# Discuss: How should CityDAO capture value from proposals?

When we started CityDAO, we all tried to make decisions collectively by consensus, and learned that we were moving slowly. To solve this, we looked at the Nouns model, where independent teams and startups come to the DAO and propose their ideas to be funded. We switched to a new model for thinking about proposals called CityDAO as the Factory. This had big benefits - people could work with people they chose, and move in small nimble teams.

This model is already bearing fruit, and there are a few different projects being incubated - web3city, t0wn, hashland, DAOLabs, and more.

An example: NounsDAO

The sole mandate of the Nouns treasury is very clear: “This treasury exists for Nouns DAO participants to allocate resources for the long-term growth and prosperity of the Nouns project.” This has led to a very active NounsDAO ecosystem funding proposals that directly benefit the Nouns ecosystem like collaborations with several brands, funding protocol improvements, and buying IRL ads.

What incentive structure can we create?

The switch to the CityDAO as a Factory is working and we are funding cool projects, but I believe we are on track to deplete the treasury if the continue without having a clear framework for how value accrues back to the DAO.

I want to open the discussion to the community for how proposals should benefit the CityDAO ecosystem if we are to keep funding initiatives that are separate from CityDAO. Some ideas include asking proposers to pay back CityDAO, mandating CityDAO branding, or requiring projects to pay royalties or some portion of revenue to the DAO.


This an important topic to discuss. I think every project should be taken with the ultimate goal of building CityDAO. It is hard to develop a hard and fast rule however. Every project will have a different ask, risks, and a different timeline for profits. So I guess the broader question is simple to answer, only vote yes on projects if there is a considerable long-term benefit to CityDAO. The more specific question isn’t so easy: How do we ensure projects bring money in before the treasury is depleted? The money in the treasury should be spent on projects, but we also need to ensure it doesn’t hit zero. It’s a tricky balancing act. Not sure if an easy formula exists to solve the problem.

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DAOs cannot compete with existing efficient businesses so I do not believe this is about profit or maintaining a monetary position. DAOs have the potential to reshape public goods provision and maintenance - and that is where the value of DAOs will ultimately be found - not in reinventing the wheel of profit seeking behavior (albeit in an unproductive DAO environment :laughing: )

I don’t believe the “benefits” need to be, or even should be, about money per se. Furthermore it is one thing to have people doing day to day operations on behalf of the DAO but we take ourselves into arguably a different legal arena when people start “managing” and “lending”, engaging in secured transactions, payment of percentages of revenue, etc. for the purposes of making money/profit.

When you say “mandating CityDAO branding, or requiring projects to pay royalties or some portion of revenue to the DAO” you mean “and” not “or” and it would be a trademark license requirement in exchange for project funding (with an expectation of returns on investment in favor of at least CityDAO…) again the use of CityDAO’s tm is one thing but its another legal ballgame when it becomes about forcing profit seeking from the tm holders through the license agreement. This also feels totally against the ideals of CC0 (not that CityDAO is CC0 but if the web3 community appreciates such an open dynamic, then an “IP licensing business model” is not likely to go over well with the broader community vibes)

The better ideal for CityDAO’s broader mission was suggested long ago - CityDAO should be the launchpad for public goods focused projects. Instead we sat around and watched Gitcoin and others take the lead in the space (while not even applying for one ourselves haha).

So the real question with this - Are you proposing a philosophical shift into pursuing profit?

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@DAOvolution, what is a CCO?

I generally agree with you. Ultimately CityDAO’s value will come from the DAO’s trusted reputation to use the money to achieve its mission. If projects are successful, CityDAO will always be able to raise more capital, which will be the ultimate source of funds for the treasury, not royalties or something of that nature. IMO it would be a mistake for CityDAO to attempt a traditional business model. Build social capital via trust and good governance.

This is the key element to me. I believe that we should be leveraging our name and our ability to raise funds for phase 2-3 of projects that either provide an ROI or forward the growth and prosperity of CityDAO over the next 3-5 years. CityDAO could provide the seed money for a feasibility study in phase 1. I agree that we’re more about public goods, but there can still be profit or at least no loss.

This is the danger of having a project that takes a million dollars from the treasury, rather than raising it. If CityDAO gets no ROI, that will certainly deplete the treasury. Right now, we have limited ways to raise funds. It seems to me that we can sell parcels of land (assuming we buy the land), or sell NFTs for lease and/or use rights. Otherwise, we get into what @DAOvolution was talking about, with licensing, trademarks and branding, though I think branding helps us leverage our name to raise funds. Are there other ways to raise funds?

