**this transcript has been prepared automatically by AI and may contain inaccuracies**

Kyle Lawrence [00:00:00]:
Do you like DAOs? If so, then stick around for our conversation with Gabriel Shapiro. Coming right up on Block and Order. Welcome to Block and Order, the show that explores the legal issues facing the world of Web3 and beyond. I'm Kyle Lawrence and with me, as always, the ultimate decentralized authority figure in the world, Mr. Moish Peltz himself.

Moish Peltz [00:00:26]:
Well, today feels like a decentralized kind of day because we are going into a chat with Gabriel Shapiro about the endless boundaries of DAOs and the blank slates that they are for us lawyers to work on and create new things. So, yeah, today's our decentralized maxi day.

Kyle Lawrence [00:00:44]:
It's pretty timely that just on the most recent episode, we talked about Lido DAO or Lido DAO, which we still didn't land on how the correct pronunciation is. I still only gets Lido. But in any event, he brought it up organically and, you know, DAOs with the, with the sort of return of crypto and NFTs, I mean, DAOs are, you'd have to think, are going to start to crystallize in how they're formed both here in the US and abroad. And Gabriel really had some wonderful insights about how DAOs should be structured and how management is to occur and really enlightening stuff that he, as being at the forefront as a thought leader in the space, still talks about old traditional corporate governance metrics and how they can be used to be applied today. I don't know if all crypto founders would agree with that, but I, as a securities attorney, found it really interesting.

Moish Peltz [00:01:32]:
So, yeah, I mean, look, when you talk about legal engineering, you know, that that's, that's what we have on, you know, with Gabriel on the show. And I think he really distilled it down, I think, to two viable options, one in the US and one outside being the DUNA, which is something that Miles Jennings and our friends at A16Z have proposed, and the Cayman foundation, which is a very popular option for many types of DAOs, both protocol DAOs and otherwise. So we got pretty deep into why you might want to consider One of these two DAOs, the types of options or limitations they might have. And then also, you know, Kyle, you started peppering him with some questions about what about this kind of DAO. And we had some interesting conversation about why and why not on, on some of the alternatives. So I think it's fascinating. I think it's, it goes to show that this is what we talked about in our last episode is as much as the vibes have shifted. And as much as, as they're, you know, we're excited about this next era, we're still talking a lot about know what has worked from, from the past.

Moish Peltz [00:02:43]:
And, and, and that's not just in this past like, you know, three to five year cycle of like the DAO, but really what's worked in the past from like the past 150 years of like organizational governance. And, and really combining those two things of like both the, the on chain learnings and the, the off chain learnings and trying to optimize for both those.

Kyle Lawrence [00:03:00]:
Yeah. Old school meets new school. Here we have it. We're watching it happen in real time. It's kind of amazing.

Moish Peltz [00:03:06]:
And here we are on Block and Order to bring it right into your living room.

Kyle Lawrence [00:03:10]:
All right. Well, please stay tuned. We're going to kick off our conversation with Gabriel Shapiro. Coming right up. Thanks for tuning in, folks. Well, joining us on Block and Order today, we are thrilled to have Gabriel Shapiro. Gabriel is currently the CEO and founder of Metal X. Gabriel is formerly the general counsel of Delphi Labs and is an attorney with over a decade experience in structuring negotiation and execution of strategic transactions for technology clients.

Kyle Lawrence [00:03:34]:
We're very happy to have Gabriel. He's gracing us with his, with his time. We know you're a busy guy, so thank you for coming on the show and welcome.

Gabriel Shapiro [00:03:40]:
My pleasure. Good to be here.

Kyle Lawrence [00:03:43]:
So, well, let's kick it right off. What's going on in the space? It's a brave new world today. I feel like if we had this interview two months ago, we would have a much different conversation. But 2025 is upon us. There's a new administration coming. What are your thoughts on the space and where we're heading?

Gabriel Shapiro [00:03:58]:
Yeah, it's a very exciting time, obviously. I mean, clearly during the Biden administration we were sort of in a witch hunt territory. And I think, you know, there's, there's kind of two major things that have happened toward the end of the year here. One is obviously the Trump win and he ran on an expressly pro quit pro crypto platform. Very, very expressly. Right. You know, he gave a big, big speech at the bitcoin conference, you know, announcing, you know, firing Gary Gensler and to get a big applause Bitcoin sovereign fund and all this sort of thing. So very, very pro crypto.

Gabriel Shapiro [00:04:34]:
And then also what' right now that maybe is getting a little less publicity is the EU comprehensive regulation on crypto called Nika is is coming into effect at the end of the year. And so they're, they're pushing out all the final sort of interpretations, guidance, regulations on that. And so, you know, suddenly we're, we're heading into, you know, there's still more stuff to figure out in the U.S. you know, but it suddenly looks like a very different environment where there's going to be quite a bit of regulatory clarity on crypto. So that makes everyone more optimistic, and it's certainly a very, very big change.

