[SEP #1] SafeDAO Participation Agreement

Proposals Phase 2: Voting
1
  • Title: SafeDAO Participation Agreement
  • Authors: Christoph
  • Created: 2022-09-28

Update 11/10/2022: Finalised SEP1

  • Incorrect referencing within the participation agreement and misspelling of defined terms have been corrected.
  • Reference to a wrapped DAO and alternatives for determining DAO participation are excluded for the time being. These are topics that require a wider community discussion and should take place at a later point in time. The outcome of this community discussion can be reflected in a modified participation agreement.

The SEP should now have reached a stage of maturity where it can be submitted for snapshot voting.

Abstract

This is a proposal to implement a private ordering agreement (a so-called “participation agreement”) among all DAO Participants to provide an operating framework for SafeDAO and to govern the rights and obligations of each party.

Proposal details

The participation agreement [old version; see update above]:

  • defines SafeDAO participants.
  • provides a mutual release by DAO participants from claims arising out of or in connection with SafeDAO and a mutual waiver of claims against SafeDAO and other protected parties.
  • limits the liability of SafeDAO participants and other protected parties in relation to loss or damage arising out of the interaction with SafeDAO.
  • provides a complaints and dispute resolution procedure.

Purpose and Background

Many projects use the label of a DAO in different forms and organisational structures. There is no common understanding of what a DAO is, resulting in a lack of clarity as to what rights and obligations exist when dealing with a DAO. The participation agreement aims to provide an expectation management of what a stakeholder of the Safe ecosystem can expect during their participation or interaction with SafeDAO.

Effects and Impact Analysis

The participation agreement reflects the experimental nature of decentralised governance. This state of affairs is reflected in comprehensive disclaimers, so that participation in SafeDAO is at the participant’s own risk. Any person, entity or organisation interested in SafeDAO should familiarise themselves with the risks of DAO participation and, if necessary, seek additional legal advice to minimise the risks.

Alternative Solutions

  • DAO without participation agreement: a DAO without any legal arrangement might come at the cost of unlimited liability risks for its participants and is difficult to grasp for external stakeholders who want to interact with the DAO.

  • Incorporation of SafeDAO: The SafeDAO community could be incorporated into a “traditional legal structure”. However, given the current stage of community building, this step seems too early, as the community has not yet expressed its opinion.

  • Partial incorporation of SafeDAO: The SafeDAO community could partially be incorporated into a dedicated legal entities or under the legal umbrella of Safe Ecosystem Foundation. However, given the current stage of community building, this step seems too early, as the community has not yet expressed its opinion.

→ The participation agreement seems to be a good solution to start with, as it provides a legal framework for governance participation, does not require administrative overhead and provides the possibility for future changes.

Technical Implementation

This proposal does not require any additional code. It is made available via IPFS in order to ensure immutability.
Note: The final IPFS hash will change upon incorporating community feedback. It will be final upon start of the community vote.

The participation agreement will be adopted provided that this SEP passes the SafeDAO governance process. Once passed, it should be linked on the safe.eth Snapshot space for future reference and for those interested in participating to sign before voting.

It is expected that changes to the participation agreement will only be made as a result of a future SEPs.

Copyright

Copyright and related rights waived via CC0.

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DAO is LAW. We will go there.

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At a high-level this looks good. A few questions:

  • Termination after 90 days of no participation is interesting, but it is unclear how one is reinstated. If someone starts participating again after 91 days are they reinstated? If so, where is this in the agreement?
  • It makes sense that a legal entity in a physical jurisdiction needs to manage IP rights, but I’m curious if there’s anything in the Safe Foundation bylaws that holds the IP rights in alignment with the will of tokenholders. Additionally, would it be possible to allow the Governance Mechanism to reassign IP rights?
  • 23.1 mentioned a Wrapped DAO, which is never defined. Was this a missing definition or a previous alias that was renamed? Regardless it’d be great to correct this to get clarity.
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Honestly after reading this the risks for participants doesn’t seem to be the motivating factor but protection from participants. I am not naive to know we are a litigious world but its unfortunate that web3 will continue this trend. Soon enough we will all be signing our privacy rights away for web3 and we are back where we started. Hoorah!

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I think that this agreement looks good. I think it would be good to share this extensively / distill it down to a few slides and share with the Guardians. There’s a lot of important topics / strong implications in this (around waiving legal rights or knowing what the termination processes are) that people should read up on and know about.

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  1. I think wrapped DAO should definitely be defined (since we have a ton of other definitions in the document)
  2. I think on the 91st day they have to go through the same process anyone else would to get reinstated
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Different approach compared to most other DAOs and a good attempt to give the project are more legitimate status. Kudos to the Safe team for putting so much thought on the legal side and token allocation. Really exceptional in todays DAOs environment.

