# DAO 2.0: The Umbrella Framework for Legal Token Launches, Value Distribution, and Automated Governance

## Explain the 'Umbrella DAO' concept

The Umbrella DAO concept is a legal and organizational framework designed to simplify token launches, provide legal protection, and create value distribution mechanisms for interconnected crypto projects. As discussed by LSDan, Shaw, and others, it consists of:

1. **Single Legal Entity**: A unified legal structure (likely a "dUNA" - unincorporated nonprofit association) that acts as a wrapper for multiple projects, eliminating the need for each project to establish its own costly legal framework ($50K-$120K per project).
2. **Token Management System**: The Umbrella mints and manages tokens for member projects. When a project joins, they can launch their token through the Umbrella, which maintains custody of these tokens in a centralized database or ledger.
3. **Equity Exchange**: For-profit companies joining the ecosystem provide a percentage of their equity (approximately 20%) to the legal framework in exchange for their own token and a stake in the Umbrella token.
4. **Internal Economy**: Projects can interact with each other through tokens without triggering taxable events because everything happens within a single legal entity's accounting system. Value only leaves the system when someone explicitly "claims" or "rage quits."
5. **Value Distribution Mechanism**: The framework includes a system to distribute value from revenue-generating entities to public goods. When a for-profit company has an exit event, some of that value flows back to the ecosystem.
6. **Dependency-Based Rewards**: Projects that serve as dependencies for other projects receive proportionate value, ensuring that fundamental infrastructure gets compensated when used by profit-generating applications.

The core innovation is the consolidation of legal, accounting, and token management functions into a single entity, drastically reducing costs while creating a sustainable funding mechanism for open-source projects.

## Summarize key challenges of funding open-source public goods in crypto

The discussion identifies several key challenges in funding open-source public goods in crypto:

1. **Legal and Compliance Costs**: Setting up proper legal structures for token launches costs $50K-$120K, which is prohibitively expensive for many public goods projects. As LSDan notes, this often requires complex arrangements like "five random people who aren't affiliated with savvy books to set up this whole foundation structure."
2. **Monetization Difficulties**: Open-source projects struggle to capture value despite being dependencies for profitable projects. As Shaw expresses: "My biggest problem is, like, I have a large token, but it has literally no association to the thing. Pretty much everybody just works their thing, and nobody gets any value back."
3. **Dependency Recognition**: The current ecosystem fails to properly compensate foundational projects that serve as dependencies for profitable applications.
4. **Regulatory Uncertainty**: Projects face unclear tax implications and regulatory risks when trying to monetize through tokens.
5. **Administrative Overhead**: Managing governance, compliance, and operations diverts developer time from actual building. Shaw laments: "Most of my day is doing this stuff and not programming."

The proposed association model addresses these challenges through:

1. **Shared Legal Framework**: A single legal entity (dUNA) that multiple projects can use, eliminating redundant legal costs.
2. **Unified Accounting**: An internal accounting system that tracks value flows without triggering taxable events.
3. **Value Capture Mechanism**: A system where revenue-generating projects automatically contribute to their dependencies.
4. **Streamlined Operations**: Automated governance and coordination tools to reduce administrative overhead.
5. **Network Effect**: By joining the Umbrella, projects gain access to promotion, resources, and network effects they couldn't achieve alone.

The model essentially creates a community-owned infrastructure for launching, operating, and monetizing crypto projects while ensuring sustainable funding for the public goods they rely on.

## Detail the accounting mechanism proposed for the umbrella structure

The proposed accounting mechanism for the Umbrella structure is designed to facilitate internal value transfers without triggering taxable events. Here's how it works:

