Dash community,
During the first quarter of this year, Dash Core Group completed the setup of our innovative legal structure, making DCG the first network-controlled legal entity. We have previously shared details on this legal structure and the rationale for migrating from our legacy structure. What we have not shared previously is the specifics of the organization, details on how the network can exercise its influence over DCG, and the exact mechanics involved should the network choose to initiate a change of leadership. The purpose of this memo is to summarize these details to arm the community with the tools needed to hold DCG accountable to the network.
As previously communicated, the organization structure is relatively simple. Most of the complexity is in the relationships and mechanics between the various legal entities we’ve established, and the capability the network has to directly and indirectly affect Dash Core Group operations.
Legal Structure Overview
There are only three entities involved in our structure, which is specifically designed to contain a legal entity with no direct profit motive other than to grow the network. In other words, the setup is not designed to enable profit-making enterprise with the intent of distributing profits to the network. In essence, this establishes Dash Core Group as a cost-center by design. A different legal structure will be needed to house profit-driven enterprises for the benefit of the Dash network, and a separate project is underway to establish such an entity which we have codenamed Dash Ventures.
The first entity is Dash Core Group, Inc. (a.k.a., DCG). DCG is a C-corporation established in the U.S. State of Delaware. C-corporations are taxable entities. We chose a C-corporation for a number of reasons, but there were two major attributes that made the decision obvious. The first is that the team’s previous structure - an Arizona non-profit foundation (specifically a trade association) - was prohibited from accepting donations over a threshold without identifying the donor in filings. Because the Dash masternode network is essentially an unincorporated association of individuals, we could not identify a path to complying with this requirement. In addition, there are substantial restrictions preventing non-profit trade associations from favoring the development of Dash over other cryptocurrencies, or prevents them from lobbying government agencies or lawmakers. The restrictions meant that in practice we would be unable to hire staff to work exclusively on features, business development, or marketing that would solely benefit Dash nor would we have the ability to represent the network’s interests with policymakers.
The main downside with this structure is that it is taxable, but over time this will nonetheless be tax efficient. Concerning the tax implications, we know we will pay taxes as our balance sheet and team grows, but because we are not optimizing for profit and lack a profit motive, our long-term tax as a share of our proposal income will decline over time and eventually approach a rate near zero. Because of the tax-efficiency over long periods of time, we believe it should not be a major consideration compared to the restrictions we would face with a non-profit structure.
The second entity in our structure is The Dash DAO Irrevocable Trust (a.k.a., The Dash Trust). The Dash Trust was established in New Zealand, which was selected for its strong reputation and well-defined trust laws. Because we don’t anticipate any DCG income distributed to the trust as a dividend, we did not optimize for tax haven jurisdictions. A tax haven jurisdiction would offer no tax savings, yet might carry a stigma. In addition, there are a substantial number of trustees that service New Zealand trusts, which provides us with significant choice for trust administration services going forward. The Dash Trust is established for the benefit of the Dash masternode operators. In the unlikely event that the Dash masternodes cease to exist (e.g., the network dissolves) there is a secondary beneficiary - International Red Cross - to which any remaining assets could be distributed.
The main relationship between the two legal entities is that The Dash Trust possesses 100% ownership of the shares of DCG and therefore controls DCG’s board of directors. The Trust is not chartered to interfere with the operations of DCG under normal circumstances (e.g., the masternodes are continuing to fund its operations), but it may take action if it is notified of an act of dishonesty or misappropriation of funds, or if a vote by the masternodes compels them to replace the directors of DCG. More on these powers and how they are exercised is expanded upon in a later section of this document.
As formed, this legal structure also benefits the network by lowering risks and establishing a fiduciary duty of DCG’s officers and directors to the network, which should allow the network the freedom to invest more heavily into DCG without increasing the risk of asset loss. Ultimately, Dash DAO treasury grants are not legal contracts, so there is no legal recourse for the network unless an agreement is entered with a trusted entity (e.g., escrow services). Had DCG been structured as a simple partnership, the owners of the partnership would be empowered to cease operations at any time and distribute its “earnings” to the partners. For example, at the end of December, DCG owned over $10 million in assets, which would constitute an unacceptable risk to the network if it were owned by individuals that had personal ownership over those funds.
