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The Grimoire Operating Agreement
MetaCartel Ventures (MCV) will be a Delaware Limited Liability Company (LLC) that consists of two key components of law, including:
- The DAO's “Grimoire", a Limited Liability Company Agreement, that constitutes a voluntary, legally binding agreement among the members of the DAO
- The Delaware Limited Liability Company Act, which is a statute (set of laws) determining the default governance rules and meta-rules for LLCs formed in Delaware.
The Grimoire constitutes a pact among MCV’s members, and the statute prescribes meta-rules about how that pact should be written and interpreted. Through the LLC, MCV will be able to enter into legal contracts and engage in investment opportunities without the risk of individual personal liability beyond the capital in the DAO. It will also allow registered legal entities to participate in the DAO’s membership as well as the issuance of securities to the DAO.
Unlike a typical LLC, the Grimoire enables MCV’s governance to become tightly coupled with its Moloch DAO v2 smart contracts. Thus, when a person follows the on-chain procedures for acquiring DAO shares from MCV’s smart contract, the person will also legally become a member of MCV, with rights and obligations determined by the terms of the Grimoire and the Delaware Limited Liability Company Act.
MCV’s goal is to facilitate a DAO with a focus on open participation where its members are enabled to have radical level of flexibility in their continued involvement, all while having a right to participate in the management of the DAO (investment decisions, asset management, membership admissions). These goals are naturally in tension: If MCV becomes too open too quickly, the community runs a high risk of either lapsing into a traditional leader/follower org structure or fragmenting into dysfunctional cliques. If MCV is too rigid, it will miss critical opportunities to build the community. MCV will carefully consider all such social, legal and technical factors to enable a continuous, dynamic readjustment of this delicate balance.
MCV’s focus on community governance, combined with its mission of investing in the Ethereum ecosystem on a for-profit basis, has led to a number of legal structuring choices. The highlights of these choices are summarized below.
In general, the Grimoire is informed by a belief that traditional legal mechanisms for handling governance issues can be substantially augmented, streamlined and/or eliminated by leveraging blockchain technology that has been designed to minimize transaction costs and execution risks, such as the MolochDAO smart contract system. Many past DAO projects, touting the principle of “code is law”, have abandoned legal structuring altogether and sought to defer all legal results to the operation of software. We believe it is more appropriate to continue to utilize legal structures, but to modify them to defer to the outcome of operating software when appropriate--an approach that has been described as “qualified code deference.”
For example, traditional organizations typically struggle with how to provide members with a “fair exit”. Many LLC agreements provide that, when a member exits the organization, that member is entitled to be paid the “fair market value” of the member’s membership interests--in many ways, it is as if the LLC is repurchasing the membership interests and needs to establish a fair price. However, “fair market value” is a “fuzzy logic” concept in many contexts. To use blockchain lingo, there is no market-based “price feed” or “price oracle” we can use to accurately price the value of an illiquid membership interest in a privately held company in realtime.
Traditionally, this issue is often dealt with by including in the Limited Liability Company Agreement or other applicable contract extensive notification, negotiation and arbitration procedures and appraisal standards for determining what “fair market value” means. These provisions will potentially be ambiguous and lead to disputes, requiring a exiting member to be tied up in legal procedures and potentially even court battles for long periods before getting paid.
In contrast, due to the flexibility and freedoms provided through Moloch DAO v2 smart contracts, such complex and litigation-prone contractual mechanisms are not necessary to ensure that members receive fair exit terms. Instead, a exiting member of MCV can immediately and trustlessly receive tokens representing its entire pro rata interest in each of the DAO’s individual assets at the time of exit. See below under resignation and expulsion of members for more legal detail on this process and below under asset management for more detail on the technological implementation of this process.
IMPORTANT: This paper’s summary of the Grimoire, the Delaware LLC Act and any other laws referenced in this paper is not intended to be complete and may become inaccurate based on subsequent developments. The summary is qualified in its entirety by the actual contents of the Grimoire and the LLC Act. To the extent that the summaries contained herein conflict with the terms of the Grimoire or the LLC Act, the terms of those writings will control and be determinative as to the outcome of the relevant issues, not the contents of this paper. Please review the disclaimers at the back of this paper and bear them in mind when reviewing the summaries set forth herein.