1. **Single Legal Entity Accounting**: All tokens exist within a single legal entity (the Umbrella DAO/dUNA). As LSDan explains: "If I have a single entity... and I have money in that entity, and it has two accounts owned by that entity, and I move money from one account to the other account without actually converting from dollars to Euros or some other currency, then there is zero taxable [event]."
2. **Chart of Accounts Structure**: Each project's token represents an asset account within the Umbrella's chart of accounts. As LSDan describes it: "Each of these are an account in the chart of accounts to the internal organization, so now you're moving between asset accounts instead of realizing gains and losses."
3. **Database-Driven Ledger**: Rather than on-chain transactions, token balances and movements are primarily tracked in a database (likely Postgres). Shaw describes it as: "One association is basically a glorified Postgres database... managed by savvy books... just holding tokens in its treasury."
4. **Token Issuance Process**: When a project joins, the Umbrella mints their token in its entirety. The Umbrella retains 20%, and the other 80% goes to the project's account within the system.
5. **Internal Transactions**: Projects can "pay" each other with their tokens, but these are just accounting entries with no actual token movement. LSDan explains: "When we say I'm providing savvy books, the savvy books Dao is giving the Eliza Dao savvy books tokens... What's actually happening technically, behind the scenes, [is] we have an accounting entry from the asset account which is called Eliza assets and the asset account called savvy bucks assets."
6. **Claim/Rage Quit Mechanism**: The only time a taxable event occurs is when someone wants to extract value from the system through a "claim" or "rage quit" process. Shaw explains: "There is no profit sharing until there is some 'I want to claim.' So there's no taxable events... when we want to say, 'I want to claim those tokens,' yes, there is a taxable event at that point."
7. **Optional On-Chain Representation**: The system could potentially mirror the internal accounting on-chain, but this would incur gas fees. LSDan notes: "We have to decide collectively whether we want to publish this on chain and have flows of tokens and incur the gas fee in order to do that, or just not incur that gas fee and keep internal ledgers."
8. **Exit Events Processing**: When a for-profit entity has a liquidity event, its equity is liquidated into USDC and added to the Umbrella treasury. Public goods can then claim this value by burning their Umbrella tokens.

This accounting structure essentially creates a closed economy within a single legal entity, avoiding the tax complications that would arise from transferring tokens between separate entities while still enabling complex economic interactions between member projects.

## Compare different perspectives on dependency relationships and value distribution

The discussion revealed multiple perspectives on how dependency relationships between projects should determine value distribution in the proposed ecosystem:

**LSDan's View - Streaming Dependency-Based Distribution:**
LSDan advocates for "a ongoing, almost three distribution of a certain allocation of the tokens that's designed to support the ecosystem for like, 20 years, and it just streams based on a metric to all of the marked public goods within the ecosystem based on something like utilization rate overall." He proposes using actual dependency data: "Each of these ones publish the NPM packages that they maintain, and then we look at the utilization of those packages by the other things, and then we just use that as a naive wait for the stream."

**Shaw's Perspective - Revenue Redirection:**
Shaw suggests a revenue-sharing approach: "Maybe 10% of the revenue from this gets turned into buying this token, the umbrella token, and then OTCing that token back to the core for this one's token." This creates buy pressure on the umbrella token while ensuring value flows back to dependencies.

**Vitalik's Concern - Defining Public vs. Private Goods:**
Vitalik questions the rigid distinction between for-profit and public goods: "Maybe one way to simplify the model is to get rid of sort of corporation and public good as known in advanced categories." He notes that projects often transition between these states, citing examples like Deep Sea and uniswap that started as public goods but became profitable.

**Ahmed Ghappour's Legal Perspective:**
Ahmed focuses on membership status rather than project type: "The question is, does a public good which builds on top of the IP or otherwise infrastructure of a non-public good owe something back to that non-public good?" His answer: "Not unless they're a member [of the DAO]."

**Dynamic vs. Static Attribution:**
The group debated whether value distribution should be:

- Fixed at joining time (rejected as insufficient)
- Dynamically updated based on ongoing usage metrics
- Negotiated periodically by the community

**Deep Funding Concepts:**
Shaw describes the approach as "like a form of deep funding" where the dependency graph determines value flow. Tina refers to this as a "dependency graphs weights" question, asking if it's "a bottom up negotiation style, or is it like a top down attribution?"

**Balanced Approach:**
The group ultimately leans toward a hybrid model with:

1. Automated metrics for baseline distribution (package usage, dependencies)
2. Periodic human review and adjustments
3. Different mechanisms for different project types
4. The AI CEO potentially mediating and proposing distributions

LSDan summarizes the core goal: "Entities that are providing the strongest value receive the most claim on the DAO's underlying treasury." The challenge is creating a fair system that remains balanced between for-profit and public good entities while accurately reflecting actual interdependencies.