Kyle Lawrence [00:05:12]:
No, for sure. One of the things that Moish and I always like to talk about is definitely positive vibes. We, on our last episode, somewhat disagreed on the actual level of optimism as to what we can expect coming out of the SEC and coming out of Congress in the coming year. But definitely right here as we sit right now, we're all feeling a whole lot better than we were most recently. We'll see what happens. Regulatory clarity and congressional action. You know, we always hope for the best, and sometimes it works and sometimes it doesn't, but we will see. But certainly, you know, green.

Kyle Lawrence [00:05:42]:
Green shores ahead or whatever you say. If you were to guess as to what the first sort of domino would be to fall in terms of regulatory clarity, you know, I've always been a proponent of let's have people write the legislation and know what they're talking about. The last thing this industry needs is a Sarbanes Oxley type of response, which is just a broad, sweeping catch. All of all digital assets. If you were a betting man, what would be the first thing or what would be the main driver of what that regular regulatory clarity will look like?

Gabriel Shapiro [00:06:16]:
I mean, I would, I wouldn't make a bet at this point because I think it's, it's, it's chaotic. Everyone is sort of jockeying for power in this new environment. And, you know, now that we've kind of defeated the Biden admin, I think people are realizing, oh, well, it's, it's not really crypto. Like, people have very, very different interests within crypto. You know, there's the DeFi contingent, there's the centralized exchanges, there's, you know, CD5, there's, you know, projects like Ripple and Stellar and Hedera that, you know, have these much more kind of centralized technologies, and it's, it's much more like a, like a corporate enterprise play, and they're in their catering to institutions. And so now, now there's a major jockeying for power. I think, you know, I don't think we'll see significant. I don't think we'll see comprehensive congressional action this year.

Gabriel Shapiro [00:07:09]:
I think what we'll see though is there's going to be very pro crypto people at the SEC and the CFTC, right? And I think that they will try to do something. Right, what will they try to do? Well, they could say something about past guidance either, you know, re. Reaffirming certain past guidance. Oh yes, the Hinman guidance. We still believe in that. We still believe in submissions, decentralization or some orgs. Orgs backed by Ripple frankly and stellar, you know, are saying, no, no, no, we want you to denounce that. We want decentralization.

Gabriel Shapiro [00:07:42]:
It's not fair. Decentralization picks winners and losers. Denounce that. So there, there could be, there could be round, there could be committees that are formed. There could be public sort of meetings that are held with industry leaders at them to discuss what a regulatory framework looks like. There could be no action letters that the agencies start considering again and enter because they, they were not taking any, no action requests for, for over four years. So I expect to see that sort of thing in the, in the, in the next year and then I see, expect to see some legislative proposals. You know, the biggest one that got kind of closest to getting past was Fit21, you know, which my understanding is it had some support from both Coinbase and A16Z and that the proposal under that was basically a bifurcated type of approach.

Gabriel Shapiro [00:08:32]:
The SEC keeps some power, the CFTC gets, gets some new power, in fact, powers that have never existed, which is regulatory authority over a spot market, you know, and probably end up being the main regulator of, you know, centralized exchanges and stuff like that as a result. So we may see kind of new flavors of that sort of thing and see these proposals start getting floated around. But yeah, it's really anyone's game at this point.

Moish Peltz [00:08:55]:
So that, that all sounds awesome and it's miles better than where we were 60 days ago. But the chaotic messiness which you're describing and which we're seeing leaves operators and entrepreneurs that are like, hey, I want to launch something now. Like, what do I do? The vibes are good. Everyone's saying like, you know, we're back on track here, but when I come and talk to you, it's like, well there's, there's still this chaotic messiness out there where like, it doesn't really give me much actionable, you know, things to do. Even like if Fit21 or, or, or Nika, you know, I, I don't, I don't see either of those really enabling the, the Kind of, you know, so let's, let's say, for example, DAO formation type work that you are working on. So what does that leave for entrepreneurs, let's call it the next six months that want to launch a DAO or launch a token or do something like how should they think about the stated optimism versus the reality that this stuff takes time?

Gabriel Shapiro [00:10:05]:
Yeah, yeah, yeah. I mean, well, first of all, crypto is about not really trusting the government. Right. So I think, you know, I mean, it's certainly nice if the government is more friendly, but you should still build. Your number one goal should still be to build resilient, decentralized, autonomous systems. Right. And you can't forget that goal. It's very tempting.

Gabriel Shapiro [00:10:24]:
You know, we just had probably the biggest success of the year. Certainly the biggest DeFi success is, is hyper liquid. You know, it's a completely centralized infrastructure. Right. It's basically a CEX on smart contracts on blockchain. Right. And I think there's a temptation toward that. Right.

Gabriel Shapiro [00:10:45]:
But you know, I hope, I would hope that they try to pivot and try to build something decentralized as rapidly as possible because you just don't want to be subject to the political winds. But anyway, what you should do, you know, I think is, yeah, it's more risk on. So maybe you feel more comfortable, you know, launching a token that you wouldn't have otherwise launched, being a bit more aggressive in your marketing and that sort of thing. I think obviously you still want to be honest because there is still enforcement power that can be used and I think it will be used against fraudulent or harmful projects. There also are class action litigation is picking up in the crypto. Related class action litigation is picking up in the US and that's going to be based on the law as it currently exists. You know, the HAWK TUAH girl is now in the crosshairs across.

