1inch DAO lawyers up to shield members from liability
With a 50,000 USDC payment, the 1inch DAO executes an on-chain vote to hire a lawyer
1inch and Adobe modified by Blockworks
Back in November, Swiss consulting firm Storm Partners pitched its legal and compliance services to the 1inch DAO. The DAO, which governs the 1inch network, is known primarily for its decentralized exchange (DEX) aggregator.
The idea was for the DAO to have legal advice on call to defend its rights and interests, and to start putting in place a structure to protect its members from personal liability.
There aren’t many — if any — precedents for a DAO voting to hire legal representation. The closest analogue is BarnBridge DAO, which was forced to shut down by the US Securities and Exchange Commission in July.
The BarnBridge protocol was designed to mitigate risks associated with yield farming and interest rate volatility in the crypto market. Its yield-bearing vaults operated on the principle of “tranching,” which is a method borrowed from traditional finance.
The BarnBridge “Operating Team” had the DAO effectively rubber-stamp a decision already made to engage a law firm to defend its members.
Through a settlement released in late December, the founders of BarnBridge agreed that “BarnBridge DAO offered and sold to the public structured crypto asset securities, known as SMART Yield bonds (“SMART Yield”), in unregistered transactions.”
The DAO was ordered to pay $1.46 million in disgorgement to the US Treasury. Co-founder Tyler Ward described the outcome as getting “nuked.”
With a security-like product and a governance token called BOND, it is perhaps unsurprising that BarnBridge attracted the ire of regulators.
The SEC order states that the BarnBridge was “purportedly eliminating the need for intermediaries associated with traditional finance, such as banks and broker-dealers.”
But there’s nothing purported about it. The protocol worked as described, and it was an innovative application of blockchain technology. One can well imagine an alternate universe in which some “safe harbor” or sandbox-like approach from regulators would allow the protocol to develop and flourish, before spending time filing paperwork.
The SEC claims that the SMART Yield investment pools themselves were “unregistered investment companies,” and by settling, they were never forced to prove that claim in court.
Swiss-based Storm Partners calls its arrangement with 1inch “much more innovative,” since the firm made its own governance proposal with specific plans in mind.
Read more: 3 DAO governance trends to watch in 2024
“The DAO has chosen us and conferred upon us a Power of Attorney to legally represent the DAO before third parties,” a Storm Partners spokesperson told Blockworks.
The move “represents a bridge between the decentralized ethos of a Web3 DAO and the legal and regulatory stability provided by a centralized legal counsel,” the firm said in a statement following the DAO vote.
Nicola Massella, legal and compliance director at Storm Partners, called the engagement “a significant step forward in the journey towards legal recognition of decentralized organizations.”
Given the hourly fees involved — paid in Swiss Francs — the 1inch DAO can expect somewhere around 200 hours of legal advice for their retainer.
Storm Partners is required to deliver a quarterly report enumerating its activities on behalf of the DAO.
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