[RFC] Establish a Legal fund to pay for Delegate Legal Fees

Requests for Comment
1

Proposal: Establish a Legal Defense Fund to Cover Subpoena-Related Costs for Uniswap DAO Delegates

Summary
As decentralized autonomous organizations (DAOs) evolve and gain influence, their participants, including delegates, increasingly face legal scrutiny from regulatory bodies and other entities. Recently, it has come to light in private communications that some DAO delegates and participants may have been subpoenaed in connection with their activities within the DAO, some in highly alarming and threatening situations.

To support and protect Uniswap DAO participants from the growing legal risks associated with their involvement, we propose setting aside $10 million in a dedicated Operator Legal Defense Fund. This fund will be used exclusively to cover legal expenses incurred by participating delegates in responding to subpoenas related to their participation in the Uniswap DAO.

Rationale
The regulatory environment around decentralized finance (DeFi) and DAOs remains uncertain and rapidly evolving. As a result, Uniswap DAO participants are increasingly vulnerable to legal actions initiated by governmental and regulatory bodies. Without the appropriate financial support, individual delegates may face overwhelming legal costs simply for their role in representing the DAO and participating in governance.

Given the significant legal risks faced by Uniswap DAO members, it is crucial for Uniswap to establish a similar legal support mechanism.

By allocating $10 million to this Legal Defense Fund, we are creating a safeguard for our delegates and participants, ensuring they have access to proper legal representation and the resources needed to respond to subpoenas.

Proposal Details

  1. Fund Allocation

    • The DAO will allocate $10 million to establish a Legal Defense Fund. This fund will be reserved solely for covering legal and operational expenses related to subpoena responses for Uniswap DAO participants.

  2. Eligibility Criteria

    • To qualify for reimbursement from the Legal Defense Fund, a participant must:
      • Be an active Uniswap DAO delegate at the time the subpoena was issued. (TBD: this could be made broader, for example some people might not be participating because of legal risk)
      • Provide verifiable proof of the subpoena related to their role within the DAO.
      • Submit legitimate legal bills associated with their defense or response to the subpoena.

  3. KYC Requirement

    • Given the sensitive nature of distributing funds for legal purposes, KYC (Know Your Customer) verification will be required before any payouts are made. This ensures accountability and prevents misuse of funds while maintaining the security and integrity of the DAO.

  4. Fund Disbursement Process

    • Eligible delegates will submit a formal reimbursement request, including evidence of their legal expenses and proof of the subpoena.
    • Each case will be reviewed by an independent team, which will verify the documentation before authorizing the release of funds.
    • To ensure fairness and transparency, a detailed process for submitting and reviewing claims will be implemented.
    • TBD: Unclear what sort of privacy requirements need to be implemented at this point.

  5. Governance and Oversight

    • A designated committee, consisting of community members and legal experts, will oversee the management of the Delegate Legal Defense Fund. This committee will be responsible for reviewing and approving disbursement requests and ensuring that the funds are used appropriately.
    • (TBD: I am not personally a fan of creating committees willy-nilly, so I’d like to leave this point as something to be determined if this proposal gains traction)

  6. Fund Administration (TBD)

  • The administration of the Legal Defense Fund will be determined in collaboration with the Uniswap community and stakeholders.
  • Options under consideration include having the Uniswap Foundation manage the fund directly, given its role in overseeing the broader mission and operations of the DAO. However, due to potential legal and jurisdictional complexities, it may be more appropriate to create a separate legal entity specifically dedicated to managing the fund.
  • This entity would be responsible for the following tasks:
    • Managing and disbursing the funds in accordance with the guidelines set by the DAO.
    • Conducting KYC and verifying the eligibility of applicants.
    • Working with external legal advisors to review claims and ensure proper fund usage.

The exact structure, governance, and operational details of the fund administration are left as TBD at this time. This will be fleshed out through a community discussion and agreed upon prior to moving toward an on-chain vote. Careful attention will be paid to compliance with legal standards while ensuring that the fund operates efficiently and in alignment with the decentralized nature of the Uniswap DAO.

The goal of this proposal is not to create extended processes and entities but rather a streamlined process for ensuring that Delegates have appropriate legal coverage for their participation in governance.

Conclusion
The success of the Uniswap DAO is built on the contributions of its participants and delegates, who have taken on significant responsibilities and risks in shaping the future of decentralized finance. By establishing this Legal Defense Fund, the DAO will demonstrate its commitment to protecting its members from legal threats and ensuring they have the necessary resources to navigate these challenges.

In an uncertain regulatory landscape, it is critical that we take proactive steps to safeguard the rights and well-being of our community members. This fund will not only provide financial protection but also ensure that the DAO continues to operate with the full confidence of its delegates and participants.

