First State Fintech Lab Aragon - Digital Jurisdiction Proposal

[MannyCho]

Request for Nest membership and funding (#48)

Team name: First State Fintech Lab

Proof of concept / research whitepaper: Aragon - Digital Jurisdiction Proposal.pdf

Burn rate: $250k/year in installments per deliverable. Breakdown of costs can be found here: Aragon Budget.pdf

Budget Summary: Project Planning | $5,250 Staff Costs | $183,250 External Consultants | $30,000 Travel | $7,500 Research | $10,000 Events | $10,000 Production | $2,500 Supplies | $1,500

Legal structure: NA / Aragon DAO

Team and roadmap

Proposal

First State Fintech Lab ("FSFL") is a proposal for the Aragon Nest project - DAOs and the interaction with the physical world.

FSFL will assist Aragon to define and implement best practices and criteria for DAOs and a digital jurisdiction to interact with the physical world and land jurisdictions by performing the following:

1. Identify the relevant US requirements for traditional organizations in which Aragon would need to meet if it were a traditional organization.
2. Based on point 1, define gaps which would not apply as Aragon is a DAO. Example, no FEIN exists for a DAO.
3. Based on gaps identified in point 2, collaborate with regulators and subject matter experts (lawyers, tax accountants, etc.) to define best practices and criteria for DAOs and a digital jurisdiction to interact with the physical world and land jurisdictions. These could include curated events, thought leadership roundtables, one-on-one meetings, or other methods.
4. Assist Aragon with implementation of best practices and criteria for DAOs and a digital jurisdiction to interact with the physical world and land jurisdictions.

About FSFL

Founded by Delawareans, Entrepreneurs, and Policy Wonks, the First State Fintech Lab is a partner with the State of Delaware's Financial Innovation Hub. FSFL's primary mission is to ensure that Delaware functions as the FinTech capital of the United States. FSFL’s approach is holistic, community driven, and co-enabled by government. It is a collective, highly focused group of industry, government, academic, and community leaders whose purpose is to drive systemic change in order to strengthen and grow the Fintech sector in the First State.

FSFL bridges the gap between financial technology innovation and policy. FSFL achieves this by developing an ecosystem to promote collaboration amongst key stakeholders – fintech companies, regulatory bodies, financial institutions, and professional services organizations.

FSFL maintains relationships with various State and Federal agencies including Delaware’s Office of the State Bank Commissioner, Delaware Prosperity Partnership, Office of the Secretary of State of Delaware, the Internal Revenue Service, and many more. These relationships lend to effective navigation through and support of the various policy and regulatory environments. Given its relationships and team’s expertise, FSFL is best suited to support Aragon for this proposal.

[mariapao]

Hi @MannyCho thank you for submitting your request for funding. Can you merge the PR that @Smokyish created for your that unifies the two branches of the PR? We are in the process of reviewing the application.

[Smokyish]

@MannyCho I closed the other Pull Request after the changes here and edited the title on this one.

[MannyCho]

Thanks @Smokyish

[jtiannelli]

@mariapao we are also able to contribute to this if you are interested. In Malta they have provided framework for an “Innovative Technology” to be granted a recognized legal right to exist and to conduct business, sign contracts etc. It is similar to the way Sophia the robot was made the world’s first digital non-human citizen. Their framework allows for a digital “body corporate” with its own legal personality without establishing a traditional “corporation.” We recently secured legal help in Malta to work out these details from a firm we found through the Aragon chat. (Ganado Advocates... I believe you spoke with Max there as well)

By the end of next week we should have been granted the first arrangement of this type in the world. Because of our in-house preparations for this day, we already have fairly detailed list of requirements, steps, and procedures etc (even a sample application that’s not yet available to the public) Others could follow in our footsteps to achieve the same legal personality and right to exist and conduct business while still remaining a DAO that is not a corporation. This could be the gateway for many tokens to achieve the right to bank, and more importantly the legal right to sell code to citizens in the entirety of EU.

Let me know what you think, we have completed this assesment for ourselves, but it sounds like some other projects are struggling with this, and we are nearly complete with our application for these rights.

I do still think it’s worth pursuing the Delaware as a potential jurisdiction for some DAOs... as a US citizen, I am well aware of the leniency that is provided in that state, however I’m sure 90% of Aragon based projects won’t be able to do that, and almost all of them could qualify in Malta without ever having to set up a company.

Best, Joe (JT) Iannelli Acting CEO of Techcollect Formerly ETF Token

On Thu, Jul 5, 2018 at 1:08 PM mariapao notifications@github.com wrote:

@mariapao requested changes on this pull request.

Hi @MannyCho https://github.com/MannyCho

Thanks for submitting your request for funding. We have been reviewing it and think that this can be an interesting project. It's important that regulators and land jurisdictions, in general, start learning and experimenting with DAOs. We need to actively push the boundaries of the current system.

After the reviewing in detail the application, my comments are:

1.

Regarding the team, we need to have the team members commitment clear as this is going to affect the funding. Take into account that the funding of the program goes from $50k up to $100k/150k in ETH 2.

