Discussion for future operational governance proposals and authorizations for 3rd party service providers


Hi all, in furtherance of ‘ Governance Proposal 25 – Authorization of Administrators’, I have been formulating options to bring before the community to facilitate conversations on legal/financial compliance and operational function. Over the course of the next two weeks, I will be posting a series of Discourse posts to engage the community around certain proposals that have been suggested through community town halls, DMs and Discord chats, as well as a continuation of the proposal authorizing Zora / myself administrators to engage legal and tax service providers and Kyler and myself administrators to enact the necessary steps to formalize the UNA.

As a reminder, authorizations for administrator roles are quite narrow in actual authority and are not managerial roles. All strategic and managerial decisions must be made by the DAO. Accordingly, much of the steps we as administrators have performed to date have been informational gathering and require community participation in deciding the best course of action, how best to present those decisions as governance proposals, and how to execute the necessary steps resulting from the governance proposals.

These Discourse posts themselves are simply me, as a member of the community, putting forward my thoughts on the steps the DAO needs to take regarding pressing items and tax/regulatory compliance – their purpose is to raise issues for the community to discuss and potentially formulate a proposal around. They are not intended to be directive but rather, to open the lines of community discussion on issues for us to resolve together. This post is intended as an informational update to bring forth issues requiring member discussions and not a directive for next steps.

In general, it is my hope that these proposals occur as part of a larger conversation related to the DAO’s purpose, budget and operational / decision-making going forward. My ultimate goal is to help the DAO establish minimal operational function that allows the DAO community focus more on its core mission than the operational obligations of compliance and regulatory obligations.

Summary of Proposals

The Discourse posts I plan to publish will speak to the following:

1 - Retroactive compensation for Profwerder and discussion as to the community / discord resident role she has performed for the past 3 months and a one month continuation for March.

(This Discourse and Proposal have already been posted).

Further Discussion of this proposal can be found on Discord and on Discourse.

The proposal can be found here.

Larger conversations regarding community direction and role should occur over March to attain a go-forward solution.

2 - Proposal for potential buy back offered for first 71 NFTs

(This Discourse will be posted today).

A number of early NFT purchasers have expressed that they would not have joined Builder Protocol had they understood that Builder DAO was formed as a US entity and subject to various tax and informational reporting requirements. Although it is an important distinction that the activity of Builder DAO itself is what gives rise to these obligations (and not the entity form utilized, i.e. the UNA), in the spirit of general community harmony – this proposal aims to provide any member who feels they would not have joined the DAO had they been aware of the US entity form and informational reporting obligations (prior to the enacted governance proposal on January 18th providing additional disclosures on the ‘Builder DAO About Page’) an opportunity to receive back the value of their NFT in exchange for returning their NFT to the community.

3 - Onboarding tax compliance service providers.

(This Discourse will be posted by March 17th, 2023).

As administrators, Zora and myself met with a variety of potential service providers around existing 3rd party functionality. Conversations with Taxbit have demonstrated a possible utilization of 3rd party functionality that could be coordinated into the Builder protocols to allow for compliance with our US tax information collection and reporting obligations (e.g. W8/W9 collection and preparation of 1099’s when necessary). For a reminder about the DAO’s obligations, see the tax guidance linked in Discord here. The utilization of a 3rd party for this function would allow completion of these essential tasks without any individual members having to be responsible for other members personal information.

Utilization of this solution may require efforts on the part of Zora / the resident engineer to coordinate implementation of the tools – but the end result will be a product that can be expanded to meet the necessary informational reporting requirements. The projected cost for this service is approximately $17k per year.

I understand this subject will be met with some discomfort within the community on operational and philosophical grounds. Although there is a broader conversation about general AML/KYC considerations to be had – hopefully the discussion in relation to this particular issue can be centered on the reality that the distributions of value from a US entity require certain reporting obligations be met and generating a proposal to meet those obligations in the least restrictive manner possible for members of the community.

4 - Onboarding of a lawyer.

(This Discourse will be posted by March 21st, 2023).

Derek Colla of Cooley LLP is a well-regarded attorney in the space and in extremely high demand. Payment for an attorney is typically done in regard to a retainer arrangement and pending completion of the necessary onboarding formalities, Derek has agreed to a retainer amount of $30k to engage with Builder Protocol.