10 Likes
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Firstly … What is the legal status of a delegate? OK, they are not employees of the Uniswap Foundation, the DAO has no formal legal form, and AFAIK, they don’t do business so not a partnership. A minor point is if the Foundation is managing fund, then it implies delegates can’t compell their financier to reform (not bite hand that feeds you).

Secondly, what LEGAL relationship are delegates establishing. There’s no trust deed so can’t be said to be protectors/guardians. Spokes(person) means that your opinion is just that, a “personal” (if somewhat based on professional expertise) opinion which may (or may not) be reflective of others. Regulators are geography based so they need to make case for lex situ first.

Thirdly, what arm of law would they be risking legal action (ie as defendant). 1) implies some sorta contractual basis but at most, this is a conventional dealings, perhaps some comp(ensation) for expenses in social polling. If no trust deed, then equitable remedies are off the table which leaves tort … I don’t think anyone is stupid enough for defamation, so you’d have to have an arguable case for implied duties.

So are you looking for insurance, a legal fig-leaf or formalisation of duties and legal consequences for mis/mal/non-feasance? I’d note that subpoena (in the OECD) is merely a (strong) request to be witness, which as civic duty within that jurisdiction, is part of citizens rights/duty. We already have a DeFi education advocacy fund which can commission advice on how to respond as “private” citizen. Last time I looked, freedom of association (criminal cartels aside) was not a crime and secret societies legislation have been scrapped from state laws.

PS … There are very specialist requirements for service of subpoenas … I recall cases of tag-jurisdiction where flying a plane over Texas a divorce summons was served on passenger to bring into that state. This doesn’t need to be part of defense fund per se but just general knowledge akin to key management to stay in legit places immune to unlawful rendition. Whilst govts can be irrational (cough Snowden) there are checks on non-authoritarian regimes.

PPS … There’s nothing stopping a regulator (or cabal thereof) applying to be a delegate … But their opinion is just that … an opinion.

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All great points and questions.

To keep it simple, the purpose would be to refund legal costs associated with responding to legal inquiries that require legal fees to respond to. I’ve spoken with delegates who are looking at tens of thousands in fee’s just to prep their response.

The goal of this fund would be to cover, at a minimum, these kinds of legal bills. You make a great point about covering other types of bills and we should figure out what makes sense.

We do already have a DeFi education advocacy fund, but I don’t think it’s well setup to do anything other than offer advice for “private” citizens. it doesn’t have a mandate to help delegates cover their legal expenses as a result of participating in the DAO.

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As the one typically issuing invoices I’m a little curious how the legal bill can rack into thousands || (obviously I picked the wrong practice area of IP/IT/ID law) || for a mere delegate … Now if one has business interests such as running a swap pool or actively promoting such as business purpose (whether consulting or soliticating services) I can see why it can get complicated but holding an opinion IMHO should not be an offence unless you own express duties of care beyond that of an officious bystander and treat voting as an elaborate poll (one interpretation).

However, I understand that many non-US netizens are intimidated by the litigious nature of certain countries so I suggest you nominate a reasonable amount to craft a catch-all FAQ for what to do if served (which can be put out for competitive tender/closed env bid) … And if a lot of people end up in the seek professional advice then reconsider the contingency or put discussion of insurance down for a delegation related seasonal budget line-item.

PS. Agencies are not above beating the bush to flush out game or go on evidentiary fishing trips. Alas … innocents can be caught up but if all documents and intentions are in public sight, it’s hard to prove fraudulent conspiracy (mens rea) or insider trading, not to mention various justifications (eg legal/parliamentary privilege) or valid excuses for minimising the hassle :point_down: .

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I find this really very surprising to hear, as will I’m sure all the delegates who have received subpoenas and are now paying tens of thousands to respond.

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I see some parallel to legal fund at MakerDAO before but do wonder why just cover for delegates? Working groups as well as service providers are also potentially at risk.

If it’s specifically for delegate, maybe it can be pay to register collectively so for example, portion of delegate reward goes to collective pool that helps to match it. Almost like discounted insurance

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Thats a great point, I think that makes total sense. I had been pretty focused on the Delegates situation but I think the same risk exists for the working groups and service providers.

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Hi @dennisonb - I’m one of the the authors and architects of the Legal Resilience provisions in the Atlas for Sky (Maker DAO) and might be able to help with this initiative.

The Sky approach was designed to respond to exactly the types of events we are seeing play out and provide a comprehensive legal defense fund and self-insurance program to assist delegates and other stakeholders within the DAO in the event of legal claims. Due to Endgame and rebranding priorities, the project was put on hold but the Legal Defense fund and related structure for the Guardian remain key features of Endgame and the Sky Atlas.

