YIP-XX Convert Ychad.ETH into a cyBernetic ORGanization (BORG)
This proposal is divided into multiple parts due to forum sizing limits
Part 1
Intro
This is a proposal by MetaLeX 1, prepared in informal consultation with ychad.eth signers and other Yearn contributors, to convert ychad.eth into a cybernetic organization (BORG 2) by:
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“wrapping” ychad.eth’s multisignature smart contract and signers into an ownerless Cayman Islands Foundation Company to create legal personhood for ychad.eth, achieve jurisdictional clarity for purposes of taxes and regulations, and achieve limited liability for ychad.eth signers;
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adding BORGs OS smart contracts to ychad.eth and connecting them to Yearn DAO in order to create clear onchain checks/balances between ychad.eth and Yearn DAO; and
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creating a bespoke web application for managing information flows and relationships between Yearn DAO and ychad.eth and conveniently executing onchain check/balance dynamics.
The BORGification project would be managed by MetaLeX, and Initial fees/costs would be covered out of Yearn’s prior contribution to the LeXpunK Builder Defense initiative in 2021 (see https://snapshot.box/#/ybaby.eth/proposal/QmPK9AqeoV6v5xeuiTeFcj9Px7y87KMQ1gGhvHft2GMtqE) .
About Ychad.Eth
Ychad.eth is a 6/9 SAFE multisig smart contract on Ethereum mainnet (0xFEB4acf3df3cDEA7399794D0869ef76A6EfAff52) with a longstanding involvement in the Yearn ecosystem. Its current roles consist of:
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executing proposals approved by Yearn DAO (since Yearn DAO voting currently uses veYFI-based-snapshot and lacks intrinsic executory power onchain), though this is currently done as a matter of custom and social consensus rather than a binding legal obligation or onchain mechanism;
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serving as the “Protocol Guardian” with a veto role over Yearn DAO proposals (formalized by YIP-61 and YIP-81)—in effect, this legitimizes optionality Ychad would have anyway not to execute proposals approved by Yearn DAO, and expresses this option as the possibility of a conscious “veto”;
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having certain ministerial, coordination, or emergency powers relating Yearn end-user smart contracts (e.g., vaults) or over assigning such powers to other multisigs; and
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receiving, holding and managing fees generated by Yearn end-user smart contracts (e.g., vaults) for the benefit of the Yearn ecosystem including by funding new R&D with grants, etc.
The Ychad signers (except for one signer sourced from the contributor team) are ‘independent’ reputable DeFi community members with an interest in the Yearn community. There is also a ‘proposer’ role recognized by ychad.eth, which can propose actions to Ychad but not sign them and is held by a full-time Yearn contributor. Ychad.eth signer membership changes are supposed to be approved by Yearn DAO, but currently there is no legal or software mechanism to enforce this convention.
For more on Ychad, see https://docs.yearn.fi/developers/security/multisig
About BORGs, BORGs OS and MetaLeX
MetaLeX is made up of MetaLeX Labs, a venture-backed U.S. technology company, and MetaLeX Pro, a U.S. law firm, who together focus on delivering hybrid legal/tech solutions for crypto projects.
MetaLeX’s offerings include designing, deploying and maintaining DAO-sponsored entities which we term ‘cybernetic organizations’, aka “BORGs”. BORGs are more modular, centralized entities than DAOs, but like DAOs are onchain and thus more transparent, efficient, accountable, and trust-minimized than traditional black-box legal entities. A deeper review of the general nature and raison d’etre of BORGs can be found at the links at the end of this proposal.
Each MetaLeX BORG consists of the following components:
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a tax-optimized, limited-liability legal entity (typically a Cayman Islands foundation company);
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a standard SAFE multisignature smart contract owned by the entity and staffed by the entity’s personnel as signers, which holds any tokens owned or managed by the BORG (usually received from a DAO);
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a set of entity Bylaws legally requiring that the SAFE and its assets to be managed in accordance with specific DAO-approved policies;
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additional smart contract components engineered by MetaLeX, known as “implants” that, connect to the SAFE multisig to enforce the BORG policies onchain;
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various offchain failsafe mechanisms, such as an authorized supervisor, to monitor and legally enforce any BORG policies that cannot be solely enforced onchain; and
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a custom mini-app on metalex.tech, serving as a convenient hub for utilizing and monitoring the BORG.
