The Legal Defense approach we took at Sky (aka Maker DAO) is set out here, so feel free to peruse that section of the Atlas (Article A.2.7). It represents a comprehensive plan for the public elements of my recommendation. While I'm at it, I should acknowledge the work done by Layer Zero who did all of the early groundwork on this and was amazing to work with—a DeFi OG and absolutely based.

There are components of the structure that are non-public, particularly around the services provided by the insurance brokers. The relationships they rely on to create these bespoke insurance products tend to be closely guarded, and the risk analysis and claims methodologies they employ are proprietary. We also developed a number of cost models to prepare feasibility studies and establish the entities, which are not relevant at this stage.

All this work remains criminally underappreciated. I suspect that's because it's still too far ahead of the market - Layer Zero and I have been waiting for the industry to catch up, so it's always heartening to see discussions like this. Even if one believes that some regulatory magic bullet exists for legal recognition of DAOs, this does not obviate the need for prudent risk management, of which insurance is a key part.

The legal and regulatory attacks on DeFi protocols don't start and end with the SEC. We will likely see a growing number of patent and trademark infringement cases, consumer class actions, regulatory investigations, and party-to-party claims. This is not unique to Web3—it's a reality for every successful operation and, in many ways, a mark of success. If you want to go big in any industry, you need to be prepared to get into some legal battles along the way.

What distinguishes DeFi protocols from traditional operations is the capital allocation within the system, the distribution of power for key decisions, the lack of formal structures offering limited liability protection to ecosystem participants, and the types of attack vectors individual participants are exposed to.

The legal defense funds being discussed here offer two benefits. One is, obviously, a pool of funds that can be accessed on short notice. The other benefit is prophylactic—it signals to counterparties that litigation will not be a walkover (as has sadly been the case for too long in crypto's short history).

My suggestion is for the DAO to consider levering up the value of that self-insurance fund with externally sourced insurance and establishing the necessary legal structures to fully benefit from those arrangements.

I agree that this would be a worthwhile exercise and would be happy to contribute although folks could save themselves a lot of trouble and see the work I've already done in this space because as many have already recognised in this thread, it is not as simple as parking $Xm in a multi-sig as a rainy-day fund.

The framework I drafted at Maker covered off not only the insurance policies (which included bespoke insurance products specifically addressing the needs of DAOs) but also (off the top of my head):

1. how funds should be set aside and managed and whether a war-chest should be developed or not;
2. the development of the law firm panels required to drive down legal costs and introduce competitive tension within the growing market for Web3-specific legal support;
3. Creating panels based on specific verticals, recognising that some firms specialize in some areas over others;
4. the eligibility criteria for lawyers registering for inclusion on a panel;
5. the design of the underlying legal entities and structuring required to manage the insurance policies and respond to litigation or regulatory action (we segregated the insurance arm from the "Guardian" arm because each entity has very different roles and compliance requirements);
6. the committees required to administer such programs;
7. the eligibility criteria for claimants;
8. the processes associated with making a claim on the fund;
9. the payment flows;
10. how to deal with anon claimants;
11. etc...

This is bang-on in terms of the questions that need to be asked and answered.

The Legal Defense approach we took at Sky (aka Maker DAO) is set out here, so feel free to peruse that section of the Atlas (Article A.2.7). It represents a comprehensive plan for the public elements of my recommendation. While I'm at it, I should acknowledge the work done by Layer Zero who did all of the early groundwork on this and was amazing to work with—a DeFi OG and absolutely based.

There are components of the structure that are non-public, particularly around the services provided by the insurance brokers. The relationships they rely on to create these bespoke insurance products tend to be closely guarded, and the risk analysis and claims methodologies they employ are proprietary. We also developed a number of cost models to prepare feasibility studies and establish the entities, which are not relevant at this stage.

All this work remains criminally underappreciated. I suspect that's because it's still too far ahead of the market - Layer Zero and I have been waiting for the industry to catch up, so it's always heartening to see discussions like this. Even if one believes that some regulatory magic bullet exists for legal recognition of DAOs, this does not obviate the need for prudent risk management, of which insurance is a key part.

