In our May newsletter, we outlined our proposed governance for the OtoCo project.
We introduced a Foundation as the key entity to coordinate the wishes of the community of token holders.
In what follows, we detail the OtoCo Foundation’s setup and proposed governance.
A faceless entity
Most if not all decentralized projects use a Foundation as the vehicle to manage their Treasury of native tokens and other digital assets, and to extend grants to anybody who helps further their project’s goals.
When properly setup, such Foundations are maximally decentralized in their governance, with all decisions subject to an onchain vote by token holders.
They can also be made “faceless” if formed without Founders and Members, which some jurisdictions such as the Cayman Islands allow.
In such faceless setup, the Director merely executes the outcome of onchain votes, and appointed Treasurers are made responsible for all crypto transactions, typically from a multi-sig wallet.
The result is a governance and treasury entity that can act as the genuine steward for a decentralized project which is then no longer depending on the efforts of a few but instead is collectively managed.
Anybody who helps the Foundation achieve its goals can be made recipient of a grant, including the project’s operational entity, often run by the Leads.
Grants to such operational entity are typically made in crypto and can co-exist with more traditional ways of funding such as equity.
Conversion from crypto to fiat to cover fiat expenses then typically happens at the operational company level, which means the Foundation can stay fully in crypto and does as such not need a bank account.
The OtoCo legal stack
The OtoCo legal stack is currently being readied along the principles above.
It seeks to put a mechanism in place that can transmit the wishes of the community of token holders into accountable action by legal entities that can operate and contract in the real-world, with legal validity and under the protection of limited liability.
The Otoco DAO
At the origin of all decision making is the community of OTOCO token holders who vote onchain on Proposals according to the governance protocol of the OtoCo DAO.
This protocol is in essence a suite of smart contracts that govern how Proposals can be tabled, how voting takes place, the majorities required, etc.
There are a fair number of DAO assemblers that provide such ready-made solutions for this and we are looking at a number of options to integrate with our own OtoCo DAO product.
The OtoCo Foundation
When a Proposal is adopted under the rules of the DAO, it becomes a “DAO Resolution” which is then passed on to the OtoCo Foundation for further execution.
To make this transmission legally possible, we drafted a Special Resolution by the initial Directors of the OtoCo Foundation which essentially functions as a mandate given by the token holders to the Foundation’s Director(s) to execute the DAO Resolution.
This special Director resolution in turn refers to the Foundation’s Bylaws, essentially the “legal software” of the Foundation.
These Bylaws are an internal agreement that governs how the Foundation will operate. It is a cornerstone document as it contains the operating manual on how the Foundation’s Directors can be appointed, how grants get paid and how the Foundation’s Treasury generally is managed, etc.
It speaks for itself that changes to the Bylaws themselves are subject to an onchain vote and can only be made pursuant to a DAO Resolution (Article 13 of our Draft Bylaws).
When drafting our Bylaws, we paid particular attention to the so called “Material Adverse Exception Events” or “MAEE”) which may prevent the Foundation from deferring to the OtoCo DAO code and the DAO Resolutions.
These so called Qualified Code and Material Deference in Article 12 strikes a balance between ensuring continuity for the project and the limits on human intervention in case of a code breakdown.
The Bylaws in turn refer to the Foundation’s Memorandum and Articles of Association, both of which, together with the draft Special Director Resolution and draft Bylaws, are made available as part of this post for your review and comment.
Board and Supervisors
The Foundation’s initial Director will be OtoCo Labs Ltd., the project’s Token Issuance Vehicle based in the British Virgin Islands, incorporated on 22 June 2021 in advance of our genesis OTOCO token creation on 16 September 2021.
OtoCo Labs will be appointed for an initial period of two years, at which point a rotating 3-member board system will be put in place.
In this system, any token holder will be able to stand as candidate for Board membership if supported by a threshold number of token holders.
Initially, such vote will be based on a first-past-the-post system, but this may later be refined to allow voters more expressiveness in their preferences.
When elected, revolving Board tenure would be for two years, unless a Board member is terminated earlier subject to an onchain ejection vote, or steps down.
Directors are essentially onchain accounts each with their private keys, functioning as a 2 out of 3 multi-signature wallet for all resolution signing and transaction approval, each with their respective transaction hash.
A prime member system, similar to Polkadot’s, may eventually be introduced to ensure a quorum which would force other Board Members to be explicit in their votes (rather than abstain) or have their votes counted for whatever is voted on by the prime.
