even with all this pushback from the SEC regulation is still years away and now that defi is starting to flesh out, we can begin to organize and get ahead of future regulation. If we get ahead and gather a small team of supporters we can get start influencing legislation as long as we have the correct backers with the correct influence and in the right committees. (This is actually very possible).

Note 3. Polling has apparently been very poor for democratic party across the board. It is very likely the house will be owned by Republicans by next election cycle.This means that we can likely push regulation in our favor by next election cycle and begin establishing precident. I have people putting together a list of stratgic partnerships and potentially a PAC to help get the support for good regulation for this space.

I’d like to support this any way I can. Let me know how I can help

[cnumber]

Great initiative!! Very important to have these conversations out in the open and start building consensus . This will help all parties involved, both the regulators and the regulated. This effort will help highlight the fact that not all of defi is the same. There is a wide varity of approaches and motives for the actors involved in defi. This needs to highlighted and reflected in future regulations. This is as much a public relations campaign as it is a regulatory one.