@Doo_StableLab - the Maker DAO defense fund was intended to cover far more than simply the delegates and there is no reason why it can’t be the case here as long as the necessary capital requirements can be satisfied.

I have already put together a full project plan and costed proposal and can coordinate the necessary insurance brokers and firms required to establish the fund if there is appetite within the DAO to support this initiative.

1 Like
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This is a very good point and I do agree that working groups should qualify for a legal fund. If we consider the specific topics being worked on (e.g. the research on Mobilising the Uniswap Treasury), I can easily see them as something legally sensitive.

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Legal risk for working groups would depend on where the activity sits on the spectrum
Idea -> commissioned research -> proof of concept -> reference implementation -> sandbox -> commercial operations

The problem is that the lack of rule-making, inconsistent interpretation (CFTC claims that ETH is commodity, SEC disagrees) and lets not ignore legislative capture and TradFi corporate lobbying means that the law is not as certain as participants might like. Short of forcing an administrative review, it is hard for any group of individuals to know where the lines are, not to mention extra-territorial application via the non-soliciation of regulated financial services. Then toss in the rest of the alphabet soup IRS/FinCEN/DOJ/OFC multiplied by number of jurisdictions and you can see that insurance premiums are not going to be easy to calculate.

As a starting point to think about the tipping point for when legal counsel is needed, I would put to everyone that the dividing line to be considered is the sandbox phase (or just before) because there’s an express period where you can work things out so anything before that need not be any public/exempted “offer” (and/or sit on a private invite only chain for testing).

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We share a recent antecedent approved a few days ago.

In CoW DAO, a proposal was approved to establish a legal defence reserve for defences and prosecutions in legal processes against the DAO and its contributors directly related to activities of CoW DAO.

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Thank you for bringing up this important issue for future DAO activities.

We have two questions to ask:

  • Do we have specific examples of delegates who have received subpoenas and the actual costs incurred so far in the industry?
  • Has it been decided who or which committee will manage this $10 million fund and how?
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To both of @Tane’s points,

I think it makes sense to have some sort of legal defense fund. $10m off the start would make sense for a long fought out battle, but I think maybe starting at like… $2m makes more sense. That should sufficiently cover a couple months of potential litigation and be enough time for the defendant to come to the DAO and request for more funds afterwards if needed and applicable.

As for management of the funds, historically the Uniswap Accountability Committee has overseen operation costs and this seems to most logically fall under that pervue in my opinion. The seems like something the “accountability” committee should take on and should be an easy haul with the structure currently already set in place if the DAO were to vote this in.

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Is there a reason in avoiding @Tane 's first point?

  • Do we have specific examples of delegates who have received subpoenas and the actual costs incurred so far in the industry?

News stories so far been indicating VC firms and hearsay investors are the ones asked to please explain. There’s a big gap between intimidating a delegate voicing an independent honest opinion vs a business subsidy for supposed professionals who should have done their due-diligence. Legal risk requires both the likelihood and the consequences so more facts means better decisions. As a matter of policy for free flow of information, there should be backstop to prevent physical/economic coercion of professional opinions which otherwise will lead to chilling effects

#insert humor

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We know there’s been a few Uniswap delegates that got subpoenaed back in the day, legal fees wise we’re not sure exact amounts but we’re sure there have been some in relation to this.

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If you speak privately with the delegates they will tell you, but it’s not my place to publicly out them. As a note, traditionally lawyers advise you highly NOT to talk about being subpoenaed by the SEC. There are plenty of articles on the internet by lawyers who are trying to solicit your business once you’ve been subpoenaed and you can get a rough idea of what the process looks like.

As for costs: I have personally been subpoenaed by the SEC for involvement with a DAO. It’s not for my involvement Uniswap, and obviously I’m not going to talk about details in a public forum. Needless to say: it’s stressful, scary, and a ton of work and uncertainty to deal with, not to mention money, that in my case- no one covered.

I can share that my response was between 10,000 USD and 20,000 USD in legal fees that I had to pay myself, and a hell of a lot of paperwork. I also have no idea if I’m done with it I would roughly estimate that my situation was a fraction of the severity of what delegates in Uniswap are dealing with.

No, not yet. I’m in close communication with the Uniswap Foundation. Nothings decided yet although there are a number of possible avenues to go. Obviously there are a number of concerns that need to be dealt with. As soon as I have an update, I’ll share.

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There are many potential delegates and committee members in Uniswap who could be targeted, and no certainty that the DAO would re-up the funding (indeed there are plausible scenarios where it might not be possible to do).

