Case Study: A forward-thinking firm for DAOs
When Saffery Trust in Geneva was approached by a decentralised autonomous organisation (DAO) to provide Protector services to their registered legal entity, it was a unique opportunity to demonstrate how a forward thinking trustee can apply traditional fiduciary expertise in a new context.
What is a DAO?
In simplest terms a DAO is an emerging form of organisational structure with no central governing body, run by its members who share a common purpose. The decentralised nature of a DAO allows for a ‘bottom-up’ decision-making process. Blockchain technology facilitates voting mechanisms, and both voting and member actions are publicly visible on the blockchain.
The advantage of a DAO, aside from promoting democratic management, is that it can reduce some of the bureaucracy which typically burdens management decision making, by automating elements of decision making through smart contracts.
Legal entity challenge
A DAO is not currently recognised as a legal entity. This presents significant operational and administrative barriers to entering contracts (which must be between two, or more, legal parties) and thus makes opening bank accounts, holding assets, or registering trademarks, difficult. DAOs which need to engage in these types of activities find themselves needing to establish a legal ‘face’ – an entity which can carry out these contractual relationships on its behalf.
Where, in general, companies are designed to financially benefit specific shareholders, DAOs are designed to benefit a community en masse. On a fundamental level, the two concepts do not align, and so a Purpose Foundation was considered a more suitable alternative to the traditional registered corporation to represent the DAO. This ‘orphan’ structure has no beneficiaries, established instead to serve, and execute the decisions made by the DAO. Saffery Trust was appointed as Protector of the Foundation, with full power to direct the Council of the Foundation.
Where Saffery Trust adds value
The Protector’s role in the purpose foundation is fiduciary, ensuring:
- contracts are well-established
- assets are held correctly in accordance with all regulations
- correct reporting is undertaken in relevant jurisdictions
- minutes reflect every decision made and that there are no anomalies or missing information
In addition, we provide administrative and accounting support on an ad-hoc basis, filling any gaps the DAO are not equipped to manage, working in partnership with the DAO to help it to achieve its objectives.
Due diligence
One of the significant challenges in the taking on a DAO was meeting our rigorous due diligence obligations, which required verification of the identity of the members of the DAO (exceeding 1,000 individuals) as well as source of wealth compliance checks.
In this case, the founders had good foresight and had engaged specialist third-party firm to manage the identification and due diligence of its members, which supported our efforts as they were able to confirm that the level of due diligence had met our high standards.
It was also essential, however, that we undertook independent checks and in doing so we turned to our partner, Hoptrail, a crypto AML service provider, to provide a detailed report on the background and history of the project, its token issuance, and to verify (on an anonymous basis) that all cryptocurrency wallets from which DAO members had used to purchase the native token of the DAO had legitimate, legal origins without any links to criminal activity.
Our existing relationship with Hoptrail helped to reduce delays and unnecessary costs and is a testament to the value of our global network of specialist intermediaries.
Our comprehensive due diligence requirements help safeguard our clients, our firm, and the reputation of the wealth industry. Additionally, they support efforts by DAOs to demonstrate their legitimacy and credibility within the financial ecosystem.
Forward-thinking
Our position as a leading independent firm with decades of experience, combined with a forward-thinking approach to client service uniquely positions us to support DAOs.
Since first being approached by a digital asset client in 2017 to set up a structure holding crypto-assets, we have invested significant resources in establishing ourselves as a leader in bridging the gap between decentralised and traditional finance. This experience and expertise enabled us to identify where we could support the DAO and its members, leveraging existing relationships with specialists in this sector, and tailoring our services to meet bespoke needs.
Our deep industry knowledge, and proactive approach ensured we were able to provide comprehensive support and solutions.
Find out more about our services here.
