Community Trust FAQs

HOPR Governance v0.8 Community Trust Proposals
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We expect you have many questions, which we’re happy to try and answer. What follows are some of the most obvious, but please add any other questions to this thread.

Why the British Virgin Islands?

HOPR is proudly Swiss, and the HOPR Association, HOPR Services AG and HOPR RiSe are all registered in Switzerland. We’ve also talked at length in the past of the benefits of Swiss Associations, especially how flexible they are about membership.

So why BVI? The short answer is tax. Switzerland is great for HOPR Association, which needs to do quite standard things like pay developers, but the tax situation isn’t well suited for the community funds. We’ve been advised that actions like interacting with DEXs, even if just to rebalance, could generate hefty tax events. We want to do what’s best for DAO

This isn’t about tax avoidance, it’s about finding a jurisdiction which recognises the reality of modern DeFi rather than trying to squeeze it into traditional finance models.

BVI is trying to establish itself as a friendly jurisdiction for DeFi services and web3 projects which may have unconventional governance structures. Its VASP Act shows that they understand the specific needs of crypto and web3 and are trying to produce constructive legislation to deal with it. Switzerland is great, but it isn’t there yet.

What does this achieve? Aren’t we doing fine as we are?

First, the recent vote to invest in HOPR RiSe means the community will soon be shareholders in RPCh. This equity needs some kind of legal entity to receive it and exercise shareholder governance and economic rights.

More broadly, one of the major goals of establishing a legal wrapper for the community governance is to minimize liabilities for everyone concerned. The HOPR Association benefits from legal clarity that these funds are separate from our own. The Community Trust will be its own entity in a completely separate jurisdiction and HOPR Association will have no say in how they’re managed.

You as token holders also benefit: Recent months have seen various moves by regulators, particularly in the US, to hold token holders liable for decisions made by so-called DAOs. Basically, just calling yourself a DAO and trying to set yourself above traditional legal structures doesn’t mean anything in the eyes of regulators. If you don’t define a legal setup, they’ll define one for you. Often a simple partnership with unlimited liability.

Wait? What? Am I already at risk?

We don’t think so. This is just a pre-emptive move to provide everyone with a more secure setup so we can get on with governance without needing to worry about compliance issues.

Isn’t the point of crypto to move beyond this legal stuff?

Yes and no. We certainly don’t think everything needs to be mired in old-school legal trappings. The HOPR protocol itself, for example, will not have a legal entity once node runner governance is established.

But other parts of the HOPR ecosystem do need to interface with the world outside the blockchain. And for that it’s important to be compliant and have strong legal protections.

Isn’t this a move towards centralization?

No. Although it might seem counterintuitive, establishing this legal entity gives the token holders MORE power and security. At the moment, you just have to trust that proposals which pass will be implemented. We at the HOPR Association generally facilitate this, but we have no legal obligation to do so. Obviously we will, because we said we will and it would look terrible if we didn’t, but web3 is about eliminating this kind of trust.

The trust entity in the BVI will have a registered purpose in its deed. That purpose will be to follow the instructions of the governance processes output by a specific smart contract. This will be a simple smart contract which publishes the results of the proposals in this current governance experiment (and any future updates which token holders might vote on).

Because of this deed, the trust will be legally obliged to act on the instructions of the token holders. Failure to do so would expose the trustee to potential legal action. This is far more power than token holders have in the current set up.

Who will be the trustees?

It’s a trust, so there need to be trustees. A separate company will be established in BVI to act as trustee to the community trust. The directors of this company will be the ones who actually implement the proposals which pass through the governance processes.

Who will the directors be?

This hasn’t been finalized, but the current plan is that members of the HOPR Association will be the directors

Don’t the directors actually have all the power?

No. As explained above, the trust is legally required to follow the instructions of the token holders as output by the governance processes. The trustee and hence the directors of the trust company are bound by law to follow these instructions.

