DAO Membership Rights & Obligations - metacartel/MCV GitHub Wiki

Grimoire - Overview of Membership Rights

Both Mages and Goblins are able to, permissionlessly through on-chain functions interacting with MCV’s Moloch.sol smart contract, do all of the following:

  • submit DAO Proposals;
  • vote on DAO Proposals;
  • RageQuit and receive their percentage interest in each of the DAO’s assets (see below)

Additionally, each member will have the full rights of a “managing member” provided for under the Delaware LLC Act, including being entitled to know the identity of all other members, receive all information about the LLC’s activities and participate in the LLC’s management, planning, decision-making and day-to-day operations.

Grimoire - Voting Standards

Proposals are of two types: ordinary and extraordinary.

  • Ordinary: Ordinary proposals include membership admission, membership expulsion, proposed payments to service providers, and proposed investments in other projects. Ordinary proposals are handled entirely on-chain through MCV’s Moloch.sol smart contract. They must be sponsored by an existing member, but may be proposed by anyone. The outcome of proposals is decided by a majority of the counted votes, with no quorum requirement. See below under asset management for a more in-depth discussion of ordinary proposal types.
  • Extraordinary proposals: Proposals that pertain to MCV’s meta-rules and cannot be handled purely on-chain. If such a proposal is made on-chain and approved without the requisite legal formalities, it will be invalid and will not be honored, and the members responsible should be expelled. Extraordinary proposals require approval by 69% of MCV’s then current shares. Examples of extraordinary proposals include any proposal to amend the Grimoire in any material respect (aside from specified exceptions), sell more than 50% of MCV’s investment assets to a third party, merge MCV as an LLC with or into another business entity, acquire another a majority of the assets or securities of another business entity or other organization or commence or participate in any legal proceeding.

Admission of Members

Admission of members under the Grimoire strongly ties to the on-chain mechanics of the MolochDAO implementation. Upon proper on-chain configuration of a member proposal and membership voted approval, the prospective individual will become a DAO member and receive the proposed number of shares from Moloch.sol. Each DAO share represents a percentage membership interest in the LLC. Potential members will also be asked to complete certain legal formalities either in advance of the proposal or after it is approved, including electronically signing the Grimoire or a Joinder Agreement, and should be expelled if they fail to comply.

Note: technically it is possible under MolochDAO v2 for shares to represent a different voting percentage than they do an economic percentage. For legal and operational simplicity and predictability, the initial version of MCV will not utilize this capability, but it may be added later by amending the Grimoire upon approval of the members.

Resignation and Expulsion of Members

Members may resign from the DAO at any time by RageQuitting or may also be expelled through a membership vote. In both cases, these functions are called through the Ethereum blockchain and triggers an on-chain distribution of tokens from the DAO’s GuildBank smart contract to the member’s recorded Ethereum address. These tokens represent the exiting member’s percentage interest in MCV’s assets. In the typical case, the exiting member will receive a mix of:

  • “RageTokens”: Freely trading payment tokens such as ETH and DAI;
  • “RageClaims”: Non-transferable, personal, economic tokens that represents the exiting DAO member’s remaining economic pro rata claim to the DAO’s future income from the revenue-generating assets the DAO holds at the time of the member’s exit;

The Grimoire provides that the members all agree that the RageTokens and RageClaim represent the fair market value of an exiting member’s membership interest in MCV, and that no exiting member may contest that value under any circumstances.

An analogy of this with traditional LLCs, would be as if a member were holding 5% of the LLC’s membership interests could leave at any time and give up all governance rights but receive 5% of the LLC’s cash and cash equivalents at the time of exit along side a continuing right to collect 5% of any profits from the LLC’s then-current revenue-generating assets.

This is very similar to how LLCs normally handle a member’s unexpected death: the deceased member’s interests in the DAO are converted into a pure, non-transferable economic interest with no other membership or governance rights, but which may be inherited by the member’s heirs without fear of disrupting the LLC’s governance.