## Outline the proposed governance structure for the umbrella DAO

The proposed governance structure for the Umbrella DAO reveals a complex arrangement balancing multiple considerations:

**Token-Based Voting System:**

- The Umbrella token serves as the primary governance token
- Projects receive Umbrella tokens upon joining and through ongoing distributions
- Shaw suggests a potential "weighted vote of like, one vote plus the amount that I have of the token that I've approved" to balance influence

**Differentiated Voting Rights:**

- A key debate centered on whether for-profit and public good projects should have different rights
- LSDan initially proposed: "The certified nonprofits would have the ability to burn, the for profits would not have the ability to burn" (limiting for-profits to voting only)
- Vitalik questioned this distinction: "My instinct is still in the direction of not making an insurance distinction between for-profit and nonprofit"

**Soul-bound vs. Liquid Governance:**

- Vitalik advocated for "more illiquid forms of governance" like non-transferable governance rights assigned at joining
- He warned that liquid token voting is "maximally bad" because "once you have enough tokens, you have a strong incentive to make proposals that give you all the money"
- He suggested a model similar to Protocol Guild where governance rights don't increase with economic success

**Membership Requirements:**

- The DAO would be permission-based: "Do you need permission from the existing DAO members? Permission from the existing DAO members, or...the agent managing it" (LSDan)
- Ahmed noted the dUNA requires 100 members minimum, which could be achieved through distributed token holding
- Projects join by allocating equity or tokens to the Umbrella and receiving governance rights in return

**AI-Assisted Governance:**

- The "AI CEO" would help oversee governance processes
- Agents would enforce parameters set by human governors
- Dispute mediation and coordination would be partially automated

**Balancing Mechanisms:**

- To prevent capture, the group discussed mechanisms to "incentivize...a balance between the profit generating entities...and the non profit entity generating entities"
- Regular review periods to adjust value distribution: "Let's try this for three months, and we'll revisit in three months"
- Rage-quit mechanics as a last resort protection

**Sub-DAO Relationships:**

- Each project has its own governance structure for internal decisions
- The umbrella only governs system-wide parameters and value distribution
- Shaw described it as "very much a sub-DAO model, although it's technically an association of member projects"

**Practical Decision Making:**

- The group acknowledged social coordination would play a major role: "When you have a community of people...there is a social incentive not to be maximally extractive"
- Periodic renegotiation of the weights and parameters
- Transparency through shared accounting systems

The governance structure aims to create a system that can't be captured by profit-maximizing entities while remaining flexible enough to adapt to changing project dynamics and fairly distributing value according to actual contributions to the ecosystem.

## Analyze the AI CEO concept and automated tools for DAO governance

The AI CEO concept emerged as a crucial component of the proposed Umbrella DAO ecosystem, designed to automate and enhance governance, dispute resolution, and coordination functions:

**Core Functions of the AI CEO:**

1. **Dispute Mediation**: Shaw describes a system where "a group that's focused just on mediation, which can be fully AI done actually, like the AI can still be give me all the inputs. Let's all have a chat with discord. It pulls all that in, and it gives us a final mediation thing."
2. **Project Coordination**: Tina highlights "the ability to surface different disparate work streams that should be converging" as a key function, indicating the AI's role in identifying collaboration opportunities.
3. **Parameter Management**: The AI would help manage the system parameters, particularly around value distribution and the "metric function" that determines token allocation.
4. **Compliance Enforcement**: The discussion mentions compliance functions that could "filter on the way into the platform, so the post that's not compliant never actually gets posted" and features that provide warnings about potential regulatory issues.

**Technical Implementation Approach:**

Shaw describes a system using "actions" and "evaluators" where:

- "Evaluators always run on every message and then analyze: should I do something?"
- "If it's an action, then the action is something that it chooses to do"
- "The action can be...I'm going to run a whole process"

This suggests a monitoring system that constantly evaluates DAO activities and takes actions when needed, either automatically or after human approval.

**Communication Between Agents:**

The group discusses using Matrix channels for agent communication: "We just use like matrix and just highlight matrix channels where the agents can literally talk." This enables different specialized agents (compliance, marketing, governance) to interact and coordinate decisions.

**Orchestration Framework:**

Tom mentions "the taco framework, which is taskers, automators, collaborators and orchestrators as the four types of agents needed for enterprise action," suggesting a hierarchical system of specialized agents under the AI CEO's coordination.