Moish Peltz [00:11:31]:
I think she's still taking her nap.

Gabriel Shapiro [00:11:33]:
It frankly doesn't matter, you know. It does. Yeah, she's still taking her nap. It frankly doesn't matter. You can't get served as a subpoena if you're napping.

Kyle Lawrence [00:11:44]:
Not legal advice, everybody.

Gabriel Shapiro [00:11:45]:
Yeah, but I think Richard Hart maybe still napping as well. But you know, the reality is like you can't, you know, under existing law, they still have a lot of firepower. Right. And the fact that there's a more positive outlook, you know, doesn't really change what class action litigators can do. So you need to look out for that. But if you're an honest project, right. You Know, if you manage not to have people have catastrophic losses, your, your horizon of possibility is expanded. Right.

Gabriel Shapiro [00:12:15]:
Because you know, launching in the US Maybe doesn't sound as crazy as it did a few months ago. Right. US Is still a very tax heavy jurisdiction as well. So there could be, you know, tax reasons for launching offshore. So you know, there are all these things. But you basically, I think you want to take an intelligent bet on where you think the, the puck is headed. Right. And, and, and skate toward that and you run some risk, of course.

Gabriel Shapiro [00:12:38]:
Right. But you also may, may catch a very big windfall. I mean like for example, Trump is saying, oh, you know, tokens issued from the U.S. you know, won't be, won't be taxed or won't be taxed.

Kyle Lawrence [00:12:49]:
Yeah, I saw that.

Gabriel Shapiro [00:12:51]:
Maybe you want to place a bet on that. I mean, that could be a really big payoff. And if it does happen and you know, the EU and these other jurisdictions keep taxing tokens that were the U.S. keeps taxing, you know, keeps putting U.S. taxes on something that was issued abroad. I mean, suddenly you're at a huge disadvantage because you didn't launch in the US So there's going to be, you know, this is the type of thing we'll be working through with clients. Certainly is, and, and keeping an ear to the ground in D.C. and all this stuff and, and just trying to, you know, make intelligent bets.

Kyle Lawrence [00:13:20]:
Yeah, I saw that, that, the thing he suggested about not taxing and I was like, that sounds like a great idea. I don't know if it'll fly, but I mean, I'm game for it. That's okay. We hope springs eternal. We can place a bet on it. It's, it's interesting. You're talking about the horizon of possibility and what you know, like, you know, the vibes are good and you know, Moish alluded to it before. It's exactly right.

Kyle Lawrence [00:13:42]:
It's, I think almost the hesitate to say the word advice because we're lawyers and like giving it away for free. But the advice we're trying to give to people is, look, yes, the vibes are better, but there are still these laws in place. You still can't defraud investors, you still can't do all of those things that you couldn't do before. It's just that as you were saying, if you're a little more honest, you can have that, you know, defensibility air about you. I hired a lawyer, I tried to comply with the laws as they were suggested and maybe now that that will give you a little bit more leniency from the SEC. Whereas before we joke about it on this show and it was, you know, Gary Gensler famously said, come in and register. And I always said, if you walk in and do that, you're going to walk out either in handcuffs or at best with a subpoena. You know, we had, There are so.

Gabriel Shapiro [00:14:25]:
Many stories from his reign of terror. You know, as I understand it, he, he had like right after his, right after he started, he had a call with the Blockchain association, you know, which is one of the biggest trade associations for crypto. And you know, they were expecting some friendly, constructive call and he literally said, you know, all of your contributors are out of compliance. Get them into compliance now.

Kyle Lawrence [00:14:47]:
Right.

Gabriel Shapiro [00:14:47]:
We have nothing further to discuss. Such is the story. I was not there, you know, and just, just many things like that. So look, there still are issues and, and I expect it's like the SEC and these agencies are just going to go to sleep. They're not. But I think it's exactly as you say. If there's a problem, you may get a call, you may get a chance to rectify as opposed to, we will destroy you, you're done. And these seeking these draconian remedies where.

Gabriel Shapiro [00:15:15]:
Nope, just destroy all the tokens, delist all the tokens, it's over, there's no compliance back, you're done. I don't see that continuing.

Moish Peltz [00:15:22]:
Yeah, yeah, no, that, that ties into, you mentioned the no action relief, that that may again be on the table and, and who's going to be the first person to, to take them up on that in the new administration and get, you know, we've been doing this offshore, we want to onshore it. Can we do it right. And it'll be interesting to see if we start getting that kind of guidance, you know, maybe 60, 90 days into the new administration.