A few critical words on the participant agreement (“Agreement”) though.

Thoughts on Legal Risk and Participants

I’m not a lawyer but I could imagine that only major Safe holders & corporates with legal departments will seek legal approval to this Agreement. If the legal departments are conservative, their answers may be that there is no legal precedence so far and hence corporates should be careful or refrain from interacting with that DAO directly due to legal uncertainties. Keeping Safe as an investment only.

Further, I think it is unjustified to assume that an individual minor Safe holder will fully comprehend the obligations arising from this Agreement which makes it not advisable to engage. The way the Agreement is drafted the answer is: it’s your problem, you don’t need to engage. Not saying it is wrong - we are in an experimental stage - but courts will decide on that view in the future.

I think effective control over SafeDAO (considering only parties willing to take the legal risk) will still be with the Core Contributor Team and Guardians, therefore the following may not be a big thing, but wondering why the Safe Team decided not to go one step further and KYC all Participants?

Suggestions for Improvement
Implement a mechanism on the forum that required to explicit signing of the Agreement when engaging (voting, drafting proposals) with SafeDAO instead of implicitly accepting such complex agreement.

Thoughts on termination after 90 days

I don’t fully get that clause. What happens after 90 days and termination? If the Participants are still liable then what’s the point in having that clause - each individual is liable by him/herself anyway. Otherwise, this would be a blank cheque to do whatever a Participant wants and after 90 days they are “free” from any obligations. I think this clause shall be removed, unless someone can explain why it is necessary.

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The definition of “Participant Termination Even” refers to section 11, but I think it means to refer to section 9.

I tend to agree that the termination clause seems like a bit of nonsense, or at the least it is incredibly poorly defined. For example, what if there are no actions necessary for 90 days, does that mean all participants are terminated? When one is terminated, what functionally changes?

More broadly speaking, this feels like legal theater which makes me luke warm to it at best. Legal theater can be incredibly effective in highly bureaucratic countries (which many are these days) and this document may check a sufficient number of boxes to protect people from men with guns. However, I don’t personally think it adds an real value outside of that and it potentially adds friction to DAO participants that needs to be weighed against its protective value.

I think it would be more valuable if it could be shortened significantly. That would help minimize the friction it applies to potential DAO members while still hopefully retaining enough of the theatrics to provide valuable protection.

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While I agree with the sentiment of “legal theater”, I’m not sure we can dismiss the benefits of participating in it. It will be useful as something to point to in those bureaucratic countries if something is needed.

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My understanding is that this is to protect participants by allowing them to opt-out by default via not interacting, but it, along with any “reinstantiation process” is unclear.

@Christoph Can you shed some light on the intent behind this clause?

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Overall, this approach to launching a DAO is quite prudent and provides clarify on liability and attempts to limit liability for all participants. Liability for DAO participants is something that many don’t take into consideration when participating in DAO governance, so I appreciate the time and thought the team put into this document.

The comments I have relate to:

  • Section 2.2: Definitions | Some definitions could be better defined, or additional definition(s) could be provided to clarify some other sections of the agreement.
  • Section 9: Termination of Participation | As others have noted, this section could be clarified to define certain scenarios.
  • Discussion of Wrapped DAO | The word “DAO” appears 99 times in the agreement as a standalone word or a component of SafeDAO, GnosisDAO, etc. However, the term “wrapped DAO” appears just once. There’s mention of potential legal structures underneath SafeDAO in the future, subject to discussion and SEP, but the mention of a “wrapped DAO” alludes to a formal legal structure, based on my understanding. More on this below.

Disclaimer: I’m not a lawyer but providing comments with my current understanding of the points above and to seek clarification for sections that are currently murky to potential participants.

Section 2.2: Definitions

There are detailed definitions of many terms here, but the one missing definition that would help clarify other sections is defining what a SafeDAO Participant is. The terms Owner, Participate, Participating, Protected Parties, SafeDAO, and SAFE Holder are all defined, but the term “SafeDAO participant” appears 23 times. In Section 1.1, the terms are outlined as follows:

Parties to this Agreement are each owner of a Public Address who Participate in the Governance Mechanism of the SafeDAO (each a “SafeDAO Participant” or a “Party”, altogether, “SafeDAO Participants” or “Parties”) and shall include any Service Provider to the SafeDAO.

Someone could read the definitions of Governance Mechanism, Participate and Participating, and Protected Parties and come to their own conclusions about how Section 1.1 relates to these definitions and the meaning of a Party or SafeDAO Participant.

Defining SafeDAO Participant explicitly and widening the definition of “Participate” and “Participating” to read:

…partaking in the SafeDAO engaging in discussions on the Public Forum, Off-Chain Voting (whether directly or through delegation), executing On-Chain transactions and/or deploying or upgrading Foundational Code.

would likely clarify what it means to be a SafeDAO participant without relying on individuals to come to their own conclusion. [Emphasis mine to highlight the recommended revisions.]

