Legal Structuring

Hi everyone, as part of the transparent processes around the authoritative DAO launch and the API3 ethos in general, I wanted to gauge interest on a rundown of API3 DAO’s legal wrapper, and how the bylaws strive to harmonize some of the DAO’s coded governance and other aims with real-world structuring.

As you can likely tell, the immense amount of off-chain work and business development with API providers and other entities like the Open Bank Project in part necessitates the DAO’s ‘wrapping’ in a traditional legal entity, the API3 Foundation. As part of the DAO’s launch, a special resolution and related bylaws were passed to more accurately adapt the legal entity to reflect the DAO’s non-hierarchical structure, including expressly designating those who stake API3 tokens in the designated API3 DAO governance contract as beneficiaries of the Foundation, and the hardwired direction of DAO Resolutions on the Foundation.

I’d like to share the details on the foregoing with all of you stakers and governance participants. So, for those stakers interested in learning more on the particulars of the Foundation structure, I’d invite you to respond with topics or questions you’d like me to address (though I cannot promise I can or will answer all responses). Right now, I intend to host a video call running through the overall structure of the Foundation and motivations for using a Cayman limited foundation, examining the bylaws, and how stakers fit into the picture, with an ultimate view to having the DAO ‘ratify’ the bylaws onchain. I’ll plan on allowing a week for everyone’s feedback.

  • Erich

Is there a legal relationship between the main DAO and a subDAO?


not yet I’d think, but I’d assume there will be

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There are several options for legal status of a subDAO, primarily:

  • for a subDAO that’s organized expressly for API3 operations/with participants receiving recurring grants from the API3 DAO treasury and using the subDAO as a budgetary and coordination mechanism, it might be “wholly-owned” by the API3 DAO (and thus the Foundation). This could take several forms, but a simple limited company or limited liability company could make sense and has precedent for operations/dev teams as such a DAO legal entity wrapper.
  • for a subDAO that chooses not to form a legal entity wrapper or that’s really a one- or few- time grant recipient from the API3 DAO (like an external dev or BD team with a specific but otherwise unaffiliated/non-recurring mission) that airdrops its native governance tokens to API3 stakers (as suggested in Burak’s article on fractal scaling), the legal relationship could be contractual by the exchange of promises (milestones or other deliverables) and tokens from the subDAO, in exchange for the granted funds and other support from API3 DAO.
  • whatever structure is proposed by a prospective subDAO in a DAO Proposal!

HI Erich, could you share a real world example why an external dev team would want to form a sub dao under api3 (instead of creating an independent project)?


doing Airnode for a non-EVM chain?


Sure, I think the quick answer would be to increase the attractiveness of their DAO Proposal for funding from API3 DAO. They might propose forming a subDAO rather than simply asking for grant funds to be sent to an existing external entity because it could:

  • provide more assurance of accountability towards the proposal milestones (and transparency in usage of funds)
  • directly incentivize governance participation and work contribution both for the main DAO and subDAO via subDAO tokens (for reasons set forth in Burak’s article mentioned above and this community member article)
  • incentivize follow-up grants from the main DAO, and perhaps operations assistance. For example, if such subDAO needed some meatspace legal agreement drafting, I might be able to help them (depending on conflicts of interest, etc., obviously - which would be more difficult if they were a separate external entity)

Just my initial thoughts, I’m sure there are other incentives of which others have thought


Posting some materials here just for anyone’s reference:

I’ve also uploaded the text of the Cayman Foundation Companies Law:
Foundation Companies Law 2017 (Cayman Islands).PDF (276.5 KB)


Hi Erich,

I am looking forward to your talk. Thank you for sharing links to the material.

A couple of thoughts.

The beneficiaries part is interesting. If you could please explain that when you speak. My questions is that even when token holders are participating in governance, hopefully no joint liabilities are passing to them.

API3 will be interfacing a lot with traditional companies. These may prefer established contracting procedures, etc. In such cases what is the chain of contractual commitments across the entire structure, the liabilities and if relevant the money movement.


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Hi Ashish, glad the materials have been helpful. I’ll go over the beneficiaries concept on the call, but in short: liabilities are limited by the Foundation entity; the beneficiaries are not shareholders nor officers nor would they have liabilities flow to them from the Foundation under the current interpretation of the law; the directors of the Foundation, who act as directed by DAO votes, are indemnified for liability where they are affecting DAO Proposals - more details on the call as to reasoning and common practices.

The contracting entity for legal agreements with traditional companies and individuals is API3 Foundation-- a chief motivation for the legal wrapper was for this purpose, in a familiar/commonly used jurisdiction for offshore/remote/foundation structures.


Interested in knowing if any legal changes accompany the ‘transition’ from the initial core team-operated DAO to the current authoritative DAO and if any role/responsibility changes in the team that follow the potential legal change.
Particularly focused on the ‘transition’ because I want to know if anything changes on the legal end or is it just treated as a restructuring that has no legal consequences.

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I have a question pertaining specifically to the relationship of API3 and the Open Bank Project.

I left the Ethereum ecosystem back in 2016/2017 for a couple of reasons:

  1. Learn new client frameworks, ie. Angular, React, ect…
  2. Analysis of cost/benefit proposition conducting business on Ethereum didn’t make financial sense at the time

After leaving - I sought to better understand the difference between structuring a project with an OpenAPI model vs Blockchain. My research included monetized API’s and private blockchain technologies. I had success prototyping with the Open Banking Initiative protocol and gained a working competency with full-stack development with modern frameworks. (My preferred development platform was Adobe Flash prior to getting involved with Ethereum pretty early on - 2013/14)

I followed closely what FinCEN (Financial Crime Enforcement Network) and the SEC had to say about ICOs and cryptocurrency in general. It wasn’t until the advent of DeFi that it appeared there was a business that was generating any revenue in the space - as in what would generally be reported on a P/L statement sheet, as opposed to - speculative valuations.

With interpretive letters as such, it’s no stretch of the imagination to see where policy could lead us in the near future.

What is the relation to the Open Banking Project?

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Sounds like some extremely applicable background - I’d invite you to join our builder discord if you’re interested in getting back into Open Banking dev with some of the API3-Open Bank tooling and tech sprint hackathons in the near future.

The relation to the Open Bank Project is a ten year co-development partnership to bring open banking API access to decentralized applications; here’s a link to the announcement. OBP’s 400+ APIs will unlock a bevy of capabilities for DeFi and other decentralized applications, including identity verification, account status, authorization mechanisms, and others that are beyond my technical knowledge. The tech sprints will also help build a blockchain-banking sandbox, for regulators and banks to develop their respective open banking-Web 3.0 frameworks.

Because this thread is meant to be tailored towards the API3 DAO-Foundation structuring, maybe we can start a new thread in the forum or continue the conversation in the discord linked above?


I have been trying to connect on the discord channel - I am getting an error connecting and have raised an issue with Discord to resolve it. I’m very interested in what type of tooling there is, and have interest exploring this space.

As soon as I get the issue resolved with Discord I plan on joining the builder discord. Until then - I’ll post another thread here.


Thank you for the webinar @Erich . It was informative to see the thinking behind the structure and also the balancing that was done.

I am the type who likes to read SHAs and legal documents :slight_smile: Was therefore curious to see the by-law doc you mentioned on your GitHub. I could not find it though, could i request you for the link, if not too much of a bother. Thank you.

Hi Ashish, see attached for the bylaws.
API3 Foundation - Bylaws.pdf (775.7 KB)
My open source legal form repo is here, which contains a generalized form of the bylaws, and Marcus will soon post a summary of the community call as well.

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