Gabriel Shapiro [00:15:46]:
It is quite challenging though, because as all this has been going on, frankly, crypto has been getting more and more centralized. And so the types of thing, like the last type of no action thing I explored with the SEC was back in March or April of 2020 when DeFi was first taking off. And I basically said, look, totally immutable, smart contract, blah, blah, blah, great facts, perfect facts, right? And they wouldn't give it if you were to go with an actual project that has a chance of thriving in this market. You've got solvers, you've got bridges that can apparently rehypothecate assets with a single governance proposal. You've got, you know, intense. You've got, you know, just npc. It's just, just you got centralized sequencers. Um, it's just like the weirdly the facts are like worse than they've ever been, right.

Gabriel Shapiro [00:16:48]:
And so it's like if I think of like a real project that I would ask for a new act relief for like, no, I still wouldn't ask for it because it's too crazy. Like, you know, even if they're super friendly, they're not going to be that far, you know. So yeah, it's an interesting, interesting situation.

Moish Peltz [00:17:05]:
I agree with you. But I think if you were to ask a crypto founder off the street and they're like, yeah, it's going to be great. They're going to let us start doing all this stuff. Stuff. And I don't think there's, there's quite the, the realization hasn't set in yet, I guess is what, what I'm theorizing.

Kyle Lawrence [00:17:22]:
Yeah, it's interesting you mentioned the word centralization because I saw that you tweeted yesterday about DAOs and how they're, you know, there are they really decentralized because there's still a layer of, of governance on top that basically vets the proposals that come out. And that's something that we've talked about because from where I sit, a concern I would always have is if you have one of these DAOs, the DAO members can theoretically just run amok and can propose crazy things. And you need to have some layer of, of you know, guardianship over that just to, just to prevent, hey, you know, invest in my brother in law's lawn doctor company. I don't know, you want to avoid that. So how do you, how do you reconcile that kind of push-pull in the space?

Gabriel Shapiro [00:18:04]:
Yeah, for sure. I mean, these are really not new issues. Right. Like I was a public company m and a attorney for a long time and so anyone who's familiar with, you know, public capital markets, right, like you know about poison pill plans and you know about shareholder activism and you know that, you know, at one time being too far on the side of giving, like shareholders, primacy can basically means that they just blackmail everybody and destroy everything. Right. And over time we had laws and we had structures and we had market dynamics that turned Carl Icahn from what was called a green mailer at the time, you know, which was basically just a nice word for blackmailer, into a shareholder activist. Right? Yeah. Which is like a noble thing, you know, but it was regulations and stuff that, that pushed him that way.

Gabriel Shapiro [00:18:52]:
And so we just lack this, this mature structure in crypto. And I think, I mean, even the, you know, I think the tweet you're talking about was Polygon, was about Polygon because they had this fairly controversial proposal to like, rehypothecate the bridge assets without the user consent and stuff. And then, you know, they, the people who sponsored it kind of defended themselves. Oh, well, you know, anything should be fair game and you can discuss anything and all that. And I just slapped their governance diagram on the tweet because their guy in his diagram literally shows nothing ever gets to the people unless it goes through this council first. Right? Now I think you need something, right, because there can be governance attacks, there can be hacks, there can be so many different problems, right? And obviously someone could come in North Korea could buy up all the tokens and propose funding a nuclear bomb or something, right? And. And you don't want that. But the question is, where do you put that? Right? And you know, in my opinion, some type of, you know, post hoc veto thing like let the DAO speak first, so to speak, let the people speak first, and then, you know, filter it up and maybe there's some type of veto or something that needs to happen.

Gabriel Shapiro [00:20:02]:
I could see the logic of, well, if it would get vetoed by us, why even have the DAO waste time on it in the first place? We should just do the veto first. That probably was. It's not sinister. But what it doesn't recognize is the fact that then you never really have a great opportunity to see if the veto committee has gotten like radically out of whack with the community. Right, because they wouldn't have the opportunity to like fully surface this and show how strongly it supports, supported, you know, and then make them put the burden on them to explain why they're vetoing it. Right? So it's all a question of like, burden shifting and moral suasion and just so many optics and so many things. But in my opinion, public company situation is pretty good, honestly. Apple is more decentralized than any DAO in terms of its shareholders, for sure.

Gabriel Shapiro [00:20:49]:
And so I think we should look more at those traditional models and that market dynamic, right, and how those rigs work and all that stuff and try to pull more from that as opposed to constantly, you know, trying to reinvent the wheel. And I hope with a better regulatory structure where people have to do less psyops and contort things less, we could just get to stuff that makes sense more. And I think a shareholder type model makes a lot of sense. Right. And those checks and balances make a lot of sense.

Moish Peltz [00:21:16]:
So how, how much of that can we do right now? I'm thinking, I don't know if you know, Carla Reyes, her words echo to me about, well, this is all just a creature contract. We can just have a DAO operating agreement that says exactly what you just said. And I do feel like we have some of that, but perhaps not as much as we would want or maybe it's just not socialized because so much of this is happening within DAO discourse and internal discussions versus external facing. So how much of that can we do now and start being creative with and experimenting with? And if that's the case, how much of that does that all just cleanly fit into Cayman BVI type structure? Or is there some other way that we could best enable that?