In fact, in order to protect the directors from liability, they will have zero decision making power at all. This means that valid proposals in the future governance system will need to be completely unambiguous, so implementation can be achieved without any further decision making.

What if we vote no?

We don’t really have a back up plan, to be honest, so any “No” vote would need to be accompanied by a very sound alternative. From our perspective, the HOPR community funds really need a legal wrapper to keep them safe and minimize token holder liabilities. After extensive research and consultation with multiple legal advisors, this BVI trust setup is by far the most promising option.

This sounds like we don’t have much choice? What are we actually deciding on?

We do think this is the best decision and urge people to vote yes, but if there are serious objections or alternatives we haven’t thought of, we want to hear from you!

Beyond that, there’s a huge amount to actually decide on. The trust will be obliged to follow the governance processes via its deed, but the deed says nothing about what the governance processes are, just where to find them. This month is about fixing those processes. We have a template which we’ll share soon, and then on Monday 14th we’ll publish the secondary proposals which cover the many different parameters which need to be set.

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How will the HOPR Association ensure transparency and open communication with token holders regarding the actions and decisions of the trustees and directors in the BVI setup?

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This is a good question. The broad answer is that we intend to do this by minimizing the amount of actions and decisions the directors would need to take.

There is an alignment of incentives here: the community wants to minimize the decision making of the directors because it’s not their role to decide things. The directors ALSO want to minimize their decision making because this is how they avoid liability. In this setup they’re merely executing the outputs of the governance platform, not contributing to the decision making process. As soon as they take meaningful decisions in this role, that liability protection evaporates.

Of course, it would be naive to think that it’s possible to reduce decision making to zero. One concrete example is the trust’s shareholder rights related to the new equity in HOPR RiSe. The directors will presumably be the ones to attend shareholder meetings in their capacity as the trustee (although what they do at the meeting would only be on instruction by token holders).

However, such meetings (and other analogous circumstances) are bound to produce information which needs to be reported back to the tokenholders, and maybe even actions which need to be taken as a result. Deciding how to present such information and how and when to bring such questions to the tokenholders definitely constitutes decision-making, even if relatively minor.

For now the best answer I can give is that we’re aware of this issue, have thought about it, and it will be a separate subject of discussion this month.

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LMAO it is tax avoidance. Which is fine, call it as it is with side benefits such as a beneficial legal construct. No need to say otherwise.

The big concern is if Trustees decide to pull an SBF and jet the bank under a legal loophole premise. That is not to say it cannot already happen though.

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Thank you very much for sharing your thoughts on this question. I’m looking forward to the discussion later this month to dive deeper into this topic.

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Sure, if you like. Just trying to draw a distinction between reducing tax burdens where the tax code is reasonable and where the tax code could mean incurring tax that actually adds up to >100% because actions which clearly don’t have a counterparty in DeFi need to have a named counterparty due to regulator inflexibility.

HOPR Association happily pays high Swiss tax even though a different jurisdiction could minimize this.

The big concern is if Trustees decide to pull an SBF and jet the bank under a legal loophole premise. That is not to say it cannot already happen though.

The trust will have protectors to prevent this, and the deed states that the trust can only follow the outputs of the governance processes. If the trust is dissolved, the ultimate beneficiaries is the class of token holders. This isn’t foolproof, but it’s far more protections than the tokenholders have now.

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That’s also my first thought. :shushing_face:

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But why? Just because that’s common in crypto? Or something specific to this situation? I mean these questions in the most neutral way possible. It’s hard to address concerns without understanding where they’re coming from.

And while I do support HOPR and the founders, my main interest is governance design, so I’m super interested in all kinds of governance capture and practical methods for preventing it.

Governance capture by the founders is a very reasonable thing to consider, and we’ll be discussing all kinds of potential governance capture this month.

But the reality is that this kind of attack is much simpler in the current setup, while the proposed arrangement makes it much harder. Is it perfect? Certainly not. Is there a better arrangement from this perspective? Quite possibly, but we haven’t found one.

