Given the ever-changing regulatory environment, especially given the proximity of Luna Classic to recent enforcement actions, we suggest that it is now important that the Luna Classic DAO retain legal counsel to advise some of the core contributors and the wider community about best practices and basic corporate structuring to ensure that we can operate efficiently while maintaining our decentralized structure.
Since the depeg event in May 2022, several individuals in the community have self-organized and proposed various ways to move Luna Classic forward. Internal structures and teams have been set up, but with the recent developments in the regulatory environment, it has become increasingly important for Luna Classic to align its internal structures and proposed ideas to the external world. Voting for this proposal indicates that the community recognizes the need to limit potential legal risks and structure ourselves with a view toward long-term sustainability. This will also enable the community and protocol to execute on some of the proposed ideas for revitalization.
Over the past several months, we have had initial consultations with six US-based law firms, and follow up consultations with three of them to assess their knowledge, engagement, advice, and overall fit for the Luna Classic community revitalization effort. It is now our recommendation that we utilize the services of Horizons Law & Consulting Group (https://www.horizonslaw.io/).
About Horizons Law
Horizons Law & Consulting Group is a leading crypto-native law firm that specializes in providing legal assistance to companies, project core teams, and DAOs in the cryptocurrency industry. They have been in the space since 2016 and have extensive knowledge of the cryptocurrency landscape. Horizons has a proven track record of providing legal counsel to many leading projects in the space. Horizons’ founding partner, Ryón Nixon, served as Solana’s first General Counsel, and his firm has since grown to have worked with other top-tier projects such as Osmosis, Synthetix, Axelar, Tokemak, and Stargaze, among others. Horizons will provide legal representation for the Luna Classic DAO, including advice for individual contractors on the chain who may require legal assistance. Horizons will also advise the community and core team about strategies to mitigate regulatory risk that Luna Classic may face in light of the SEC’s recent enforcement action against Terraform Labs and from other relevant U.S. regulatory bodies.
Community Pool Spend
At this time, we are requesting an initial community spend of $20,000 as a retainer for Horizons Law. Their immediate recommendation is to establish an offshore foundation company that is associated with the Luna Classic DAO. (The approximate costs for the offshore is $100,000 to hire a law firm and service providers in the Cayman Islands for offshore structuring work - this would require a second governance community spend vote) The initial fees will go towards the following actions:
$20,000 - Horizons Law & Consulting Group Retainer
Advise the community on steps toward setting up a Cayman Islands foundation company to associate with the Luna Classic DAO. ( Cayman Foundation Companies are ownerless structures which combine the flexibility of a corporation or LLC with the fiduciary/ownerless benefits of a traditional non-profit foundation.)
Produce advice to mitigate U.S. regulatory risk
Field questions from the Luna Classic community.
Committee will be formed to interface with the law firm
Curated lists of questions from the community will be solicited and presented to the attorneys
Provide guidelines for contractors working from community pool spends
Q. Who is represented by the law firm?
A. The goal of this proposal is to have the law firm represent the Luna Classic DAO. Specifically, this means that there would need to be a foundation created that is associated with the protocol. In the initial phase, the law firm would work with core contributors on Luna Classic in order to guide the process towards this goal. This foundation would be associated with the DAO, and ownerless. It would follow governance decisions made by the blockchain protocol. A community committee would be setup to interface with the law firm during the initial months, and would define the protocol and procedure on committee membership guidelines, length of terms, indemnification, and how to best utilize the firm resources.
Q. Is every community member who owns LUNC represented by the firm?
- No, but community members would benefit in several ways. There will be specific guidelines created around indemnification by a committee. Initial discussions around this offered ways where community questions can be submitted to the firm for legal advice. For specific geographical questions, the law firm can give opinions (not qualified legal advice) for various international laws. Also initial discussions revolved around ways that any community member could submit applications for legal defense if so needed and deemed appropriate.
Q. Are core contributors automatically represented?
- No. Again guidelines will be drawn up in the first few months by a committee on how to best approach this. If it is decided that an individual or group of individuals would be legally represented, and should there be some sort of conflict between the individual and the LUNC Classic DAO, the law firm would represent the DAO. The conflicted individual or group would then have to seek external representation.
Q. Could a team working to benefit Terra Classic be represented by the law firm?
- Yes there will be published, transparent ways that any community member or team could become represented. Chain governance always has the final say. Again, given any conflict of interest, the law firm would represent the Luna Classic DAO.
Q. What exactly is happening in the first few months?
- The firm has recommended that DAO and contributors start from a “clean slate”. The initial month or two would involve the restructuring or disbanding of current organizations. Guidelines around recent regulatory actions will be disseminated and published for clarity. Research on next steps forward that mitigate risks will also be explored.
Q. What does the offshore foundation offer to the Lunc Classic DAO?
- See below.
After the retainer has been utilized, a public document will be drafted outlining all of the activities that have been accomplished at that time, and delineate more concrete descriptions of next steps to help progress development of the blockchain. At that time, additional spend propositions or alternative arrangements will be discussed on whether or not the engagement should be continued, and under what terms. Initial discussions have strongly suggested that the following steps be considered.
(Approximate costs $100,000) - Offshore Law Firm & Service Providers
Please note this is a rough sketch of future plans, and not final in any way.
Obtain legal advice on offshore corporate structuring
A specific law firm has yet to be identified and will be put to a community vote (The above cost is not for Horizon Law, but for the offshore setup)
Establish a Cayman Islands foundation company
U.S.-based Terra Grants Foundation will be dissolved as an entity and replaced by the offshore foundation company
This will allow the community/protocol to be represented by an entity that can enter into agreements with external entities and a legally-recognized vehicle to provide grant funding through a legally recognized corporate entity
This will establish a tax-optimized vehicle for the protocol treasury
Appoint independent director to service the foundation company
The independent director is required for a Cayman Islands foundation company. He or she owes fiduciary duties to the DAO—not a board of directors or the core team
The director would sign off on development grants and ensure that protocol assets are distributed properly
Should it become necessary, any Luna Classic community member can write a governance proposal to terminate the engagement for reasonable cause and upon the showing of good faith evidence. Upon termination, Luna Classic will be able to clawback any unspent tokens in the compensation package. This provision ensures that the engagement with Horizons is subject to appropriate oversight and can be terminated if necessary.
At the time of this proposal, the approximate spend request for the $20,000 retainer would be 164M LUNC.