The legal and regulatory attacks on DeFi protocols don't start and end with the SEC. We will likely see a growing number of patent and trademark infringement cases, consumer class actions, regulatory investigations, and party-to-party claims. This is not unique to Web3—it's a reality for every successful operation and, in many ways, a mark of success. If you want to go big in any industry, you need to be prepared to get into some legal battles along the way.

What distinguishes DeFi protocols from traditional operations is the capital allocation within the system, the distribution of power for key decisions, the lack of formal structures offering limited liability protection to ecosystem participants, and the types of attack vectors individual participants are exposed to.

The legal defense funds being discussed here offer two benefits. One is, obviously, a pool of funds that can be accessed on short notice. The other benefit is prophylactic—it signals to counterparties that litigation will not be a walkover (as has sadly been the case for too long in crypto's short history).

My suggestion is for the DAO to consider levering up the value of that self-insurance fund with externally sourced insurance and establishing the necessary legal structures to fully benefit from those arrangements.

I agree that this would be a worthwhile exercise and would be happy to contribute although folks could save themselves a lot of trouble and see the work I've already done in this space because as many have already recognised in this thread, it is not as simple as parking $Xm in a multi-sig as a rainy-day fund.

The framework I drafted at Maker covered off not only the insurance policies (which included bespoke insurance products specifically addressing the needs of DAOs) but also (off the top of my head):

1. how funds should be set aside and managed and whether a war-chest should be developed or not;
2. the development of the law firm panels required to drive down legal costs and introduce competitive tension within the growing market for Web3-specific legal support;
3. Creating panels based on specific verticals, recognising that some firms specialize in some areas over others;
4. the eligibility criteria for lawyers registering for inclusion on a panel;
5. the design of the underlying legal entities and structuring required to manage the insurance policies and respond to litigation or regulatory action (we segregated the insurance arm from the "Guardian" arm because each entity has very different roles and compliance requirements);
6. the committees required to administer such programs;
7. the eligibility criteria for claimants;
8. the processes associated with making a claim on the fund;
9. the payment flows;
10. how to deal with anon claimants;
11. etc...

This is bang-on in terms of the questions that need to be asked and answered.

I'd note that a lot of protection can be accomplished by getting no-action letters designating UNI as a non-economic token, but @Daimon-Law is correct, SEC establishes precedents (pushed back by courts as no statutory basis for their assertion of crypto asset security) with private class actions (as was case against UniLabs) being more common.

So plaints such as slander/libel, contributory negligence, breach of non-solicitation/endorsement laws, etc might be low-probability events but as one of the largest webb3 protocols, the size will inevitably surface delegate to delegate conflicts, especially once the treasury starts operating and people complain about capital allocations. Even hedge funds get director & officer indemnity insurance otherwise competent professionals will refuse to take on the roles.

On the other hand, just having a fund means moral risk increases, having a vaccine (guardrails) rather vivisection (ambulence at bottom of cliff) may be better allocation of scarce resources but planning for contingencies never hurts.

There are many potential delegates and committee members in Uniswap who could be targeted, and no certainty that the DAO would re-up the funding (indeed there are plausible scenarios where it might not be possible to do).

$10m represents the thinking that if delegate costs are between 10k->100k in legal fees (thats just responding to a subpoena), and an any sort of action beyond can cause legal fees to ballon, we want to give folks certainty that there is ample resources to support them. We don't want people making forced decisions based on the fear of financial repercussions of doing whats right. (Think: settle on bad terms with bad legal advice because someone is scared of losing their home to legal fees and creating a precedent for everyone else)

In the grand scheme of things $10m isn't a lot of money to protect the very people in this forum and in this DAO, and by allocating this money it's not guaranteed to be spent. One reason to put this into a separate entity would be that the funds can be specifically earmarked, operational costs kept low, and there be clarity of purpose and use with maximum possible transparency. Other DAO's have legal funds and commitments to protect participants, it makes sense that Uniswap, the largest of them all, be well funded and secure in it's commitment to it's operators because even with the most optimistic of expectations for a new political administration, the DAO will need to have a functional legal defense fund designed for it's own operators.