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Thanks for providing this comprehensive FAQ. I have 2 questions as follow :

1- How adaptable is the proposed setup in the BVI to potential changes in the HOPR ecosystem, technology, or regulations in the future? Is there room for adjustments as the project evolves?

2- While the trust setup provides legal obligations for the trustees to follow token holder instructions, how will the accountability of trustees be ensured if they fail to follow the governance processes? What mechanisms are in place to hold them responsible?

Thanks in advance,

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I would like to see a certain number of director positions filled by members of the community rather than just folks from the HOPR Association. This would increase both transparency and decentralization.

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Speaking of which, @thewanderingeditor do we know how many director or board member trustee positions there shall be?

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1 - The trust structure is somewhat adaptable. The trust purpose, published in the deed, will refer to a list of governance processes published on-chain (to be decided with the community this month). This set of processes will be updatable via the governance system.

The exact wording is still being worked out with the lawyers, but the essence is:

“The HOPR Community Trust has the purpose of implementing the instructions of HOPR token holders in accordance with certain governance processes. These processes are defined by the most recent output of the smart contract at Ethereum address [contract address].”

The trust itself can be adjusted within the framework of the BVI. The whole thing could also be dissolved and set up somewhere else (although that would obviously be quite a hassle.)

2 - The protectors have the role of ensuring the directors follow the purpose of the trust. It would also, under the wording of the trust purpose, be possible to replace the directors via a governance proposal (although of course this is worthless in the case of full governance capture, as then the directors would simply not implement that proposal).

This would be extremely illegal though. In that case, the recourse would be to take legal action in BVI. I can find out precisely what that would entail when I next talk to our lawyers.

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I agree. I’m trying to work out whether this is possible. Some things to bear in mind though:

  • The KYC requirements for being a director are extensive
  • The role requires a lot of admin on the BVI end (annual reporting, accounts, etc.)
  • The position probably can’t be paid, or the whole set up would need to register as a VASP (virtual asset service provider)
  • The directors are exposed to a lot of liability

I know from the outside it might seem like the directors are the dangerous ones with all the power. I think the legal reality is the directors have the most constrained power and the highest legal liability. I wouldn’t take the role!

Conversely, the protector role (keeping the trustee in check) seems to be more suited. Although the protectors would need to be identified, the KYC is less extensive. They also don’t assume liability for the legality of passed proposals. It also seems easier to make this role compensated from community funds.

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The current thinking is that there would be three directors. I don’t know if this is a legal requirement or this is just a practical decision. I will find out.

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I’ve read through the proposals and why I appreciate the level of thought and care that went into it and the good intentions behind it, I still do feel this is a step backwards.

Because of this deed, the trust will be legally obliged to act on the instructions of the token holders. Failure to do so would expose the trustee to potential legal action. This is far more power than token holders have in the current set up.

It also means that the trustees (with little mention of how they would be chosen or replaced, DAO/msig/trustee decay is a thing!) will not be anonymous, which is quite ironic for a privacy focused project. And that HOPR relies on state power. One important aspect of decentralization is also the ability to hedge legal risk through judiciary arbitrage. If every trustee is subject to the same legal rules the organization is not decentralized.

But more generally it seems to me that this setup is going the wrong way: it effectively institutes a centralized core of developers and some sort of a legal middleman which token holders have to go through to pass changes (but with blurry requirements on exactly how binding the proposals would be anyways) instead of trying to think about how to design the protocol to be more open to external contributions, improvements or even forks.

The ability to add new code, new features or to allocate tokens by virtue of a vote by token holders should directly be implemented at the smart contract level. Systems of delegations and subDAOs (but again with smart contract based, programmatic and binding agreements) can be devised to make the voting process more streamlined.

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when binance

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Thanks for the clarification and FAQ, the current version of DAO is much more informative than the previous ones.

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vote yes