$10m represents the thinking that if delegate costs are between 10k->100k in legal fees (thats just responding to a subpoena), and an any sort of action beyond can cause legal fees to ballon, we want to give folks certainty that there is ample resources to support them. We don’t want people making forced decisions based on the fear of financial repercussions of doing whats right. (Think: settle on bad terms with bad legal advice because someone is scared of losing their home to legal fees and creating a precedent for everyone else)

In the grand scheme of things $10m isn’t a lot of money to protect the very people in this forum and in this DAO, and by allocating this money it’s not guaranteed to be spent. One reason to put this into a separate entity would be that the funds can be specifically earmarked, operational costs kept low, and there be clarity of purpose and use with maximum possible transparency. Other DAO’s have legal funds and commitments to protect participants, it makes sense that Uniswap, the largest of them all, be well funded and secure in it’s commitment to it’s operators because even with the most optimistic of expectations for a new political administration, the DAO will need to have a functional legal defense fund designed for it’s own operators.

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Thanks @dennisonb for starting this conversation. We support the spirit of this RFC, and are directionally aligned with de-risking participation in Uniswap Governance. That said, the high-profile and novel nature of this undertaking, as well as the associated complexities of managing this type of defense fund, make the operational details and structure of any proposal that results from this RFC vitally important. A poorly-designed solution could result in Governance funding subpar legal work that sets bad legal precedents for the industry, fails to deliver the protection intended, or in a worst case scenario does both.

We would be against executing any proposal that follows from this RFC in the absence of a detailed plan proposed by a credible team that has managed this kind of arrangement in the past or can show similar experience that would make them qualified.

Below is a non-exhaustive list of questions any such plan should answer:

  • What are the criteria required to fund a delegate or community member’s defense? What form of proof must they provide, and to whom would they provide such proof?
  • How would the organization or team responsible for vetting those criteria satisfy them in a way that preserves attorney-client privilege?
  • Under what circumstances would a delegate or community member be denied funding?
  • What does cooperation with the process entail? What if a delegate or community member fails to properly cooperate with the established operational requirements?
  • How would this team maintain the accountability of the lawyers engaged as cases are ongoing? What sort of visibility should be required to the broader Uniswap community and how would that visibility be managed in a way so as not to violate attorney-client privilege? E.g. an attorney cannot provide non-redacted or privileged communications to a public forum regarding every detail of a matter.
  • Bad lawyers create bad precedent. What are the criteria for good legal representation, and how would those lawyers be sourced? Would the team responsible for managing the defense fund have a preset approval list of attorneys to take on these matters?

While legal defense funds are not a new construct, there are nuanced issues here that require thoughtful diligence. This undertaking is novel and untested. The UF could potentially manage such an effort, but it would take us a non-trivial amount of resources and time to research and implement the optimal structure.

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A few scattered thoughts:

  • I directionally think this is a great idea and there is a genuine need here.
  • If you find it hard to believe the dollar amounts mentioned, you must be lucky in having not have had to pay lawyers. Plenty of firms, especially the firms with real crypto experience and knowledge, charge in excess of $1,000 per hour. A few calls and emails to respond to a subpoena can very easily land you in 5 figure territory.
  • I agree with @eek637 that a more organized, structured approach is needed to answer the questions he raised (and others).

Perhaps a good next step would be the establishment and funding of a working group to execute the thoughtful analysis. This would depend on some qualified people stepping up to lead such an effort, in exchange for fair compensation from the DAO. Off the top of my head, I wonder if a reasonable 5/6 figure sum over the course of, say, a few months, with 2-4 people in the group, could get us to a more robust, informed proposal.

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I agree that this would be a worthwhile exercise and would be happy to contribute although folks could save themselves a lot of trouble and see the work I’ve already done in this space because as many have already recognised in this thread, it is not as simple as parking $Xm in a multi-sig as a rainy-day fund.

The framework I drafted at Maker covered off not only the insurance policies (which included bespoke insurance products specifically addressing the needs of DAOs) but also (off the top of my head):

  1. how funds should be set aside and managed and whether a war-chest should be developed or not;
  2. the development of the law firm panels required to drive down legal costs and introduce competitive tension within the growing market for Web3-specific legal support;
  3. Creating panels based on specific verticals, recognising that some firms specialize in some areas over others;
  4. the eligibility criteria for lawyers registering for inclusion on a panel;
  5. the design of the underlying legal entities and structuring required to manage the insurance policies and respond to litigation or regulatory action (we segregated the insurance arm from the “Guardian” arm because each entity has very different roles and compliance requirements);
  6. the committees required to administer such programs;
  7. the eligibility criteria for claimants;
  8. the processes associated with making a claim on the fund;
  9. the payment flows;
  10. how to deal with anon claimants;
  11. etc…

This is bang-on in terms of the questions that need to be asked and answered.

1 Like