Gabriel Shapiro [00:22:05]:
I think we can do a lot of that. And that kind of is like my mission at MetaLeX is creating these sort of more, these check and balance. Right now we have the worst of both worlds. We have like, like none of, none of the legal protections, none of the legal rights. Right. And then on the other hand, like also crypto usually isn't fully used either because most things are like very trustful. It's like some multi sig that just has all this power and no way to hold them accountable. And so I actually say let's do the opposite.

Gabriel Shapiro [00:22:35]:
Let's have the best of both worlds. You can, whatever you can put into code, put it in code, trust, minimize through code. If you want to give a bunch of money to and a group of people who are supposed to be doing something for the ecosystem with like a grants foundation or something, we could put programmatic rate limitations in the smart contract. We can do all kinds of things to make them do what they're supposed to do. Right. It's supposed to last when it's supposed to last three years, I can make absolutely sure that it lasts three years. Right. Because they won't be able to spend it any faster.

Gabriel Shapiro [00:23:05]:
So do that. And then also where things can't be done with code, which is many things, use the legal side. Right. But do it the right way. Right. There's a, there's a bad way to do it. Like Optimism has, you know, basically like some kind of code of conduct and they have this sort of kangaroo court where people decide if like, you know, there was some ethical violation by someone in the community and then they banned them from the discord. I mean, these things are horrible, man.

Gabriel Shapiro [00:23:33]:
This is like a parody of real law. There's no due process people, they have no record, no attorneys who can represent them. There's no rights. I mean it's, it's just craziness. Right. So that's the bad way. But you can do put things in proper legal documents, documents that lawyers look at and they make sure it's not ambiguous and they make sure it's clear. And you could give the DAO a right to appoint someone who goes and has the power to make sure those people follow the rules and, and that sort of thing.

Gabriel Shapiro [00:24:00]:
And so of course you should do that. Right? I mean, why would you abandon, you know, there's just a mentality in crypto of okay, if, if you have to trust something off chain. Oh, that, that's just that you just, you just, you just trust those people and that's it. There's nothing you can do about it. It's so untrue. There's a million things you can do to de. Risk things off chain and you should absolutely do them. Right.

Moish Peltz [00:24:21]:
So you hinted at it there, but I'm curious to know more about what it is that MetaLeX does and what they're trying to solve for and how they approach these kind of, I guess, design challenges. Right?

Gabriel Shapiro [00:24:33]:
Yeah. So basically the initial impetus of MetaLeX was that I was advising a lot of DeFi projects and I was a decentralization maxi. Most lawyers in the space are decentralization maxis because that's, that's what gets you the best legal arguments. But the more I got deep in with projects really with like, as in kind of like GC roles and deeper roles is like I realized, oh well, builders themselves are like very, very nervous about this level of decentralization. And the main reason is cyber security. Right. There's always bugs in the code and there needs to be something to mitigate that. And it means you can't wait for a DAO to have a three week proposal to decide there's been a hack and to freeze the smart contracts, you need to freeze them right now while the hack is going on.

Gabriel Shapiro [00:25:19]:
So I came to realize that there is this like very legitimate place for these like multi sigs that are quicker acting and it doesn't go through normal governance. And so once I accepted that reality, kicking and screaming, you know, getting dragged into that, then I was like, okay, well how do I make this better, right? How do I de risk it for the people who are on the multisigs? How do I de risk it for the community so that these people have some accountability to what they do? I mean, you could see how it goes really badly with this Kujira project, right? Because they had. They had total admin control over. Over their DeFi protocol. And it turned out that. And the protocol worked fine. But what it turned out to happen is the team levered up in the protocol, and so they kept changing the rules to benefit themselves.

Kyle Lawrence [00:26:08]:
Yeah.

Gabriel Shapiro [00:26:09]:
Avoid a liquidation. And eventually it all fell apart. So you could see how, yes, you can use these powers for good, but. But you can also use them for bad and for very selfish reasons. So, you know, I just said to myself, okay, well, look, it's pretty simple. You have a group of people doing something. If they're just doing it on an unincorporated basis, their partnership, they be, you know, jointly and severally liable, all this stuff. So at minimum, you need to put it in a legal entity.

Gabriel Shapiro [00:26:32]:
That's step number one. Then step number two is, okay, this legal entity needs to have some very clear rules about how they're supposed to use their powers, because the chain doesn't know what's a hack, what's not a hack, or any of that. Right. So you got to put it in the legal documents and define what a hack is. Right. And number three, are there interesting things we can do with the code itself, right. To limit this? Like, the DAO can override what the multisig has done and stuff. So that's basically what we've built.

Gabriel Shapiro [00:27:00]:
We have a set of techniques for forming these documents and what they should say. And we have a set of smart contracts that plug into a standard multi sig smart contract that modify its functionality and you can modify it in endless ways. You could let a DAO appoint and remove members of the multisig. Or that may be too strong. You may not want the DAO to have the liabilities that may come from having that level of control. So you could have, you know, new members have to get approved by both the DAO and the existing multi sig members. Right. You could have things.