Entity Roles
DCG is the operating entity for the Dash core team, while The Dash Trust is both a vessel for DCG shares and a limited governance mechanism through which the masternodes can reassign DCG directors. The masternode owners continue to possess - as they always have - the ability to approve or deny proposal-based funding requests, which remains the primary mechanism to influence DCG’s operations to act in good faith for the benefit of the masternodes, and to shape DCG’s activities.
Both DCG and the Trust have their own governance. In the case of Dash Core Group, it has a board currently consisting of many of its senior officers or long-standing team members. Specifically, the DCG board is Glenn Austin, Robert Carroll, Philipp Engelhorn, Andy Freer, Fernando Gutierrez, Holger Schinzel, Ryan Taylor, and Robert Wieko. Board membership additions or removals are normally conducted by election of existing members, unless a masternode-initiated reassignment is triggered. It is our intent to transition to an external / independent board to provide greater accountability. However, we want to transition in a way that preserves DCG values and culture, so we plan to transition to this model slowly and methodically as turnover occurs.
In the case of The Dash Trust, it is ultimately governed by a similar body consisting of “trust protectors”. The Dash Trust has four primary roles.
The Dash Trust is currently administered by Waheed Hussain of TCA Asset Management, S.A. in Geneva, Switzerland. He is a professional trustee who will carry out any legal instructions assigned by the trust protectors. The trustee may be reassigned by the trust protectors at any time. For those who are unfamiliar, trustees have powers of administration of property with a legal obligation to administer it solely for the purposes specified - and carry out the instructions of the trust protectors as long as those instructions comply with law and the instructions of the trust.
The initial trust protectors are a subset of the DCG board, as we needed an initial body to establish the trust. This is temporary and will no longer be the case after the first proper election early next year. The initial trust protectors are Philipp Engelhorn, Andy Freer, Fernando Gutierrez, Holger Schinzel, Ryan Taylor, and Robert Wieko.
Masternodes ultimately control the fate of both entities through several mechanisms including:
Governance Mechanics
The masternodes will continue to leverage proposal funding as the primary mechanism to influence DCG. As long as DCG is performing to the satisfaction of the masternodes, no other action is required and the trust protectors are compelled to not interfere with the normal operation of DCG.
However, at any time, the DCG board can be evaluated and / or replaced by the trust protectors via direction from the masternodes. This process can be initiated at any time by the masternodes by submitting a proposal to the network which - if approved - triggers this process. The proposal must pass with a 10% threshold, just like other decision proposals posted to the network in the past. If a decision proposal passes instructing the trust protectors to either evaluate or explicitly replace all or some of the DCG board members specified in the proposal, the trust protectors must initiate that process. The trust protectors are ultimately tasked with representing the best interests of the Dash masternodes.
Obviously, in the short run the trust protectors and DCG board consist of extensive overlap, with the exception of Glenn Austin and Robert Carroll. This arrangement is obviously not desirable for the long-term governance of DCG, as the trust protectors are intended to keep the DCG board accountable to the masternodes should the masternodes trigger an evaluation or replacement event. However, within 5-8 months we will hold the first election and this will no longer be the case. Additionally, if the network expresses a desire to reassign DCG management, we can voluntarily accelerate plans to hold a trust protector election sooner than initially planned to facilitate the independence required of an unbiased DCG board evaluation or reassignment.
Similar to a normal corporate board, executive selection, compensation, and strategic decisions reside with the DCG board. If there are DCG performance issues not addressed by DCG’s board to the satisfaction of the masternodes, their recourse is to instruct the trust to fire and replace the DCG board, or a subset of board members specified in the decision proposal.
Anticipated questions
Why can’t the DCG board members be directly elected by the masternodes?
Unfortunately, the only entity that can elect board members to a corporation are the shareholders of the corporation. Unless we forced masternode owners to self-identify - which we cannot enforce anyway - the masternode owners cannot be the owners of record of the shares of DCG. For that reason, they cannot vote to elect the board members of DCG. However, The Dash Trust does own the shares and is therefore the only entity that can elect DCG’s board. The trust protectors are roles that can be assigned in any manner we wished, so it was the best option available for the network to elect its representatives. While it adds a layer between the masternodes and the DCG board, it ensures the greatest degree of decentralization by avoiding requirements many masternode owners would object to in order to own shares in DCG directly.