I'd note that a lot of protection can be accomplished by getting no-action letters designating UNI as a non-economic token, but @Daimon-Law is correct, SEC establishes precedents (pushed back by courts as no statutory basis for their assertion of crypto asset security) with private class actions (as was case against UniLabs) being more common.

So plaints such as slander/libel, contributory negligence, breach of non-solicitation/endorsement laws, etc might be low-probability events but as one of the largest webb3 protocols, the size will inevitably surface delegate to delegate conflicts, especially once the treasury starts operating and people complain about capital allocations. Even hedge funds get director & officer indemnity insurance otherwise competent professionals will refuse to take on the roles.

On the other hand, just having a fund means moral risk increases, having a vaccine (guardrails) rather vivisection (ambulence at bottom of cliff) may be better allocation of scarce resources but planning for contingencies never hurts.

There are many potential delegates and committee members in Uniswap who could be targeted, and no certainty that the DAO would re-up the funding (indeed there are plausible scenarios where it might not be possible to do).

$10m represents the thinking that if delegate costs are between 10k->100k in legal fees (thats just responding to a subpoena), and an any sort of action beyond can cause legal fees to ballon, we want to give folks certainty that there is ample resources to support them. We don't want people making forced decisions based on the fear of financial repercussions of doing whats right. (Think: settle on bad terms with bad legal advice because someone is scared of losing their home to legal fees and creating a precedent for everyone else)

In the grand scheme of things $10m isn't a lot of money to protect the very people in this forum and in this DAO, and by allocating this money it's not guaranteed to be spent. One reason to put this into a separate entity would be that the funds can be specifically earmarked, operational costs kept low, and there be clarity of purpose and use with maximum possible transparency. Other DAO's have legal funds and commitments to protect participants, it makes sense that Uniswap, the largest of them all, be well funded and secure in it's commitment to it's operators because even with the most optimistic of expectations for a new political administration, the DAO will need to have a functional legal defense fund designed for it's own operators.

Is there a reason in avoiding @Tane 's first point?

• Do we have specific examples of delegates who have received subpoenas and the actual costs incurred so far in the industry?

News stories so far been indicating VC firms and hearsay investors are the ones asked to please explain. There's a big gap between intimidating a delegate voicing an independent honest opinion vs a business subsidy for supposed professionals who should have done their due-diligence. Legal risk requires both the likelihood and the consequences so more facts means better decisions. As a matter of policy for free flow of information, there should be backstop to prevent physical/economic coercion of professional opinions which otherwise will lead to chilling effects

#insert humor

Legal risk for working groups would depend on where the activity sits on the spectrum Idea -> commissioned research -> proof of concept -> reference implementation -> sandbox -> commercial operations

The problem is that the lack of rule-making, inconsistent interpretation (CFTC claims that ETH is commodity, SEC disagrees) and lets not ignore legislative capture and TradFi corporate lobbying means that the law is not as certain as participants might like. Short of forcing an administrative review, it is hard for any group of individuals to know where the lines are, not to mention extra-territorial application via the non-soliciation of regulated financial services. Then toss in the rest of the alphabet soup IRS/FinCEN/DOJ/OFC multiplied by number of jurisdictions and you can see that insurance premiums are not going to be easy to calculate.

As a starting point to think about the tipping point for when legal counsel is needed, I would put to everyone that the dividing line to be considered is the sandbox phase (or just before) because there's an express period where you can work things out so anything before that need not be any public/exempted "offer" (and/or sit on a private invite only chain for testing).

All great points and questions.

To keep it simple, the purpose would be to refund legal costs associated with responding to legal inquiries that require legal fees to respond to. I've spoken with delegates who are looking at tens of thousands in fee's just to prep their response.

The goal of this fund would be to cover, at a minimum, these kinds of legal bills. You make a great point about covering other types of bills and we should figure out what makes sense.

We do already have a DeFi education advocacy fund, but I don't think it's well setup to do anything other than offer advice for "private" citizens. it doesn't have a mandate to help delegates cover their legal expenses as a result of participating in the DAO.