Gabriel Shapiro [00:27:37]:
And, you know, just, you guys will know, you know, every. Every director of a board of directors can resign at any time. Right. There's nothing. That's just normal. And you want that. But with a multi sig, a standard one, guess what? You actually can't resign. You have to be voted off.

Gabriel Shapiro [00:27:52]:
Right? So, but we can fix that. We can make it so that people can resign. Right. Which you should want. And you can. Let's just say then too many people resign. Okay. Then you could have like, the funds locked or something.

Gabriel Shapiro [00:28:05]:
So you need a rule that Then they revert to the DAO or something like that. So there's all these things, you know, and basically we've built like a very powerful, configurable system informed by our legal understanding and our governance understanding, you know, of what people might want to do with this and how they can program it. And then we also have what I would call deal technology, like, like escrows, vesting protocols, etc. That can plug into this in very interesting ways. So, you know, I'm just trying to like, put, put law on chain, put agreements on chain, put entities on chain. You know, that's what I know how to do. And that's where I think I can like contribute the most.

Kyle Lawrence [00:28:40]:
You know, it's funny, you talk about putting things on chain, yet the things you're talking about are traditional corporate governance structures. You know, you, you need a comprehensive management plan in place. I could set that to music. I've been saying it for 20 years. And the people and the founders that we talk to say we want to get away from that. It's like, well, the more things change, the more they stay the same. That's really interesting stuff of the DAO itself. Moish and I, we've talked to a lot of folks who are either founders or scholars in the field, and we've been trying to figure out what is the optimal structure for a DAO, especially here in the US with the regulatory uncertainty that we've been talking about.

Kyle Lawrence [00:29:16]:
Now, obviously there's no one size fits all. It's going to be situation specific. But for your money, what do you think is the ideal structure or no structure? We've seen UNAs, we've seen offshore foundations and all those kinds of things.

Gabriel Shapiro [00:29:29]:
Yeah, I was hoping this, like, this Borg, this DAO adjacent entity thing could help avoid putting DAOs into legal wrappers. Because I mean, if you think about it, right, it's kind of absurd, right? It's called a decentralized autonomous organization. There's been all this sort of cyber. It's like, oh, now you're telling me your cyber anarchist thing is actually a Wyoming llc, you know, and, and it's just kind of depressing, you know, and so I thought, I thought, like, strip out all the business logic, you know, put it into these adjacent entities, and maybe we can keep the, the DAO thing pure, but it really doesn't work. I mean, the thing that finally convinced me of that is this recent like Lido class action thing where the.

Kyle Lawrence [00:30:11]:
We were just talking about that. Yeah.

Gabriel Shapiro [00:30:12]:
Just lit on fire all the argument he Just he was not having it at all. He's like, it has o in it. It's called an organization. Of course it's an organization, you know, and that was just the end of it. So the problem is, like, I could imagine some idealistic scenario of like, think everyone says the perfect things and they do the perfect things, but because it is decentralized, you can't control people. And they're always going to revert back to kind of treating it as like a company or something, right?

Moish Peltz [00:30:37]:
I don't know what it is. So it's a general partnership.

Gabriel Shapiro [00:30:40]:
Exactly right.

Moish Peltz [00:30:40]:
I don't see how you. Yeah, I think you're exactly right. Like, how does that ever get. It's like there's at least a risk of that, right? If that's not the answer.

Gabriel Shapiro [00:30:48]:
And every time, you know, I've had some clients, I'm like, don't call it a DAO. It's just, you know, you're gonna. And then, okay, it comes back, okay, it's an assembly, you know, something like that, right? And so I just don't think that that helps.

Moish Peltz [00:31:01]:
So.

Gabriel Shapiro [00:31:02]:
So, like, then it becomes, okay, now. Now I kind of begrudgingly accept these things need legal wrappers. So. So it becomes like, how do you design that? And the biggest issue by far is tax, right? Because if you ever do one of these, like I did, you know, Medicartel Ventures DAO, which, you know, I would consider like the first legally compliant sort of like on chain venture fund, right? And at the time, you know, I was younger, I was less experienced. We were also in a rush, blah, blah, blah. I just made it a Delaware llc and it was, it worked well enough. But basically when it came for tax season, I had a lot of unhappy non US People were like, bro, what the fuck? I have to, I have to like fill out these W8 bands and all these things. And now like the IRS is going to know about me.

Gabriel Shapiro [00:31:43]:
I'm in Germany, they were not happy campers. And so, you know, but on the other hand, the US is by far the most aggressive tax jurisdiction in the world. And so like, the, like, US people basically can't own foreign entities for it. Like, they, it's just huge penalties in all kinds of ways, reporting, you know, excise taxes, you know, all these things, right? And on the other hand, it's usually less punitive for foreign people to own U. S. Entities. It's not the best thing, but it's not like disastrous for them the way it is in the opposite direction.