This proposal will discuss how to make payment to Cooley, but more importantly – the community should come to an agreement of how to utilize an on-call attorney. Attorneys charge by the hour and a $30k retainer needs to be utilized responsibly and efficiently to ensure long term coverage. Although we should utilize Derek to educate the community and advise on policy, a framework for streamlining requests and making sure we are receiving maximum value when using his time will be important for overall budget considerations.

5 - Onboarding a bookkeeper.

(This Discourse will be posted by March 21st, 2023 – subject to identifying suitable candidates).

Bookkeepers provide basic accounting services that assist the DAO in critical functions like budgeting, financial planning, and financial reporting. Crypto-specialized bookkeepers are especially important when dealing with NFT auctions and crypto-denominated sales and distributions.

To date, the bookkeepers we have spoken with have quoted us far higher than our expectations ($30k in combined startup and annual costs for year one). The good news is, I have scheduled meetings with an accountant familiar with web3 issues that I believe will provide a much more useful product for significantly less cost.

6 - Onboarding tax advisors

(This Discourse will be posted by March 21st, 2023)

Deloitte has been engaged by Zora for the purposes of coordinating tax issues for Zora in relation to Builder DAO (including the transfer of IP from Zora to Builder DAO). A necessary by-product of that analysis is an understanding of Builder as a DAO. Subject to their somewhat rigorous onboarding process, utilization of Deloitte for tax preparation and advisory services would be an extraordinarily beneficial professional advisor relationship. Deloitte has the capacity to coordinate a significant amount of subject matter experts to help resolve DAO issues beyond just filing taxes, including AML/KYC considerations, informational reporting procedures, and operational efficiencies.

Because of the need to approve the onboarding of advisors through community decision, Deloitte is preparing a budgetary estimate that would allow the community to evaluate the costs of services and the value received. Once the scope of service and budget can be presented – a proposal for engagement will be required and subject to being approved through their onboarding procedures, we would be able to utilize their services.

In general, the tax calculations I have seen on the discord run higher than expected once calculated. Utilization of expenses will bring down the net taxable income and there are a number potential tax treatments that need to be pursued to determine what, if any, tax benefits are available.

Quality tax advisors do not guarantee results, but utilization of world-class experts will provide Builder DAO the assurances that it identified any applicable favorable treatment while meeting its tax compliance obligations.

7 - Moving a % of the treasury to stablecoin to establish a service / tax obligation reserve to make sure money is available as needed and fluctuations in value do not unnecessarily increase expense.

(This Discourse will be posted in March 2023).

As cost of 3rd party service providers is still in development and an estimated annual tax obligation has not been finalized – it is premature to estimate what amount of the treasury should be utilized for this purpose. However, as the tasks above finalize – the picture should become more clear and a proposal for that purpose raised.

8 - Attaining a bank / payment option.

(This Discourse will be posted after formulation of options).

Neither the IRS nor a number of 3rd party service providers take payments in crypto. Accordingly, attaining a fiat payment option is critical to ensure we can make these payments in USD. Ideally, Builder DAO will be able to attain a bank account – however a number of options are available should that not be possible. This item is a priority and updates will be forthcoming as ideas are finalized and progress made on identifying a solution.

The DAO has come a long way since launch and our short history is full of members committing to the DAO’s long term success. I am hopeful that these discourse discussions result in governance proposal that the community feels strongly about supporting and create replicable procedures for us to be confident in Builder DAO’s compliance and operational planning as we turn to important conversations about our intended purpose and long-term goals.

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A timing update to the above:

  • We are still in the process of finalizing a proposal with a tax service provider capable of meeting the w8/w9 reporting in a manner consistent with member anonymity. It is an ongoing discussion and progress is being as quickly as possible.

  • We are waiting to make the proposal in coordination with the other 3rd party service providers.

  • We are currently in the client acceptance process for onboarding a tax preparer / advisor and will make a proposal when that process is complete.

  • Given the simplicity of the financial statements currently and the expense of onboarding bookkeepers, the community can perform this function at current time.

  • Discussions around the process of acquiring a bank account are ongoing - but the general progress has been positive.

A further update is available here - Prop 25 Update and Compliance Game Plan