**Integration with Human Decision-Making:**

Rather than replacing human governance, the AI CEO would:

- Surface information for human decision-makers
- Implement and enforce decisions made by token holders
- Provide recommendations that humans can accept or reject
- Automate routine processes

**Practical Applications:**

1. **Marketing Coordination**: "It would be really cool to have an automated agent that we can all post into our Discord and say, 'Is this the framing? Is this what we want?'"
2. **Project Management**: Referencing "D Mars' idea for coordinator, auto-identify delta in code base" for tracking project progress.
3. **Financial Management**: Helping manage treasury assets and distribution calculations.

The AI CEO concept aims to reduce the administrative burden on developers while making governance more efficient, transparent and equitable. As Shaw notes, his motivation is that "Most of my day is doing this stuff and not programming. And if I could be programming, I'd be a much more effective contributor to everything else."

## Extract practical next steps for implementing this collaborative structure

Based on the transcripts, the group identified several practical next steps for implementing the collaborative Umbrella DAO structure:

**1. Legal Framework Development:**

- Determine the specific legal structure between dUNA and Swiss options
- Ahmed Ghappour volunteered to "start on the legal white paper"
- Research compliance with the 100-member requirement for a dUNA
- Develop the legal contracts that would govern member relationships

**2. Technical Infrastructure:**

- Build the database system for tracking token allocations
- Shaw mentioned designing a "single Dao, one legal framework, many projects"
- LSDan would create the accounting system infrastructure
- Create smart contracts to automate governance processes

**3. Funding Strategy:**

- Shaw suggested they "probably do need to raise a couple million dollars to get this thing going"
- Explore private sale options: "probably like a GC deal, or private deal"
- Consider whether the initial members would contribute funds
- Determine if they could "use like $2 million" as suggested by one participant

**4. Project Identification & Mapping:**

- Identify specific projects to include in the initial ecosystem
- Shaw would "present what we have discussed... while we're here, and what we are each kind of working on"
- Map dependencies between projects to establish value flow
- Define core infrastructure components needed

**5. Governance Design:**

- Work on the distribution formula and token streaming mechanisms
- Develop the AI CEO agent system for coordination
- Create a dispute resolution protocol
- Establish processes for periodic review of value distribution

**6. Token Economics:**

- Design the Umbrella token and its distribution model
- Determine the appropriate percentage of project tokens to allocate (around 20%)
- Create the interface for token issuance and management
- Develop the "rage quit" mechanisms for value extraction

**7. Integration & Testing:**

- Start with a small group of initial projects as a test case
- Tina suggested "do that at our demo day... after they go through the sprint"
- Work on integrating existing libraries and frameworks
- Test the accounting system with simulated transactions

**8. Documentation & Whitepaper:**

- Shaw mentioned having "a white paper and have some reasonable like, well, this is probably what I would pay you"
- Document the processes and mechanisms clearly
- Create educational materials for new projects wishing to join
- Develop standardized contracts and agreements

The group planned to work together during the hackathon period to develop these components, with Tina suggesting they track progress through "daily stand ups" where participants report how they've "made contribution to move the needle forward" on specific components.

Shaw summarized the immediate goal as trying to "solve the problems that we all collectively have around creating organizations that run themselves so that we don't have to spend all of our time doing that," with the aim of having a working prototype or specification by the end of their time together.

# Key Takeaways

1. The Umbrella DAO concept creates a single legal entity (likely a dUNA) that manages tokens for multiple projects, saving $50K-$120K in setup costs per project.
2. Projects join by contributing equity or tokens and receive their own managed token plus a stake in the umbrella token.
3. The accounting system keeps all tokens within one entity, preventing taxable events until someone "claims" or "rage quits."
4. Value flows from profitable projects to public goods based on dependency relationships, usage metrics, and governance decisions.
5. Governance combines token voting with potential soul-bound components to prevent capture, with debates about differentiating for-profit vs. public good rights.
6. The AI CEO concept would automate coordination, dispute resolution, and compliance, reducing administrative overhead.
7. Implementation requires legal structuring, database/ledger creation, funding (likely ~$2M), and mapping project dependencies.
8. The system creates natural incentive alignment through cross-holding of tokens without requiring direct value transfer at the outset.