Firstly ... What is the legal status of a delegate? OK, they are not employees of the Uniswap Foundation, the DAO has no formal legal form, and AFAIK, they don't do business so not a partnership. A minor point is if the Foundation is managing fund, then it implies delegates can't compell their financier to reform (not bite hand that feeds you).

Secondly, what LEGAL relationship are delegates establishing. There's no trust deed so can't be said to be protectors/guardians. Spokes(person) means that your opinion is just that, a "personal" (if somewhat based on professional expertise) opinion which may (or may not) be reflective of others. Regulators are geography based so they need to make case for lex situ first.

Thirdly, what arm of law would they be risking legal action (ie as defendant). 1) implies some sorta contractual basis but at most, this is a conventional dealings, perhaps some comp(ensation) for expenses in social polling. If no trust deed, then equitable remedies are off the table which leaves tort ... I don't think anyone is stupid enough for defamation, so you'd have to have an arguable case for implied duties.

So are you looking for insurance, a legal fig-leaf or formalisation of duties and legal consequences for mis/mal/non-feasance? I'd note that subpoena (in the OECD) is merely a (strong) request to be witness, which as civic duty within that jurisdiction, is part of citizens rights/duty. We already have a DeFi education advocacy fund which can commission advice on how to respond as "private" citizen. Last time I looked, freedom of association (criminal cartels aside) was not a crime and secret societies legislation have been scrapped from state laws.

PS ... There are very specialist requirements for service of subpoenas ... I recall cases of tag-jurisdiction where flying a plane over Texas a divorce summons was served on passenger to bring into that state. This doesn't need to be part of defense fund per se but just general knowledge akin to key management to stay in legit places immune to unlawful rendition. Whilst govts can be irrational (cough Snowden) there are checks on non-authoritarian regimes.

PPS ... There's nothing stopping a regulator (or cabal thereof) applying to be a delegate ... But their opinion is just that ... an opinion.

Is there a reason in avoiding @Tane 's first point?

• Do we have specific examples of delegates who have received subpoenas and the actual costs incurred so far in the industry?

News stories so far been indicating VC firms and hearsay investors are the ones asked to please explain. There's a big gap between intimidating a delegate voicing an independent honest opinion vs a business subsidy for supposed professionals who should have done their due-diligence. Legal risk requires both the likelihood and the consequences so more facts means better decisions. As a matter of policy for free flow of information, there should be backstop to prevent physical/economic coercion of professional opinions which otherwise will lead to chilling effects

#insert humor

Legal risk for working groups would depend on where the activity sits on the spectrum Idea -> commissioned research -> proof of concept -> reference implementation -> sandbox -> commercial operations

The problem is that the lack of rule-making, inconsistent interpretation (CFTC claims that ETH is commodity, SEC disagrees) and lets not ignore legislative capture and TradFi corporate lobbying means that the law is not as certain as participants might like. Short of forcing an administrative review, it is hard for any group of individuals to know where the lines are, not to mention extra-territorial application via the non-soliciation of regulated financial services. Then toss in the rest of the alphabet soup IRS/FinCEN/DOJ/OFC multiplied by number of jurisdictions and you can see that insurance premiums are not going to be easy to calculate.

As a starting point to think about the tipping point for when legal counsel is needed, I would put to everyone that the dividing line to be considered is the sandbox phase (or just before) because there's an express period where you can work things out so anything before that need not be any public/exempted "offer" (and/or sit on a private invite only chain for testing).

All great points and questions.

To keep it simple, the purpose would be to refund legal costs associated with responding to legal inquiries that require legal fees to respond to. I've spoken with delegates who are looking at tens of thousands in fee's just to prep their response.

The goal of this fund would be to cover, at a minimum, these kinds of legal bills. You make a great point about covering other types of bills and we should figure out what makes sense.

We do already have a DeFi education advocacy fund, but I don't think it's well setup to do anything other than offer advice for "private" citizens. it doesn't have a mandate to help delegates cover their legal expenses as a result of participating in the DAO.