Section 9: Termination of Participation

As others have pointed out, this section is unclear in the agreement’s current form. The lack of definitions, as noted above, is part of the problem, in my opinion. Take this phrase in Section 9.1:

…failing to Participate in the SafeDAO for a period of 90 days…

The current definition would define participation as voting in Snapshot votes and/or amending SafeDAO code. This is too narrow a definition, and it leads to confusion if there is no SEP put forth for voting for a period of more than 90 days. It’s highly unlikely that a situation would arise where forum discussions would cease for more than 90 days, so widening that definition would highlight what active participation in SafeDAO looks like.

The ultimate distinction: what line is drawn between SAFE Holder and SafeDAO Participant.

And this echoes some of the points @jierlich has made. @jierlich also asked for clarify on what causes someone to go from SAFE Holder to SafeDAO Participant, and then from SafeDAO Participant to SAFE Holder back to SafeDAO Participant again. This process would be a good one to outline further in Section 9 or one to outline in a subsequent section that is not currently included in the document to my knowledge.

Discussion of Wrapped DAO

While SAFE Holders have the option to pursue a legal wrapper for SafeDAO, this isn’t what the agreement constitutes currently. Instead, this agreement takes the private ordering agreement route, which is not the same as establishing a legal wrapper, but creates a formal agreement among participants, so it’s clear what the DAO is, who the participants are, how participants can contribute or interact with one another, etc. Private ordering is essentially a framework for self-regulation.

@Christoph, can you elaborate on the use of “wrapped DAO” in the agreement and provide some context on the use of wrapped DAO and how it differs from the legal structures you provide as examples in your post here. I know that @jierlich has also raised this question, but adding some more distinctions here, as well. My understanding of wrapped DAOs, or DAO wrappers, primarily comes from guidance provided by prominent actors such as a16z’s A Legal Framework for Decentralized Autonomous Organizations – Part II: Entity Selection Framework and other think pieces on this subject.

Conclusion

This agreement is nearly there, but adding definitions and revising several sections could add the clarity SafeDAO Participants need to vote to approve this agreement and move forward with the formation of SafeDAO.

Looking forward to comments from the team and others within the SafeDAO community.

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It would be good to understand the role of the signers -

  1. What are the conditions under which the veto maybe applicable?
  2. What if a proposal to remove the signers, in order to change the governance process by the DAO are vetoed by the three signers?
  3. Is a signer a core team member/ a guardian/ a private party?
  4. Would the participants be responsible for the failure of a signer to veto a critical vote?
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Some have given very detailed advice, but haven’t seen a response from the team so far.
The safe team can consider adjusting the participation agreement (or not) as suggested above and put it on the snapshot for voting. (I’m sure the vote will pass, but the percentage of negative votes can reflect the level of acceptance of this participation agreement)

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Agreed. The legal language makes it difficult to grasp the essentials.

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  • If someone starts participating again they agree to be bound by the participation agreement (again) as this would be linked on the safe.eth Snapshot space. By linking the participation agreement to the Snapshot terms, voters implicitly approve it by means of their participation in the voting process. There is no separate agreement.

  • The bylaws of the Safe Ecosystem Foundation do not explicitly state that IP rights will be managed according to the will of the tokenholders. Nevertheless, the (simplified) purpose of the foundation is to promote the Safe ecosystem. In this respect, it is unlikely that the foundation would take actions that are in clear contradiction to the tokenholders’ interests due to the fact that tokenholders represent a significant part of the Safe ecosystem. Even with the lack of an explicit statement, the Safe Ecosystem Foundation should endeavour to act in accordance with tokenholders’ interests.
    In principle, the governance mechanism allows IP rights to be reassigned. However, there is a distinction to be made as to whether this should apply retroactively to existing IP rights or to future IP rights yet to be developed:
    → A reassignment of existing IP rights is only possible with the consent of the current holder.
    → A reassignment of future IP rights can be made in coordination with the perspective holder (i.e. ownership requires legal personality.)

  • Good catch regarding the mentioning of “Wrapped DAO”. The reference is due to the fact that in an early version of the participation agreement, the structuring of a wrapped DAO was envisaged. However, this would have made the agreement much more complex, as it would need to cover all scenarios with and without the existence of a wrapped DAO. In order to simplify the already complicated agreement, it seemed better to remove the references to a wrapped DAO and to adapt the participation agreement at a later point in time, provided that the community decides to incorporate a wrapped DAO. Consequently, the reference to a wrapped DAO should be removed from the current participation agreement and, depending on the community, a definition and strategy should be developed in a joint effort.

