Legal Wrappers and Use Cases
A legal wrapper is essentially an entity with its own legal identity and personality. Think of the legal wrapper as a company that can acquire its own rights and obligations and has a separate balance sheet.
We advise employing a foundation company as a DAO legal wrapper, because it is one of the most flexible and efficient structures that can be used for this purpose. Foundations can be ownerless, which means that they have no owners or shareholders, and exist for a specific predetermined purpose, such as, for example, development and facilitation of a particular blockchain protocol.
Our preferred legal wrapper is an ownerless Cayman Islands foundation company, but we can also incorporate in Switzerland, Singapore, Hong Kong, Liechtenstein, Panama, and other jurisdictions.
Our approach diverges from other models in the market, resulting in the creation of a legal structure that is entirely subordinate to the DAO and fosters its decentralization. We know how to design such structures properly, recognising the intricate dynamics and unique interactions between the DAO and its legal wrapper. DAObox further guides the DAO on the matters pertaining to the DAO<>wrapper relations and how to design them in the most efficient manner.
For a better understanding of differences in structuring approaches, please refer to this article, in which we explain the oversights and errors made by Arbitrum DAO and Hector DAO in structuring their DAOs.
DAO ≠ Legal Wrapper. Legally speaking, a legal wrapper is not the same as a DAO, so it does not replace or absorb the decentralized organization that exists on the blockchain.
We suggest thinking of a legal wrapper as one of the elements of the DAO ecosystem, like a contributor concentrating on a specific range of objectives designated by the DAO. This means that a DAO continues to operate on-chain, and the legal wrapper only takes charge of certain operations entrusted by the DAO, mostly taking place off the blockchain.
This also means that the DAO and multisig wallet holders retain direct control over smart contracts, the treasury and on-chain assets, and finance the legal wrapper only as and when needed.
The legal wrapper can be used by the DAO to manage those activities that cannot be carried out off-chain, e.g., hiring developers and contributors, facilitating infrastructure, making fiat payments, giving grants, concluding agreements and so forth. The wrapper can be further used to hold, manage and protect off-chain assets, such as fiat funds, IP, trademarks, domain names, etc. Of course, the wrapper can also engage in on-chain operations.
The wrapper also protects the DAO members and multisig controllers against liability and risks arising in the course of its operations – normally, the legal wrapper itself will be responsible for any transactions that it performs (excluding certain exceptions under the law).
The most common DAO legal wrapper use cases include:
- Entering into contracts;
- Engaging in real-world transactions;
- Holding and protecting intellectual property, trademarks and domain names;
- Owning and managing property and assets;
- Having bank account and access to fiat payments;
- Engaging and managing contributors and personnel;
- Issuing grants and similar incentives;
- Engaging auditors;
- Managing services, subscriptions, and infrastructure;
- Improving overall reputation and appearance;
- Fuelling decentralization of the whole organization.
In reality, the use cases for the wrapper are remarkably diverse, implying that it can essentially serve any purpose that the DAO deems necessary.