Regarding the paper/proposal:

-

Can you clarify or take out the part that says that Aragon is requesting services. You guys are applying and participating in the nest program, a grants program.

As a general comment, what is needed is to define and implement the best practices and criteria for DAOs and a digital jurisdiction to interact with the physical world and land jurisdictions. Land jurisdictions and regulators shouldn't dictate best practices or criteria for DAOs to be created.

Scope of work: In general, what the Aragon project needs is to define and implement the criteria by which DAOs and a digital jurisdiction can interact with land jurisdictions and physical world. The digital jurisdiction is being define according to the blockchain-native digital entities' needs. The Ethereum ecosystem needs to start experimenting with different ways DAOs and a digital jurisdiction could interact with the physical world. The Delaware jurisdiction would be a great place to start working on this.

Request for funding: we don’t do a one-time payment. We do payout according to the fulfilment of the deliverables. We divide the total amount into the difference milestones. This is the way we keep the grants accountable.

1. Regarding the roadmap and deliverables:

   -

   Discovery: "iii. List of relevant land jurisdiction requirements with supporting gap analysis". Instead of requirements, is better to call them critical points, points that are worrisome for the land jurisdiction. Is important to clarify that this is not a project about making the new system fit in the traditional system's box but about finding ways in which these two systems could co-exist

   Implementation (5 weeks). Deliverable(s): "i. Testing and go-live of processes and/or platform changes". Can we have here instead: Testing and go-live of the first interaction/s between a DAO and the Delaware jurisdiction?

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[mariapao]

Hi @jtiannelli are you talking about creating a template to setup a "digital body corporate" on the blockchain, using Aragon, according to Malta's law? If this is the case we are interested.

Also, I understood that in any case such "digital body corporate" would have to incorporate as a foundation or similar legal entity.

[jtiannelli]

@ Mariapoa Yes that is what I am proposing: applying for legal personality for digital code that is not forced to go through the process of becoming a corporation . This has been my goal for our organization for the past several months. We are trying to Register TechCollect (formerly ETF Token) as a “Digital Body Corporate” with its own “legal personality” and the basic rights to exist, conduct business, engage with financial institutions and even enter litigation to protect itself if necessary. Our best understanding of the law is that certain tokens identified as “Virtual Tokens” will be exempt from one of the three acts known as the “Virtual Financial Asset Act” (VFAA) this exemption will be granted to certain token types and may be determined by application to the newly created “Malta Digital Innovation Authority”. These tokens that are deemed to be non-financial assets will be exempt from having to establish a traditional company or corporation. (This is really profound… and it is why I jumped on a plane and went to Malta)

We believe our token has a strong potential of qualifying as the first applicant that is just such an entity... a non-incorporated set of digital code that has its own legal right to exist and to conduct business in the EU. Essentially to register with the authority for these types of rights you need three signature from 1) A Registered Agent – Lawyer or person on the ground in Malta who has submitted their own application to the MDIA to act as a registered Agent; 2)Registered Systems Auditor – Auditor or other professional registered with MDIA to conduct Audits of the Software and accounting principle of the blockchain; and 3) a Technical Administrator - an actual human involved with the development or otherwise representing a technology that will sign for its ability to comply with law and act as the person to be contacted and respond appropriately via the registered agent if necessary by the authority. Legal protections can be provided to all three of these parties.

We are currently soliciting quotes from parties in Malta which we consider likely to receive approval as Registered Agents and Registered Systems Auditors and intend on submitting our application pretty much as soon as the main net is live and we can get an audit of our functioning token. I will keep you informed on how this goes because it often comes down to dollars and cents for smaller DAOs like many of the potential Aragon start-ups. We believe for the smallest DAOs and the ones that do not even accept Ethereum… hypothetically someone who wanted to use Aragon as a governance system for their chess club would not be required to register and would automatically be granted the legal right to exist. However this only applies to the people who don’t have regulatory issues anywhere currently and banks/lawyers would still not engage with these entities without a human representative so nothing profound there.

Most tokens will have a more complicated process than the two methods above, as they will be trying to set up for profit corporations and they are the ones more specifically outlined in the VFAA to acquire corporate licenses, insurance, legal-structure, custodian services etc. People who want to conduct tradition fundraising round ICOs or DAICOs will likely have to hire more of these professional services and register a traditional corporation. There are four relevant documents. Three laws and a consultation paper with some charts and questions to help determine which type of token a potential “Innovative Technology Arrangement” would be issuing. I could provide a breakdown of key points in each of the laws, as this response here could be 20 pages long if I wanted it to be. But the short answer to your question is that it appears there is a way for organizations like ours to have “legal personality” and access to services and institutions without setting up a traditional corporation or over burdening a fledgling innovative technology. I’ll start working a breakdown of the laws for the community and will try my best to respond to any issues that are of concern or if anyone has any specific questions. -JT

On Wed, Jul 11, 2018 at 12:37 AM, mariapao notifications@github.com wrote:

Hi @jtiannelli https://github.com/jtiannelli are you talking about creating a template to setup a "digital body corporate" on the blockchain, using Aragon, according to Malta's law? If this is the case we are interested.