Gabriel Shapiro [00:32:20]:
So, you know, the natural thing is to say, okay, you know, this wrapper should be in the US from a tax perspective. Right. I think we can. And, and the, the best structure I think that's been proposed for this so far is from A16Z and Miles Jennings, their GC, which is the, the DUNA. Right. It's a little better because. Why is it better? Why is it better than these LLCs and things like that? Well, it's because it's not an incorporated entity. So it's not actually, it doesn't actually depend for its existence on the state.

Gabriel Shapiro [00:32:49]:
So for example, it's not like the Secretary of State can just say you don't exist anymore as an entity. Right. Rather, it's a recognition that a certain type of association can get the benefits of limited liability even though it's not incorporated. So that makes it better off the bat. And then they've done some other nice things with it. I don't have the statute of in front of me. I think you can. And the worst that could happen if you like don't, you know, like follow all its rules.

Gabriel Shapiro [00:33:17]:
Exactly. There's some footfall, like if you have less than 100 members, for example, then you're not supposed to qualify for this anymore, but then it just automatically reverts to the ordinary unincorporated association in Wyoming. So I think that's a good starting point. I've been banding around some structures with some other tax authorities, including my co founder Alex Kolobitsky. Jason Schwartz is another really good crypto tax attorney we've had some discussions with. And it's like, okay, well maybe we like mirror the traditional like master feeder structure, right? So everyone goes into this DUNA by default. But if they want to opt out, there's like a, there's like a Cayman entity or something and you can opt into that. Right.

Gabriel Shapiro [00:34:00]:
And then maybe like the DAO itself, like all the smart contracts and stuff are owned by like a Cayman foundation. They both feed into those. You kind of get like the best of both worlds type of thing. So, so I'm hacking on that stuff. But as you might imagine, there are a million trade offs and issues every step of the way, especially on tax, but also some other things. And it's not easy, right? It's definitely not easy. But I think we will get something where like it's pretty good. There's like three things that are kind of uncertain with it and still risky and we go to the government and like ask nicely that they like, like fix those three things.

Gabriel Shapiro [00:34:34]:
Like that would be ideal.

Moish Peltz [00:34:37]:
Just for just describing the, the master feeder structure, it's like oh, and like we were talking about before, it's like, oh, as much as we change and push the boundaries, it starts like warping back into like where we started from. Right. So it's more.

Kyle Lawrence [00:34:49]:
Things change.

Moish Peltz [00:34:50]:
Yeah, but I agree with you. Like, and one of it's funny because we were talking with, I just thought about this with Miles about some of the concerns with the UNAS before we got to the DUNAs and I'm just happy personally that one of the concerns was, was the CTA and like the BOI filings and you know, we'll see what happens on appeal, but hopefully that is now no longer a concern and might take, you know, one of those three kind of concerns about them might be removed if that is.

Gabriel Shapiro [00:35:18]:
In fact, I think it was, that was, that was solved anyway by virtue of the threshold issue of how they covered entities in the CTA.

Kyle Lawrence [00:35:28]:
Yeah.

Gabriel Shapiro [00:35:29]:
Because it only covered state chartered entities. So that was another kind of clever feature.

Moish Peltz [00:35:34]:
Yeah. But we, we had had this debate with Miles over whether it makes more sense to, to do the filing or not. And I can see arguments on both sides. I, I guess you don't, you don't need to. But then it's like, well, where's the certificate that says you are the UNA that you say you are besides the internal document? And so you know, those, those kinds of discussions which, which I, I totally see the point that, that both you and Miles say. But you know, and there are certainly.

Gabriel Shapiro [00:35:59]:
Other issues and there will continue to be issues like how do you prove that you actually have a hundred people in the thing? Correct. And like that could change at any time and the addresses are not one to one with human beings.

Kyle Lawrence [00:36:12]:
Right.

Gabriel Shapiro [00:36:14]:
There are these, there are definitely issues and doubts about it and, and how do you set up like it's a legal structure, but probably only certain DAO setups are going to work super well for it. What works better? Is it a ve. Token type of thing? And do you define the members of the DUNA as people who have actually activated their governance power by staking or locking into that contract or do you try to make it all token holders, even though not all token holders have voting power? And is that bad? Because yeah, the tokens are trading too much and you don't ever know who's in the entity? Yeah, there's just a lot of things like that. I think the market will find a way over time to make it all work. But there's going to be a lot of and there'll be more lawsuits. Inevitably there'll be more lawsuits, both internally to DAOs and with government authorities before a mature structure emerges.

Kyle Lawrence [00:37:13]:
What do you think about some of the, like a Wyoming DAO llc, I suppose, because we've seen the Wyoming. And just for our viewers, when we say DUNA, it's decentralized unincorporated nonprofit association. Just for people who didn't know what that was. And just a quick aside, I always felt it was amusing that in certain states, I think it's 12 or 13 states, you have to quote, opt in if you want to actually get the benefit of the rules in the state that apply to those unincorporated associations. But in order to do that you have to file, I think Wyoming calls it a certificate of registration or a statement of authority or something like that. It's not an incorporation, but you still have to tell the state and they have to give you a filing receipt. So it's unincorporated, but it kind of is. It's this weird in between hybrid kind of thing.