Firstly ... What is the legal status of a delegate? OK, they are not employees of the Uniswap Foundation, the DAO has no formal legal form, and AFAIK, they don't do business so not a partnership. A minor point is if the Foundation is managing fund, then it implies delegates can't compell their financier to reform (not bite hand that feeds you).

Secondly, what LEGAL relationship are delegates establishing. There's no trust deed so can't be said to be protectors/guardians. Spokes(person) means that your opinion is just that, a "personal" (if somewhat based on professional expertise) opinion which may (or may not) be reflective of others. Regulators are geography based so they need to make case for lex situ first.

Thirdly, what arm of law would they be risking legal action (ie as defendant). 1) implies some sorta contractual basis but at most, this is a conventional dealings, perhaps some comp(ensation) for expenses in social polling. If no trust deed, then equitable remedies are off the table which leaves tort ... I don't think anyone is stupid enough for defamation, so you'd have to have an arguable case for implied duties.

So are you looking for insurance, a legal fig-leaf or formalisation of duties and legal consequences for mis/mal/non-feasance? I'd note that subpoena (in the OECD) is merely a (strong) request to be witness, which as civic duty within that jurisdiction, is part of citizens rights/duty. We already have a DeFi education advocacy fund which can commission advice on how to respond as "private" citizen. Last time I looked, freedom of association (criminal cartels aside) was not a crime and secret societies legislation have been scrapped from state laws.

PS ... There are very specialist requirements for service of subpoenas ... I recall cases of tag-jurisdiction where flying a plane over Texas a divorce summons was served on passenger to bring into that state. This doesn't need to be part of defense fund per se but just general knowledge akin to key management to stay in legit places immune to unlawful rendition. Whilst govts can be irrational (cough Snowden) there are checks on non-authoritarian regimes.

PPS ... There's nothing stopping a regulator (or cabal thereof) applying to be a delegate ... But their opinion is just that ... an opinion.

Thanks for starting this discussion. There’s a lot to figure out, and we're still developing our own thoughts about it.

Specific questions and comments:

• This is presented as just for subpoenas. It should probably just be any legal expense related to work for Uniswap governance that’s not the result of criminal behavior.

• There should probably be a deductible. For example, you have to spend $10,000 of your own money before you can seek reimbursement for the first dollar of expenses. That limits spam and abuse and administration of small expenses.

• Should this cover private litigation or only regulatory-related expenses?

• Clearly define who is eligible and when. When making these rules, think about whether you want this fund to be defending well-resourced VCs. Simultaneously, how can you protect small, poorly resourced contributors like an individual member of a blockchain club with no legal entity to shield them? Would a small company like GFX be able to draw on this fund? What about a fabulously wealthy individual? Lots of edge cases here to navigate, and will require time to consider how to create eligibility that is broad in the desired places and narrow in the undesired places.

• A benefit of the Maker-style approach is that it endows an insurance fund and is operated by professionals in that industry, removing administrative burdens from governance forever (for the most part).

• Consider whether a contributor has to subrogate their right to defense to this fund in order to access it (do they get to control the defense). This includes whether to settle or fight, so may not cover someone willing to incur a legal challenge over principles when settlement or compliance is cheaper.

• How do you apply for reimbursement if the expense is related to a secret action? To use the subpoena example, you often can’t disclose you got one. Relatedly, what about contributors that themselves are anonymous?

• Are non-lawyer expenses covered? Continuing with the subpoena example, the recipient may face little legal danger, but incur time or other expenses in complying with the subpoena. How do you verify expenses such as time away from a normal business activity?

Big picture questions:

• Does the creation of this fund irrevocably establish any legal obligations or facts about Uniswap governance? For instance, does it indicate governance is in a specific jurisdiction or engaging in specific activities that may be regulated, taxed, or carry reporting requirements? If so, is governance comfortable with establishing those facts?

• What safeguards or specific policies prevent this from attracting litigants, whether private or regulatory? Once there’s a pot of money that is identifiable for looting via court cases, it makes contributors a more tempting target.