Also, I understood that in any case such "digital body corporate" would have to incorporate as a foundation or similar legal entity.

— You are receiving this because you were mentioned. Reply to this email directly, view it on GitHub https://github.com/aragon/nest/pull/51#issuecomment-404042676, or mute the thread https://github.com/notifications/unsubscribe-auth/AiYfnVLTkHaVtlhctbs6szOL7UttTT6Iks5uFYEPgaJpZM4Upv6t .

[mariapao]

@jtiannelli Thank you!

[MannyCho]

@mariapao Thanks for the feedback. Please see below for my responses to your points.

After the reviewing in detail the application, my comments are:

Regarding the team, we need to have the team members commitment clear as this is going to affect the funding. Take into account that the funding of the program goes from $50k up to $100k/150k in ETH The total funding of $250k is broken up into three separate installments and payable when deliverables have been provided. In the first phase, Discovery, we will provide specific deliverables. Once these specific deliverables are provided, we would then receive payment of $100k in ETH. The second phase is Development, which also has specific deliverables associated with this phase. Once the Development deliverables are provided, we would then receive payment of another $100k in ETH. The third and final phase is Implementation, which has specific deliverables associated with this phase. Once the Implementation deliverables are provided, we would then receive a payment of $50k in ETH. I have updated the request for funding accordingly.

Regarding the paper/proposal:

Can you clarify or take out the part that says that Aragon is requesting services. You guys are applying and participating in the nest program, a grants program. Yes, I have updated this.

As a general comment, what is needed is to define and implement the best practices and criteria for DAOs and a digital jurisdiction to interact with the physical world and land jurisdictions. Land jurisdictions and regulators shouldn't dictate best practices or criteria for DAOs to be created. Understood. I have updated the paper/proposal and request for funding accordingly.

Scope of work: In general, what the Aragon project needs is to define and implement the criteria by which DAOs and a digital jurisdiction can interact with land jurisdictions and physical world. The digital jurisdiction is being define according to the blockchain-native digital entities' needs. The Ethereum ecosystem needs to start experimenting with different ways DAOs and a digital jurisdiction could interact with the physical world. The Delaware jurisdiction would be a great place to start working on this. Understood. I have updated the paper/proposal and request for funding accordingly. Regarding the land jurisdiction, Delaware may be a starting point, but we also have relationships at the Federal level. Given the reach of DAO's, it would be prudent for us to explore other jurisdictions as well (ex. IRS). As such, I have updated the proposal to indicate 'select land jurisdiction' in the implementation phase.

Request for funding: we don’t do a one-time payment. We do payout according to the fulfilment of the deliverables. We divide the total amount into the difference milestones. This is the way we keep the grants accountable. The total funding of $250k is broken up into three separate installments and payable when deliverables have been provided. In the first phase, Discovery, we will provide specific deliverables. Once these specific deliverables are provided, we would then receive payment of $100k in ETH. The second phase is Development, which also has specific deliverables associated with this phase. Once the Development deliverables are provided, we would then receive payment of another $100k in ETH. The third and final phase is Implementation, which has specific deliverables associated with this phase. Once the Implementation deliverables are provided, we would then receive a payment of $50k in ETH. I have updated the request for funding accordingly.

Regarding the roadmap and deliverables: Discovery: "iii. List of relevant land jurisdiction requirements with supporting gap analysis". Instead of requirements, is better to call them critical points, points that are worrisome for the land jurisdiction. Is important to clarify that this is not a project about making the new system fit in the traditional system's box but about finding ways in which these two systems could co-exist Understood. I have updated the request and paper/proposal accordingly.

Implementation (5 weeks). Deliverable(s): "i. Testing and go-live of processes and/or platform changes". Can we have here instead: Testing and go-live of the first interaction/s between a DAO and the Delaware jurisdiction? Delaware may be a starting point, but we also have relationships at the Federal level. Given the reach of DAO's, it would be prudent for us to explore other jurisdictions as well (ex. IRS). As such, I have updated the proposal to indicate 'select land jurisdiction'.

[MannyCho]

@mariapao I have uploaded a breakdown of the budget and uploaded a file that provides further detail regarding our budget.

[mariapao]

@MannyCho thanks for the additional information on the budget. We have decided to stick to the program's funding range for the moment. Would this work for you and your team?

[MannyCho]

@mariapao Yes, that will work for our team.

[MannyCho]

@mariapao That's great. I confirm the $100k in ETH and $50k in ANT as a reward. We too believe this is a key initiative to support the Ethereum and Aragon ecosystems. We're excited to get this project kicked off!

[Smokyish]

@MannyCho Hi, please sign the CLA at https://cla-assistant.io/aragon/nest?pullRequest=51 to have the steps completed for being able to have this PR merged.

[MannyCho]

@Smokyish I have signed the CLA. Thanks.