Kyle Lawrence [00:37:55]:
But what are your thoughts on the like Wyoming DAO LLC is one that we've also seen. We've had a couple of clients where you actually have to deliver the smart contract to them to show them if you had any experience dealing with those.

Gabriel Shapiro [00:38:04]:
Yeah, I mean, well, here's where, here's where it gets like, like what, what does the word DAO mean? Right? And it's like very, very broad. Right. So there are certain things called DAOs, like, like, for example, like, like that venture fund I mentioned, you know, where. Oh, I think that can make a lot of sense. Right. Because you know, basically at the end of the day you have, you have like a venture fund, you have like members in it. They're like meant to get economics out, you know, in relatively straightforward like conventional ways. At the end of the day, the only weird thing is like rage quits, you know, if you have that different.

Gabriel Shapiro [00:38:36]:
Right, but, but it's still, you know, it's, it's similar to withdraw from a partnership. Right. So for that I think it can make a lot of sense for true DAOs, for protocol DAOs. Yeah, I don't think wrapping them in like LLC makes any sense. There's just too many default rules. They are attached, you know, they're built around this concept of membership and there are certain like non waivable things that the members vote on and the way that those, the DAO thing fixes it a little bit by like removing some things from the standard one. But still there's just like too many prescriptive things about it. I wrote an entire article on this at one point.

Gabriel Shapiro [00:39:18]:
But you know, just this entire idea of like, oh, it has to be either member managed or algorithmically managed. Managed. Okay. Well, you know, number one, nothing is algorithmically managed because the smart contracts are just passive and people call functions on them. Right. The smart contract doesn't manage anything. It's not an AI. Right.

Gabriel Shapiro [00:39:38]:
It's not. But. But it's almost like they were ahead and they actually wanted AIs. But it was instead of. But number two, I mean, what. What if you do. What if you do want it to do something that. That is sort of like a DAO and you do want it to be manager.

Gabriel Shapiro [00:39:51]:
Managed. Managed. Right. Like you, like you want to appoint some committee like a multi sig or some committee that does a bunch. Has certain authorities. Okay. Does that mean it's no longer allowed to be a Wyoming llc? Because they didn't offer that option. Right.

Gabriel Shapiro [00:40:04]:
They said it either has to be managed by the members or it has to be managed by basically an AI that doesn't exist. Right. So there were just a lot of things with that that I just felt it didn't quite match up. And the DUNA thing feels like it's more flexible and closer to the mark. Of course, the best. In my opinion, the best is still a Cayman Memberless Beneficiary List foundation because it is basically like the legal equivalent. It is a pure blank sweet. There are no.

Gabriel Shapiro [00:40:30]:
The only default rule is that you have to have a role called a supervisor if it's memberless and beneficiary list. But there's. And it has the right to get certain information, but it would always be able to get that information. And so it's fine, it's easy. And so it's basically like a blank slate. For a lawyer. It's wonderful for a. You just draft whatever you want the rules to be and it will just work.

Gabriel Shapiro [00:40:49]:
Right.

Moish Peltz [00:40:50]:
Well, this is great. We thank you so much for coming on. Before we leave, where can our audience find out more about MetaLeX and the other things you're working on?

Gabriel Shapiro [00:40:59]:
Yeah, I'm @lex_node on Twitter @lex_node, so always easy to find me there. And if you look at the information for DMs in the bio, you can DM me at that Telegram link week and we also have a MetaLeX channel that you can find. But it's kind of like a big MetaLeX community. Everyone is welcome there. Yeah, and that's about it. I'm around, I'm very reachable and yeah, I love to talk to people, so. Yeah.

Kyle Lawrence [00:41:31]:
Well, that sounds great, Gabriel. Really appreciate your time. Love your insights into the space. And hopefully when, you know, this time next year when there's great codified congressional authority on this topic, we can have you back on and we can talk about it.

Gabriel Shapiro [00:41:44]:
Great chatting with you guys.

Kyle Lawrence [00:41:47]:
Very special thank you to Gabriel Shapiro for stopping by on what will be the last episode of the year for Block and Order. Well, at least the last episode that we're recording in 2024. Whether it gets released or not this year remains to be seen. Remember, nothing that you hear on or see on the show is intended to be construed as legal or financial advice, especially with respect to DAO Formation. Please consult your own attorney and representatives if you're going to take the plunge. Remember, any discussion of any particular companies or assets is not in any way intended to be an endorsement of said assets. Very special thank you to producer Abby. Without her, the show would not be possible.

Kyle Lawrence [00:42:19]:
With that, Happy holidays, everybody. I'm Moish Peltz. I'm not Moish Peltz. I'm Kyle Lawrence. On behalf of Moish Peltz and Black and Order, a very special thank you. And we'll see you guys next year. Yeah.

Moish Peltz [00:42:31]:
Thank you everyone for watching this year and look forward to 2025.