• Is this intended to be a single, large expense to seed a fund/insurance policy, and once depleted it’s gone? Or is the expectation to keep it actuarially sound to meet a target amount of perpetual or long-dated coverage? What happens if claims are never made or there is an alternative method of protection (e.g. a limited liability entity) to shield individual contributors, making this fund redundant?

We think this discussion should continue, but also believe it will be a long one, and potentially require hiring outside legal and possibly financial experts to advise on trade offs of the many different possible choices.

Thanks for starting this discussion. There’s a lot to figure out, and we're still developing our own thoughts about it.

Specific questions and comments:

• This is presented as just for subpoenas. It should probably just be any legal expense related to work for Uniswap governance that’s not the result of criminal behavior.

• There should probably be a deductible. For example, you have to spend $10,000 of your own money before you can seek reimbursement for the first dollar of expenses. That limits spam and abuse and administration of small expenses.

• Should this cover private litigation or only regulatory-related expenses?

• Clearly define who is eligible and when. When making these rules, think about whether you want this fund to be defending well-resourced VCs. Simultaneously, how can you protect small, poorly resourced contributors like an individual member of a blockchain club with no legal entity to shield them? Would a small company like GFX be able to draw on this fund? What about a fabulously wealthy individual? Lots of edge cases here to navigate, and will require time to consider how to create eligibility that is broad in the desired places and narrow in the undesired places.

• A benefit of the Maker-style approach is that it endows an insurance fund and is operated by professionals in that industry, removing administrative burdens from governance forever (for the most part).

• Consider whether a contributor has to subrogate their right to defense to this fund in order to access it (do they get to control the defense). This includes whether to settle or fight, so may not cover someone willing to incur a legal challenge over principles when settlement or compliance is cheaper.

• How do you apply for reimbursement if the expense is related to a secret action? To use the subpoena example, you often can’t disclose you got one. Relatedly, what about contributors that themselves are anonymous?

• Are non-lawyer expenses covered? Continuing with the subpoena example, the recipient may face little legal danger, but incur time or other expenses in complying with the subpoena. How do you verify expenses such as time away from a normal business activity?

Big picture questions:

• Does the creation of this fund irrevocably establish any legal obligations or facts about Uniswap governance? For instance, does it indicate governance is in a specific jurisdiction or engaging in specific activities that may be regulated, taxed, or carry reporting requirements? If so, is governance comfortable with establishing those facts?

• What safeguards or specific policies prevent this from attracting litigants, whether private or regulatory? Once there’s a pot of money that is identifiable for looting via court cases, it makes contributors a more tempting target.

• Is this intended to be a single, large expense to seed a fund/insurance policy, and once depleted it’s gone? Or is the expectation to keep it actuarially sound to meet a target amount of perpetual or long-dated coverage? What happens if claims are never made or there is an alternative method of protection (e.g. a limited liability entity) to shield individual contributors, making this fund redundant?

We think this discussion should continue, but also believe it will be a long one, and potentially require hiring outside legal and possibly financial experts to advise on trade offs of the many different possible choices.

To both of @Tane's points,

I think it makes sense to have some sort of legal defense fund. $10m off the start would make sense for a long fought out battle, but I think maybe starting at like... $2m makes more sense. That should sufficiently cover a couple months of potential litigation and be enough time for the defendant to come to the DAO and request for more funds afterwards if needed and applicable.

As for management of the funds, historically the Uniswap Accountability Committee has overseen operation costs and this seems to most logically fall under that pervue in my opinion. The seems like something the "accountability" committee should take on and should be an easy haul with the structure currently already set in place if the DAO were to vote this in.

To both of @Tane's points,

I think it makes sense to have some sort of legal defense fund. $10m off the start would make sense for a long fought out battle, but I think maybe starting at like... $2m makes more sense. That should sufficiently cover a couple months of potential litigation and be enough time for the defendant to come to the DAO and request for more funds afterwards if needed and applicable.

As for management of the funds, historically the Uniswap Accountability Committee has overseen operation costs and this seems to most logically fall under that pervue in my opinion. The seems like something the "accountability" committee should take on and should be an easy haul with the structure currently already set in place if the DAO were to vote this in.