Are other models feasible over time?
Yes, this entire setup is adaptable. Some of the changes that the entities can consider in the future are changing the election methodology for the trust protectors, which can be altered by them within the bounds of the intent of the trust, or establishing a completely separate trust for intellectual property to ensure the actions of DCG could never jeopardize the network’s ownership of such assets. In order to manage costs at our current stage of growth, we needed to make some compromises, so we expect over time much of this setup to evolve to meet our changing needs.
I am a beneficiary (e.g., masternode owner), so may I see the trust document?
Yes, we are publishing a redacted copy of the trust. The only sections that are redacted are to obscure a few instances of personal information.
https://www.dropbox.com/s/op9q9gd5l...rrevocable Trust - 12-22-17 Redacted.pdf?dl=0
Can other entities serving the network adopt this structure?
Yes, there is nothing preventing other legal entities, groups, or individual community members from mimicking this structure. There are many reasons why a group serving the Dash network may want to structure themselves this way. It builds trust with the network by eliminating a profit motive and establishing ultimate control with the network. It ensures the entity can outlive its creators or initial owners. And, it establishes a fiduciary duty to the network, which is a powerful legal obligation that aligns the interest of the entity with the interests of the network. However, if you are a vendor with a profit motive seeking to provide services to the network at a profit (and there is nothing wrong with that), this would not be a suitable structure. We are happy to discuss with other projects in the Dash ecosystem if they are interested in learning more.
If there are any other questions, feel free to post them here and I will be checking periodically over the next week to answer questions. We can also take questions in the Q&A portion of the quarterly call next week.
Sincerely,
Ryan
During the first quarter of this year, Dash Core Group completed the setup of our innovative legal structure, making DCG the first network-controlled legal entity. We have previously shared details on this legal structure and the rationale for migrating from our legacy structure. What we have not shared previously is the specifics of the organization, details on how the network can exercise its influence over DCG, and the exact mechanics involved should the network choose to initiate a change of leadership. The purpose of this memo is to summarize these details to arm the community with the tools needed to hold DCG accountable to the network.
As previously communicated, the organization structure is relatively simple. Most of the complexity is in the relationships and mechanics between the various legal entities we’ve established, and the capability the network has to directly and indirectly affect Dash Core Group operations.
Legal Structure Overview
There are only three entities involved in our structure, which is specifically designed to contain a legal entity with no direct profit motive other than to grow the network. In other words, the setup is not designed to enable profit-making enterprise with the intent of distributing profits to the network. In essence, this establishes Dash Core Group as a cost-center by design. A different legal structure will be needed to house profit-driven enterprises for the benefit of the Dash network, and a separate project is underway to establish such an entity which we have codenamed Dash Ventures.
The first entity is Dash Core Group, Inc. (a.k.a., DCG). DCG is a C-corporation established in the U.S. State of Delaware. C-corporations are taxable entities. We chose a C-corporation for a number of reasons, but there were two major attributes that made the decision obvious. The first is that the team’s previous structure - an Arizona non-profit foundation (specifically a trade association) - was prohibited from accepting donations over a threshold without identifying the donor in filings. Because the Dash masternode network is essentially an unincorporated association of individuals, we could not identify a path to complying with this requirement. In addition, there are substantial restrictions preventing non-profit trade associations from favoring the development of Dash over other cryptocurrencies, or prevents them from lobbying government agencies or lawmakers. The restrictions meant that in practice we would be unable to hire staff to work exclusively on features, business development, or marketing that would solely benefit Dash nor would we have the ability to represent the network’s interests with policymakers.
The main downside with this structure is that it is taxable, but over time this will nonetheless be tax efficient. Concerning the tax implications, we know we will pay taxes as our balance sheet and team grows, but because we are not optimizing for profit and lack a profit motive, our long-term tax as a share of our proposal income will decline over time and eventually approach a rate near zero. Because of the tax-efficiency over long periods of time, we believe it should not be a major consideration compared to the restrictions we would face with a non-profit structure.
