This is a transcript of the talk and therefore there may be slight changes to the text in comparison to the original talk given by Nestor Dubnevych, Co-founder and Head of Web3 Legal @ Legal Nodes
Blockchain technology has introduced new possibilities for the web3 industry, particularly in terms of decentralized infrastructure, ownership, and governance. The ability to store data in a distributed manner, without the need for centralized hosting providers, is what meant when we talk about decentralized infrastructure. This makes it possible for new models of business to be developed. The distribution and release of tokens, which are owned and governed by communities of token holders, are examples of the term "decentralized ownership." Because of this, increased participation from the community in the decision-making process of the company happens. Decentralized governance, which also goes by the name of Decentralized Autonomous Organizations -DAOs-, enables community members to drive decision-making, which can have an effect on the business's strategy and the path it will take in the future.
However, the legal structuring of DAOs and the issuance of tokens can be difficult for founders and lawyers. It's possible that web3 companies shouldn't use conventional corporate structures and business procedures. Considering both the "on-chain" and "off-chain" aspects of the company is one way to approach this problem. On-chain refers to the aspect of the company that is based on blockchain technology and smart contracts, whereas off-chain refers to the more traditional legal and regulatory aspects of the company. By utilizing a DAO legal wrapper, it is possible to bridge the gap between the two, thereby enabling the company to operate in a decentralized manner while still adhering to the requirements set forth by the relevant legal authorities and regulatory agencies.
It is essential to consider what the company's potential legal structure might look like in order to prepare for the fact that web3 companies do not discriminate on the basis of location and intend to launch and distribute tokens in every country. Founders and lawyers, who are accustomed to working with conventional corporate structures and standard operating procedures, may find this to be a difficult situation. As a result, it is important that careful consideration be given to the legal and regulatory requirements of the jurisdiction in which the company operates, as well as consultation with attorneys who are experienced in web3 and blockchain technology. This will ensure that the company is in compliance with the applicable laws and regulations.
The on-chain and off-chain components of Web3 solutions are two distinct parts that can be separated from one another. The use of blockchain technology is referred to as the on-chain component, and it includes aspects such as smart contracts, protocols, tokens, on-chain voting, and on-chain treasuries that are managed by Decentralized Autonomous Organizations (DAOs). These components are completely permissionless and decentralized, which enables the direct transfer of assets and values without the requirement for any third parties to act as middlemen. The real-world participants, such as developers and investors, cryptocurrency exchanges and wallets, as well as the community of token holders, are part of the off-chain component.
The most difficult aspect of developing a solution for web3 is going to be connecting these two distinct worlds. The creation of a legal structure, such as a triple company structure, that enables compliant interaction between off-chain participants and the on-chain component could be one solution to this problem. To implement this structure, separate legal entities will need to be established for each function and mode of interaction. The on-chain and off-chain worlds are going to be connected through the use of a legal wrapper, which will involve the construction of a sufficient number of legal entities and bridges. The particular structure will differ from one implementation to another due to the fact that the solution's network, protocol, token release model, and tokenomics will all play a role.
The on-chain and off-chain components of a solution are frequently connected through the use of a triple company structure, which is common in the web3 industry.
This structure is not a one-size-fits-all solution and can change depending on the network, protocol, token release model, and tokenomics of the solution. There is no standard format for this structure.
One of the most important decisions that founders need to make when starting a web3 company is selecting the appropriate jurisdiction for each company. Typically, the first company, which is referred to as Dev Co or DevLAB, is registered in the country in which the core team is located, or in an IT-friendly country, like the UK, Singapore, or Estonia if the team is fully distributed. When choosing the country in which to register Dev Co., the most important factors to take into account are the legal status of tokens, the distribution plan for tokens, and the requirements investors must meet.
The second company, TokenCo, is registered in a country that fosters an environment favorable to cryptocurrencies and whose governing bodies have provided direction on tokens and the legal status of using them. When choosing the country in which to register Token Co., the most important factors to take into account are the legal status of tokens, the distribution plan for tokens, and the requirements investors must meet. Switzerland, Singapore, Hong Kong, and the Cayman Islands are some examples of countries that fit this description.
The third company, known as DAOCo, is incorporated in a nation that fosters an environment favorable to cryptocurrencies and that has a foundational structure that is suitable for decentralized communities. The type of DAO, the business model, the DAO membership model, the DAO governance model, and the regulatory environment are the most important factors to think about when selecting the country in which to register the DAOCo. Countries like the United Kingdom, Singapore, and Estonia are all good examples of this type of nation.
In conclusion, the process of web3 legal structuring is a complicated one that involves numerous aspects such as company registration, on-chain and off-chain solutions, decentralized autonomous organizations (DAOs), token legal status, and distribution plans. To ensure the success of their web3 projects, founders need to take into consideration the aforementioned factors and select the most appropriate legal structure. In addition, it is essential to keep in mind that the legal landscape of web3 is still developing and that it is likely to undergo transformation and adjustment in the not-too-distant future.
Disclaimer: the information in this guide is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. Mentioning any of the assets in this article is not an endorsement to purchase them.