What else can the community vote on?
In addition to the biennial Director elections, OTOCO token holders will be able to vote on the following subjects:
- a change in the new token issuance sharing key, initially set as equal thirds between users, developers and the community (see our post on the OtoCo token issuance model)
- a change in the loyalty bonus which determines what % of newly minted tokens is rewarded to users, dAppstore developers and the community
- a change in the ratio of tokens required to pay for USD-priced services in the OtoCo platform
- community grants and other token rewards out of the Foundation’s Treasury
- approval of the Foundation’s working budget and Director renumeration
- decisions related to how the Foundation raises funds for the furtherance of the OtoCo project
- how the Foundation votes in entities in which it is a shareholder or Director
- change in the Foundation’s Bylaws incl. voting weights and voting thresholds.
In addition to matters above, token holders can table Proposals on any issue, provided they gather a threshold number of votes, initially set at 30%.
Directors can table any Proposal without token holder approval, provided 2 out of 3 Directors are in favor.
Voting mechanism
Voting itself is strictly stake-based on a simple majority basis for most decisions, except for reserved matters which will require a two-thirds super-majority.
Such matters initially include the decision to change the token reward split, changes to the token velocity rate, decisions related to the Foundation’s fundraising and entity structure.
Changes to what is considered a reserved matter is also subject to a super-majority vote.
Treasury management
The Foundation’s Treasury holds the balance of the OTOCO tokens together with other crypto assets, including the proceeds of pre-ordered tokens once delivered to early stakers, and possible further token sale proceeds.
Such private sale would be conducted by way of call options written by OtoCo Labs, the Foundation’s token issuance subsidiary.
More quotidian treasury management involves the making of numerous payments on behalf of the Foundation. For this, the OtoCo Foundation will appoint 2 Treasurers whose multi-sig will be required for crypto transactions above a certain threshold value.
The relationship between OtoCo and Otonomos
One of the initial Treasurers will be a wallet controlled by Otonomos, as a way to safeguard the initial investment it made in the OtoCo project.
The best way to think of Otonomos is as the idea lab where OtoCo was conceived and which shouldered all initial costs related to the OtoCo project, up to the point OtoCo was able to secure its own funding, which it is doing via its present token pre-order process.
For the first two years after its token distribution event, the main communality between OtoCo and Otonomos is that Otonomos will deliver the first Director to the OtoCo Foundation.
However, Otonomos is and will remain independently capitalized from OtoCo and none of OtoCo’s treasury will be allocated towards Otonomos, except as a recipient of a grant from the OtoCo Foundation or in return for an invoice if it provides services to the OtoCo project, just like any other third-party supplier to OtoCo.
More generally, Otonomos has a more traditional business model, a more centralized ownership structure and will eventually exit independently from OtoCo based on a multiple of its enterprise value, whilst OtoCo is a radically decentralized, community-lead project in which value is ultimately capture by its native token.
Radical transparency
To facilitate the coordination of the project, there will be a governance tab on the otoco.io Web3 site that lets users interface with Otoco’s DAO.
Initially, it will allow for the tabling of Proposals and organize votes.
Gradually, the functionality of this dash will be expanded with tools and stats.
The overriding governance approach is one of radical transparency.
For instance, we plan to introduce full 3D accounting, with all revenues and expenses accounted for on blockchain and reported back in crypto currency.
This includes full transparency on payments via a self-hosted Web3 Foundation wallet tracker.
On the corporate action side, all voting and other governance actions such as the signing of resolutions will be done via authenticated wallets and stored on IPFS.
In this light, OtoCo also is an experiment in how a community-owned project can be managed and hopefully thrive under the full scrutiny and with full accountability vis-a-vis its token holders and traditional stockholders alike.
Such traditional stockholders could come in at the operational level by taking equity in return for funding in OtoCo Inc., the U.S. operational C-Corp. This C-Corp will be formed early next year, shortly after the pre-order window closes.
Here too we hope we can help develop a standard for the open company of the future, and expect that many of the tools we will need for OtoCo’s governance will meet a demand from other blockchain projects too.
You can access and comment on all draft documents related to our future Foundation below or download and adapt them for your own use:
- Draft Memorandum of Association
- Draft Articles of Association
- Draft Special Director Resolution
- Draft Foundation Bylaws
Join our live Telegram chat today to contribute to our governance dialogue.