The second entity in our structure is The Dash DAO Irrevocable Trust (a.k.a., The Dash Trust). The Dash Trust was established in New Zealand, which was selected for its strong reputation and well-defined trust laws. Because we don’t anticipate any DCG income distributed to the trust as a dividend, we did not optimize for tax haven jurisdictions. A tax haven jurisdiction would offer no tax savings, yet might carry a stigma. In addition, there are a substantial number of trustees that service New Zealand trusts, which provides us with significant choice for trust administration services going forward. The Dash Trust is established for the benefit of the Dash masternode operators. In the unlikely event that the Dash masternodes cease to exist (e.g., the network dissolves) there is a secondary beneficiary - International Red Cross - to which any remaining assets could be distributed.
The main relationship between the two legal entities is that The Dash Trust possesses 100% ownership of the shares of DCG and therefore controls DCG’s board of directors. The Trust is not chartered to interfere with the operations of DCG under normal circumstances (e.g., the masternodes are continuing to fund its operations), but it may take action if it is notified of an act of dishonesty or misappropriation of funds, or if a vote by the masternodes compels them to replace the directors of DCG. More on these powers and how they are exercised is expanded upon in a later section of this document.
As formed, this legal structure also benefits the network by lowering risks and establishing a fiduciary duty of DCG’s officers and directors to the network, which should allow the network the freedom to invest more heavily into DCG without increasing the risk of asset loss. Ultimately, Dash DAO treasury grants are not legal contracts, so there is no legal recourse for the network unless an agreement is entered with a trusted entity (e.g., escrow services). Had DCG been structured as a simple partnership, the owners of the partnership would be empowered to cease operations at any time and distribute its “earnings” to the partners. For example, at the end of December, DCG owned over $10 million in assets, which would constitute an unacceptable risk to the network if it were owned by individuals that had personal ownership over those funds.
Entity Roles
DCG is the operating entity for the Dash core team, while The Dash Trust is both a vessel for DCG shares and a limited governance mechanism through which the masternodes can reassign DCG directors. The masternode owners continue to possess - as they always have - the ability to approve or deny proposal-based funding requests, which remains the primary mechanism to influence DCG’s operations to act in good faith for the benefit of the masternodes, and to shape DCG’s activities.
Both DCG and the Trust have their own governance. In the case of Dash Core Group, it has a board currently consisting of many of its senior officers or long-standing team members. Specifically, the DCG board is Glenn Austin, Robert Carroll, Philipp Engelhorn, Andy Freer, Fernando Gutierrez, Holger Schinzel, Ryan Taylor, and Robert Wieko. Board membership additions or removals are normally conducted by election of existing members, unless a masternode-initiated reassignment is triggered. It is our intent to transition to an external / independent board to provide greater accountability. However, we want to transition in a way that preserves DCG values and culture, so we plan to transition to this model slowly and methodically as turnover occurs.
In the case of The Dash Trust, it is ultimately governed by a similar body consisting of “trust protectors”. The Dash Trust has four primary roles.
- Own the shares of DCG
- As shareholders, reassign the DCG board if the masternodes instruct it to do so
- Assign or hire the trustee of the Trust
- Hold other passive assets that ultimately belong to the network such as patents or trademarks assigned to it by DCG or other legal entities, and enforce any associated licensing requirements
The Dash Trust is currently administered by Waheed Hussain of TCA Asset Management, S.A. in Geneva, Switzerland. He is a professional trustee who will carry out any legal instructions assigned by the trust protectors. The trustee may be reassigned by the trust protectors at any time. For those who are unfamiliar, trustees have powers of administration of property with a legal obligation to administer it solely for the purposes specified - and carry out the instructions of the trust protectors as long as those instructions comply with law and the instructions of the trust.
The initial trust protectors are a subset of the DCG board, as we needed an initial body to establish the trust. This is temporary and will no longer be the case after the first proper election early next year. The initial trust protectors are Philipp Engelhorn, Andy Freer, Fernando Gutierrez, Holger Schinzel, Ryan Taylor, and Robert Wieko.