Every custom BORG deployed by MetaLeX receives the personal attention of a team of engineers and attorneys to ensure a seamless blend of law and technology which balances the BORG’s need for rapid and agile action against a DAO’s expectations for mission consistency and integrity. Our team has advised and assisted with mission-critical BORGs for the zkSync, Lido, Curve, Everclear, MetaCartel and Neutron communities.
We utilize the highly respected and battle tested SAFE ‘smart account’ core code, without modification, which is currently responsible for over 127M transactions and $100B of value of assets stored on EVM chains. Our smart contract ‘implants’ plug into SAFE’s pre-defined ‘module’ and ‘guard’ hooks to safely constrain or expand the SAFE’s capabilities, and are open-source, audited and available for review at MetaLex-Tech · GitHub.
Motivation
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Without a legal entity “wrapper:”
- It is unclear what type of ‘legal thing’ ychad.eth is and what role the ‘signers’ play on it. It could be an “unincorporated association,” a “partnership,” a “tenancy of property in common,” a “joint venture” or something else. Most of the potential ‘implied classifications’ have much worse legal implications than being a Foundation company.
- It is unclear what jurisdiction ychad.eth is “in” and therefore what laws apply, including tax laws. Arguably, without picking a specific jurisdiction, ychad could be subject to the laws of any/all jurisdictions where a signer resides.
- It is unclear what the duties and liabilities of the ychad.eth signers are. For example, if ychad.eth is a common law partnership, ychad.eth signers could have “joint and several personal liability” in certain scenarios if they were sued. Ychad signers could arguably have implied “fiduciary duties” to users, tokenholders, governance participants, etc.—but such duties are more suited for the offchain TradFi world, and, even then, have largely been eroded through exculpation and insurance schemes that are unavailable to ychad.
- It is unclear who owns the ychad.eth “treasury”—this could raise issues under MSB/VASP laws (rules are different for an entity managing its own money vs. managing on behalf of others), as well as ordinary property laws (do all ychad.eth signers own the ychad.eth treasury as ‘tenants in common’—one would hope not, but without an entity there could be gray areas!).
- There is no clear ability to hold or manage “offchain assets” such as domain names, github accounts, etc.—an entity can own these kinds of things, it is not clear that a ‘multisig’ per se can.
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Currently, important yearn-related domain names, social media accounts (x.com), server accounts, and SaaS subscriptions related to the yearn ecosystem are held by heterogenous Yearn contributors with handshake arrangements about how they are to be used in relation to Yearn. These types of assets need to be registered in the name of a particular entity as their ownership is ‘registered’ rather than ‘bearer’. With the Yearn BORG, we can work on getting all these assigned to the legal entity and making them clearly subject to general rules about being used for the Yearn community’s benefit.
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Ychad.eth signers largely serve a ‘community service’ for the Yearn community. They should not be exposed to personal liability at all, unless they commit crimes or similar (more on that below)—no less potentially unlimited/uncapped personal liability. Wrapping ychad.eth in a legal entity and having each signer enter into an agreement saying they act for this entity will typically mean the entity is liable for any issues, not the individuals.
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Yearn DAO and ychad.eth have a putative understanding of their respective roles and check/balance relationship:
- Ychad.eth serves as “Guardian” and may veto proposals approved by the DAO.
- Ychad.eth membership changes should be subject to DAO approval.
- The DAO uses snapshot voting and does not directly control any onchain smart contracts or resources, therefore Ychad.eth must effectively co-approve DAO proposals (as the DAO cannot actually fulfill a proposal without Ychad.eth’s execution/implementation, which amounts to an implicit co-approval).
However, this understanding is not formalized in any legal agreement or software. With a BORG, we can implement this understanding both in code and legal agreements. For example, any membership changes to Ychad will require both Ychad and DAO co-approval, and this rule will be embedded in the code modules (“BORG implants”) installed into Ychad’s SAFE.
- Yearn governance is intended to move to be more onchain but currently is not set up well for this transition. (See YIP 81—Prepare for Full On-Chain Governance). By putting the ruleset into code and legal agreements through the BORG approach, we can pave the way for full onchain governance.