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  • With regard to the liability risks in connection with participation in a DAO, it is surely the case that there is a lack of solid empirical data and legal certainty. The approach taken in SEP1 should be understood as offering a framework for SafeDAO and its participants to start with. It is not to be understood as conclusive, neither in its thematic scope nor in its temporal scope. Everyone is welcome to contribute to the rule-making of SafeDAO governance. Respective contributions can be made both now at the beginning and in the further course of SafeDAO. The flexibility for future changes is one of the main advantages of the participation agreement.

  • With regard to the practical approval of the participation agreement, it is helpful to look at the implementation in the Snapshot space of GnosisDAO or CoW DAO, for example. Those DAOs have implemented a participation agreement in a way that you have to explicitly agree to it before you can join the DAO.

  • Regarding the termination as a result of 90 days of inactivity, it is as @jierlich said an attempt to propose a criterion not only for joining the DAO, but also for leaving in order to avoid unlimited participation. An example for the relevance of clarifying whether someone is a DAO participant or not is to identify potential related party transactions and to deal with them in a proper way. Another example is the allocation of IP rights according to clause 10, as this only applies to SafeDAO Participants and Service Providers. This being said, there are several situations, other than liability matters, where it is necessary to define a DAO membership.

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  • Good catch regarding the incorrect referencing.

  • Call for action: It would be a huge achievement if the Safe community would come up with a definition of “Participation” and “Participation Termination Event”. The current wording is a proposal that already accomplishes its purpose if it is seen as a thought-provoking impulse. It would be even better if an alternative proposal could be brought forward from the ranks of the community that would receive general approval.

  • I disagree with the classification as legal theatre. While it is obvious that a legal proposal is not everyone’s darling, its value should not be underestimated. Besides the benefit of contractual agreements being a useful back-up for governance structures in case the technical infrastructure does not work as desired, a document like the participation agreement should also prevent DAOs from being put under too much pressure in their immature stage of development. DAO governance is still nascent. It is likely that this will become more professional in the future. However, this will probably also be accompanied by the development of activist tokenholders groups that will try to extract value from DAOs for their own benefit under the threat of legal action. The implementation of a participation agreement could be a suitable mechanism to prevent this as a precautionary measure so that the SafeDAO governance structures can grow organically without such a distraction.

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For now, there is a SafeDAO Multisig used for the initial token distribution, controlled by signers appointed by the Safe Ecosystem Foundation. There is no clear pathway how these Multisig signers will be leveraged in the future, so the participation agreement mainly enables the appointement of signers in Multisig setups. How this would happen is up to future discussions / proposals.

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Hey @Christoph , It is time to bring SEP #1 to snapshot for a vote.(You mentioned community vote, I’m not sure if it’s snapshot vote or is it just forum vote)

  • The last feedback on this proposal came from three days ago and the community doesn’t seem to have anything else to add.

  • The peak period of claims is over and the number of claims is falling every day, with only 207 claims yesterday (only about 3% increase in token holders). Token holders have stabilized and are in line with a voting basis.

  • If the participation agreement has not been passed, then all other proposals cannot proceed. This means that this proposal delays all other proposals.

If SEP #1 starts a snapshot vote this week, it will pass around mid-October. If voting doesn’t start until next week (or even later), then we’ll need to wait until the end of October to pass the SafeDAO participation agreement, and I don’t see why it would take us a month to pass the agreement.

If so, why not start discussing the participation agreement before the token launch (like early September) and put the participation agreement in the claim app and safe.eth space? This ensures that everyone agrees to this agreement before participating in SafeDAO , isn’t that better?

Although I hate to say it, many DAOs are facing inefficiencies and this kind of proposal should have been passed quickly/early instead of spending a whole month after the token launch to deal with the participation agreement, which will definitely undermine people’s interest in participating in SafeDAO.

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Hi @b1k00, first of all, kudos to you for actively pushing the proposal forward.

  • Timing of the proposal: A discussion of the participation agreement before community activation through the airdrop seems strange. First of all, a broad community needed to be formed through the airdrop, and then it was important to focus attention on such an important proposal as the participation agreement. If the participation agreement had already been finalised before the token distribution, there would be the challenge, that even fewer voices would have expressed their opinion and it would be even more questionable to what extent the participation agreement is supported by the community.

  • Decision-making speed of decentralised governance: As already mentioned, decentralised governance is more inefficient than centralised governance due to higher information and coordination costs. For this aspect in particular, it is crucial that an essential proposal such as the participation agreement is not rushed through, rather allowing the community to take some time to make an informed and prudent decision. The main discussion right now is structured around the difficult and legally unsolved question when a DAO participation begins and ends. In light of the underlying complexity it would be great to give the community a bit more of time for thoughts.

  • Suggestion: Due to the complexity of the proposal and taking into account the practical circumstance that many community members are currently traveling to/participating in various conferences, we should aim to bring the proposal to a Snapshot vote early next week.

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