Masternodes ultimately control the fate of both entities through several mechanisms including:
- Power to fund or deny funding proposals from either entity (we presume the Trust will need a small budget to operate and pay expenses)
- Power to explicitly instruct the trust protectors to review or replace the DCG board
- Power to elect The Dash Trust trust protectors
Governance Mechanics
The masternodes will continue to leverage proposal funding as the primary mechanism to influence DCG. As long as DCG is performing to the satisfaction of the masternodes, no other action is required and the trust protectors are compelled to not interfere with the normal operation of DCG.
However, at any time, the DCG board can be evaluated and / or replaced by the trust protectors via direction from the masternodes. This process can be initiated at any time by the masternodes by submitting a proposal to the network which - if approved - triggers this process. The proposal must pass with a 10% threshold, just like other decision proposals posted to the network in the past. If a decision proposal passes instructing the trust protectors to either evaluate or explicitly replace all or some of the DCG board members specified in the proposal, the trust protectors must initiate that process. The trust protectors are ultimately tasked with representing the best interests of the Dash masternodes.
Obviously, in the short run the trust protectors and DCG board consist of extensive overlap, with the exception of Glenn Austin and Robert Carroll. This arrangement is obviously not desirable for the long-term governance of DCG, as the trust protectors are intended to keep the DCG board accountable to the masternodes should the masternodes trigger an evaluation or replacement event. However, within 5-8 months we will hold the first election and this will no longer be the case. Additionally, if the network expresses a desire to reassign DCG management, we can voluntarily accelerate plans to hold a trust protector election sooner than initially planned to facilitate the independence required of an unbiased DCG board evaluation or reassignment.
Similar to a normal corporate board, executive selection, compensation, and strategic decisions reside with the DCG board. If there are DCG performance issues not addressed by DCG’s board to the satisfaction of the masternodes, their recourse is to instruct the trust to fire and replace the DCG board, or a subset of board members specified in the decision proposal.
Anticipated questions
Why can’t the DCG board members be directly elected by the masternodes?
Unfortunately, the only entity that can elect board members to a corporation are the shareholders of the corporation. Unless we forced masternode owners to self-identify - which we cannot enforce anyway - the masternode owners cannot be the owners of record of the shares of DCG. For that reason, they cannot vote to elect the board members of DCG. However, The Dash Trust does own the shares and is therefore the only entity that can elect DCG’s board. The trust protectors are roles that can be assigned in any manner we wished, so it was the best option available for the network to elect its representatives. While it adds a layer between the masternodes and the DCG board, it ensures the greatest degree of decentralization by avoiding requirements many masternode owners would object to in order to own shares in DCG directly.
Are other models feasible over time?
Yes, this entire setup is adaptable. Some of the changes that the entities can consider in the future are changing the election methodology for the trust protectors, which can be altered by them within the bounds of the intent of the trust, or establishing a completely separate trust for intellectual property to ensure the actions of DCG could never jeopardize the network’s ownership of such assets. In order to manage costs at our current stage of growth, we needed to make some compromises, so we expect over time much of this setup to evolve to meet our changing needs.
I am a beneficiary (e.g., masternode owner), so may I see the trust document?
Yes, we are publishing a redacted copy of the trust. The only sections that are redacted are to obscure a few instances of personal information.
https://www.dropbox.com/s/op9q9gd5l...rrevocable Trust - 12-22-17 Redacted.pdf?dl=0
Can other entities serving the network adopt this structure?
Yes, there is nothing preventing other legal entities, groups, or individual community members from mimicking this structure. There are many reasons why a group serving the Dash network may want to structure themselves this way. It builds trust with the network by eliminating a profit motive and establishing ultimate control with the network. It ensures the entity can outlive its creators or initial owners. And, it establishes a fiduciary duty to the network, which is a powerful legal obligation that aligns the interest of the entity with the interests of the network. However, if you are a vendor with a profit motive seeking to provide services to the network at a profit (and there is nothing wrong with that), this would not be a suitable structure. We are happy to discuss with other projects in the Dash ecosystem if they are interested in learning more.
If there are any other questions, feel free to post them here and I will be checking periodically over the next week to answer questions. We can also take questions in the Q&A portion of the quarterly call next week.
Sincerely,
Ryan
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