Obligations of Mages

DAO members who do not meet the definition of “accredited investor” under applicable securities laws are obligated to have relevant managerial expertise and maintain a robust managerial role within MCV at all relevant times and hence required to fulfill the role of a “Mage”. These DAO members must participate in the DAO in an active capacity and act as a ‘general partner’ to other involved Mages. They are participating in the DAO as a means of collaboration and co-managing the DAO's assets with other Mages as opposed to seeking passive financial returns.

The roles of Mages may include some but not necessarily all of the following activities, including:

  • Participation in the DAO’s telegram group chat other communication channels with relevant and meaningful engagements.
  • Careful evaluation, discussion and voting on all substantially material DAO proposals, with a minimum of one vote per month.
  • Appearance in person or electronically once a year with all other Mages
  • Actively participating to help support or champion meaningful DAO initiatives:
    • Conducting technical due diligence with projects
    • Interviewing potential investment opportunities
    • Sharing insights and provide analysis around investment opportunities
    • Coordinating with other members, champion and support investment opportunities
    • Helping to admit and champion a new valuable DAO member into the DAO
    • Helping to organise or sponsor a worthwhile event or service for DAO members or it’s adjacent activities
    • Providing other DAO members opportunities for networking and introductions to specific investment opportunities (but without acting as broker/dealers or investment advisors unless so licensed)

The DAO will implement a reputation system to track and evaluate each Mage’s performance, duties and contributions to the DAO. Mages who will not be active for a limited period of time for good reason due to life circumstances may arrange to have the absence approved and appoint a proxy member to participate in governance on behalf of their absence. Otherwise, Mages that are found to be inactive or providing insufficient value to the DAO will be RageKicked. Alternatively, if the Mage is considered to be an “accredited investor”, they may be downgraded into the category of Goblin and thrown back in their moldy dens with their gold.

It is also expected that the persons who have mandatory Mage status will be limited to a relatively small group. If the group of Mages becomes too large, it may become difficult for each Mage to participate as fully in the governance of MCV as is required for the role. Over time, as MCV’s off-chain social procedures for encouraging communication and information flow among members improve, the upper bound of the number of Mages who may robustly participate without reducing governance quality should increase.

Liabilities of Members

In general, the Delaware Limited Liability Company Act enables the members of an LLC with limited personal liabilities, where individuals are not personally liable for a debt or other obligation or liability incurred by the LLC. Despite this, and due to the permissionless RageQuit functionality, the members should run MCV so as not to incur liabilities in excess of its assets, and in fact should maintain assets comfortably in excess of liabilities.

Limited liability also does not apply in connection with actions a member takes without authorization (e.g., signing a SAFT for MCV before a proposal for the SAFT has been approved), illegal actions or actions that disregard the separateness of the LLC (e.g., using the Guild Bank as a substitute for their personal bank account and regularly rotating into and out of membership).

Fiduciary Duties & Indemnification

Traditionally (though not always), non-managerial members of an LLC are protected through the fiduciary duties on the LLC's managers where they exercise loyalty to and/or provide professional care on behalf of non-managerial members. Upon breaches of trust, aggrieved members can then sue the LLC’s managers for the breach of fiduciary duties and mismanagement. This can even be the case in member-managed LLCs or in full-blown general partnerships where all partners have equal information. However, fiduciary duties are a “fuzzy” standard, and are often displaced, even in traditional corporate law and deal-making, with more negotiated, tailored contractual arrangements.

Consistent with this modernization of corporate law, under the MolochDAO spirit, we believe free exit is the ultimate minority protection mechanism; accordingly, all fiduciary duties will be waived and eliminated under the Grimoire as permitted by the Delaware Limited Liability Company Act. Accordingly, the members of the DAO will be expected to participate actively in the DAO’s affairs and RageQuit if they are unhappy with the manner in which the DAO is managed by the economic majority of members. The non-waivable covenant of good faith and fair dealing will continue to apply to members under the Delaware Limited Liability Company Act and require them to faithfully and fairly implement the terms of the Grimoire.

Consistent with the Moloch DAO's individualistic and simple design philosophy, no member or manager will have a right of indemnification from the LLC or the other members. Each member and manager is solely responsible for any liabilities that member or manager personally incurs in connection with involvement in the DAO, unless otherwise specifically agreed through a binding proposal approved by the DAO members.