I wonder if it would be worthwhile to bounty someone to look at the top 20 DAOs and see how they get an ROI so they’re not depleting their treasuries. Might give us some data. As to @ScottA’s question, I know PCO is partial common ownership, but I’m not sure what CCO is.

@ScottA its CC(zero) haha here is a link CC0 - Creative Commons

@Casey is a big proponent as are many others in the space!

Ahh, I see, makes sense. Yes, very much in line with the open-source mentality.

Good idea. In general, this is why DAO collaboration is so important – to learn from and adopt effective models.

@scottfits , I think an answer may lie here somewhere.

Rather than trying to compete with traditional corporations, we may want to think about how we can compete with local governments.

DAOs, like local governments, are just groups of people. If we can offer traditional local government services (e.g. onchain voting?) in a way that performs those service better than local governments (not the epitome of efficiency), it could be a way to generate sustainable funding.

I believe such an approach would still be in keeping with CityDAO’s mission.


To quickly expound here and get back to first principles - BTC and ETH are both blockchains. I personally think the BTC blockchain is the hardest money and that ETH can’t compete here over the long run. But the ETH blockchain can do things that the BTC blockchain can’t, like put real estate onchain. Through CityDAO we have proven that. Our DAO could get behind projects like this https://media.consensys.net/how-blockchain-can-help-haiti-recover-b1657b609ad1 by partnering with local governments to put land on the blockchain.

This could have strong IRL impact (IMHO few things are more important than ensuring folks have property to live on) and provide revenue streams to CityDAO through local governments.

The only realistic path for CityDAO to proceed is by migrating to a non-profit structure. Here’s why:

  1. Ideas like “competing with the government” are unrealistic both theoretically and in practice. They’re provocative by their very nature of being utopian, which is the opposite of being actionable.

  2. What are our actionable options? They fall into 2 categories:

    2a. For-Profit

    The key issue here is the relationship between CityDAO as a for-profit and the Citizen tokens as investment contracts. CityDAO leadership has taken the position that CityDAO is a for-profit (having elected to be taxed as a C-Corp and classifying the Citizen token primary-sale and royalties as sales revenue), the Citizen tokens are not investment contracts, the Citizen tokens constitute membership interests in CityDAO, LLC ,and that the LLC is algorithmically governed (as defined by Wyoming law). Typically, LLC members are entitled to profits and membership interests are investment contracts. It is presently unclear how these factors add up and in practice expose CityDAO, LLC to significant risk.

    2b. Non-Profit

    I have previous advocated in CIP-16 that we re-organize CityDAO, LLC into a non-profit. In doing so, we resolve the ambiguities raised as a for-profit and put our community onto solid ground moving forward. This is the approach the CIP-100 has chosen because the opposite, structuring as a for-profit, would make it more likely the Citizen tokens are investment contracts.

  3. Are there any other options for CityDAO, LLC besides becoming a non-profit?

    3a. Citizen token holders to retroactively vote that they are not members of the LLC (and are not entitled to any of the rights granted from LLC membership), which is what CIP-126 proposes. However this may not be legal as revoking membership interests in an LLC, by vote or otherwise, requires both a suitable operating agreement provision (which we lack) and a reasonably agreed upon buyout amount.

    3b. CityDAO, LLC could reverse its position that Citizenship tokens are not investment contracts and instead claim that, in line with typical LLC membership interests, they are investment contracts. Doing so would require registering the tokens with appropriate regulatory bodies and ensuring token holders are accredited investors as defined under US law. This would enable CityDAO to raise additional capital, make equity investments in projects, and clearly entitle token holders to profit / equity. However this “about face” may still expose us to legal issues (corporations cannot typically decide whether they’ve issued securities) and will certainly be expensive.

I believe this leaves us with a single option: to re-form CityDAO LLC as either a public or private benefit corporation aka a non-profit.

Thanks for starting this discussion. Our current proposed projects are definitely causing these concerns to bubble up.

Royalties from projects is interesting, but I think CityDAO is about testing ideas that can’t be done from traditional pressures of the need for revenue or are too risky to expect them to succeed long term. We haven’t found our niche yet, so projects fanning out in different directions makes sense to see what sticks.

The power of Nouns is that it’s pure branding that links all the projects together. That’s why anything you can put red sunglasses on is fair game as a proposal. Part of it’s genius.

CityDAO doesn’t have the meme-ability of that, maybe that’s a path forward, something that links them together besides formal agreements. Non-formal versions of that will beat out mandated ones every time.

