Community Governance Proposal: Establishment of Note Protocol Community Decentralized Autonomous Organization

[notenationio]

Proposal ID: #1
Proposer: http://notenation.io/
Submission Date: September 10, 2024

Summary
Note Protocol is a fully community-driven project. To increase community participation, ensure transparent and effective management of the DAO treasury, promote the development of Note Protocol, ensure the sustainability of the project, and resolve issues encountered during the project’s operation, this proposal suggests the establishment of a DAO LLC for the continuous and effective management of project operations.

Applicable Jurisdiction and Legal Status
Jurisdiction: State of Wyoming, USA
Legal Status: DAO LLC
A DAO in Wyoming is considered a unique form of a limited liability company (LLC) that enjoys the legal status and protections of an LLC. It can sue or be sued, own property, and bear obligations and debts.

Blockchain and Smart Contract
Smart contracts based on the Note Protocol running on the Bitcoin layer-1.

Background
The “Wyoming Decentralized Autonomous Organization Supplement” (WY Stat § 17–31–101 et seq., 2021) stipulates the governance structure, operating methods, legal responsibilities, and setup of governance committees for DAO LLCs. Wyoming’s DAO LLC allows for flexible customization of its governance structure and rules. The DAO can choose either a member-managed or algorithmically-managed structure. To embody the decentralized nature of a DAO and ensure that all token holders can participate in governance, this proposal suggests adopting an algorithmically-managed structure with minimum voting participation rates, shortest voting duration, and passing thresholds. This mechanism will help increase community member participation and enhance governance transparency and fairness.

In a Wyoming DAO LLC driven by an algorithmically-managed structure using smart contracts, a governance committee can still be established. The committee’s responsibilities would be restricted by algorithms and smart contracts. The committee cannot interfere with the automated decision-making process, so it can undertake auxiliary and supervisory roles:

• Review and Approval: The committee may be responsible for the preliminary review of certain types of proposals before they are submitted to all token holders for algorithmic voting.
• Emergency Decisions: In the event of a smart contract vulnerability or other security risks, the committee can be authorized to make emergency decisions, such as pausing smart contract functionality or taking other emergency measures. (See: Relevant Legal Basis — Protection from Automated Contract Failures)
• Supervision and Adjustment: The committee can periodically review the DAO’s smart contracts and algorithms to ensure compliance with the DAO’s objectives and legal requirements and recommend contract modifications if necessary.

Purpose

• Ensure Decentralized Governance: By setting a minimum voting participation rate, ensure that the DAO’s decision-making process involves a broad range of community members, rather than being controlled by a small group.
• Increase Voting Participation: Encourage token holders to actively participate in governance decisions, thereby increasing overall community involvement.
• Enhance Transparency and Legitimacy of Governance: By establishing clear voting rules, ensure the decision-making process is open and transparent, and enhance community trust in governance outcomes.
• Ensure Project Sustainability and Resolve Operational Issues: After establishing the DAO LLC, Note Protocol will have a compliant legal entity owned by all token holders. The project’s copyright will be held by the DAO LLC. Any issues encountered in project operations can be proposed and resolved through voting by all token holders.

Proposal Content

1. Establish Voting Participation Rate, Passing Threshold, and Minimum Voting Duration
   Include the following clause in the DAO’s operating agreement:
   “Any proposal must meet the following conditions to be considered validly passed: at least 10% of token holders must participate in the vote, the voting period for token holders must be no less than 7 days, and more than 50% of the voters must support the proposal.”
2. Scope of Application
   This voting rule applies to all proposals related to DAO governance and operations, including but not limited to fund allocation, governance committee elections, protocol amendments, and other major decisions.
3. Execution Mechanism
   Use smart contracts to automate the voting process. The smart contract will record the participation rate and support rate for each vote on-chain and automatically calculate and execute the results to ensure the enforcement of voting rules.
4. Transparency and Accountability
   All voting processes and results will be publicly recorded on the blockchain, ensuring complete transparency. Any community member can review the records.
5. Establish a Governance Committee
   Under an algorithmically-managed structure, the DAO LLC can establish a governance committee through the following steps:
   Define Charter and Operating Agreement: Clearly define in the DAO’s charter or operating agreement the establishment, composition, responsibilities, powers, and operating rules of the governance committee. These provisions must be compatible with the DAO’s smart contracts and algorithms.
   Implement Governance Mechanism via Smart Contracts: Design and deploy smart contracts to automate and programmatically execute the governance committee’s rules and responsibilities. For example, the contract can set specific conditions allowing the committee to intervene or make decisions in certain circumstances.
   Ensure Transparency and Accountability: All actions and decisions of the governance committee should be recorded on the blockchain to ensure transparency and accountability. The powers and functions of the committee should be clearly stated in the smart contract to prevent abuse of power.

Relevant Legal Basis

1. Customized Governance Structure
   Legal Provision: WY Stat § 17–31–104(a)
   Text: “A decentralized autonomous organization shall be organized either under a member-managed structure or an algorithmically-managed structure, as defined in the articles of organization or operating agreement of the organization.”
   Explanation: Wyoming law allows DAOs to customize their governance structure and rules according to their operating agreement, including setting minimum participation rates and passing thresholds for voting.
2. Authority of Charter and Operating Agreement
   Legal Provision: WY Stat § 17–31–105
   Text: “The operating agreement of a decentralized autonomous organization governs the relations among the members, the relations between the members and the organization, and the rights and duties of any person in relation to the organization.”
   Explanation: The operating agreement of the DAO is the core document that determines its governance structure. This agreement is legally binding and may include specific provisions such as voting rules, participation rates, and passing thresholds.
3. Smart Contracts and Automated Governance
   Legal Provision: WY Stat § 17–31–109
   Text: “A decentralized autonomous organization may be governed by one or more smart contracts, provided the smart contracts are referenced in the organization’s articles of organization or operating agreement.”
   Explanation: A DAO may use smart contracts to execute its governance rules, including the automation of the voting process and decision-making, ensuring the transparency and immutability of all voting rules.
4. Protection from Automated Contract Failures
   Legal Provision: WY Stat § 17–31–111
   Text: “A decentralized autonomous organization may implement corrective measures, including modifying, upgrading, or terminating the defective smart contract, in accordance with its articles of organization or operating agreement, to remedy any failure caused by a technical error or unforeseen circumstances.”
   Explanation: If a smart contract has errors or vulnerabilities that cause the DAO’s behavior to deviate from expectations, the law allows the DAO to take corrective measures, such as pausing the smart contract or revising the contract code.

Conclusion
This proposal aims to strengthen the decentralized governance of the DAO, ensure that all token holders’ voices are adequately expressed, and enhance the transparency and legitimacy of governance by setting clear voting rules. All community members are encouraged to participate actively in the discussion.

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