One option that hasn’t been shared is that what if CityDAO proper had a life span? We will deplete our treasury exploring ideas with uncertain futures, but that might be okay. A tree falls, but many species of mushroom sprout from that event and start new lives and entire colonies. Fungus are among the largest living organisms on the planet.

Establishing active ways a Citizen NFT can be used in projects long term should be embedded in them, sometimes governance, sometimes access, burn for item etc. Encouraging their use elsewhere can be chosen or dictated by current Citizens.


Powerful analogy. I think this is all new, and perhaps the path of least resistance makes sense. This would be to keep CityDAO as is and let the treasury drain; it will live through the projects it creates. Isn’t the goal of decentralization essentially to create a power structure, then let it dissolve into smaller parts? We are thinking about building something up when perhaps we should be thinking about how to tear it down.

Nice work presenting the options clearly and concisely.

That said, personally, I think we overstate the risks associated with security laws. To regulate something as a security the SEC requires both justification and jurisdiction, they lack both. The citizen NFT is not a security by any definition. But, just as important, the SEC also lacks jurisdiction, though it might fool itself that it has this.

The power of the SEC to regulate what they call securities comes from the desire to trade on the NY Stock Exchange, Nasdaq, (insert stock exchange). The SEC, in essence, controls securities from their point of issuance, and people play by the rules to use the exchanges. This is so far from being true on blockchains. It’s a huge debate, but I don’t think governments will ever have the power to regulate blockchains like Ethereum and Bitcoin. NFTs are not traded on the NYSE. They are traded on Uniswap or whatever. If the SEC has no ability to control the point of issuance and trade, it can’t control the security (even if they could prove something was a security).

Thus, for me, 2a isn’t such a risky option.

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Not to pick you apart, but I think you are incorrect about almost all of this. :joy:

First of all, I am not so sure that Will presented the options clearly and concisely.

Will’s analysis draws an incorrect legal conclusion that “LLC membership interests are typically investment contracts”. The analysis depends on the facts. I actually spent only five minutes googling (i admit it was not a westlaw “good law check” but still…) I was able to find a 10th circuit case stating llc membership interests were not an investment contract. So I am confident there is case law out there, and even if I am not an expert on said case law, I can confidently say Will’s cut and dry analysis paints an inaccurate picture and draws an erroneous conclusion.

This thing about the SEC lacking jurisdiction/justification - you may be aware but there is a lot of jockeying taking place, in particular between the OFTC (who you recently saw weigh in on the OOkiDAO nonsense) and the SEC (who has been flexing for a hot minute) in a land grab for the jurisdiction you are talking about. Eventually in the US we should see legislative clarity, but for now it has been a regulatory free for all, and both agencies are elbowing up to the table (along with treasury and others). By the way - when CityDAO decided to launch as a Wyoming LLC, it availed itself of the laws of the United States including, if deemed applicable, those SEC laws. So the claim they do not have jurisdiction is flat out incorrect. (Caveat that I am referring to personal jurisdiction and you may be referring to subject matter jurisdiction, in which case, arguably they the SEC does NOT have subject matter jurisdiction over CityDAO - this has certainly been CityDAO’s position to date!)

The SEC’s power does not come from issuers “desire to trade”, rather it comes from the securities acts of 1934 as clarified by case law/other law in the time since. One of their areas of purview is over the control of who may trade on the platforms you referred to. You are correct, people who use the exchanges must play by the rules, but they do not always play by the rules, and that is where the SEC can flex and say you did something wrong with penalties - which they hope to set at a level to adequately disincentivize bad actor behavior. Sounds like a bad outcome for anyone. The primary underlying public policy justification for the SEC and its area of law is the provision of truthful information to providers of capital in exchange for the caveat emptor of profit seeking behavior ( the old risk and reward, baby!). For example, the accredited investor requirement is ostensibly created to basically ensure that poor people cant be taken advantage of by investment creators/promoters with get rich quick schemes. Some argue its just another way that wealth is perpetuated in this capital driven system but we can leave the political philosophy aside for now. :sweat_smile:

Last - many scholars are wondering what the post-merge ethereum world means for that project’s argument that it is not a security. The merge seems to have concentrated the power into the hands of a few key stakers, and thus seems to cut against the notion that it is “decentralized” for purposes of its “management”. Allegedly Gary Gensler (ahem Mr Burns from the Simpsons) is hot to trot for ethereum. We may find out sooner than later that you are wrong about that as well.

If CityDAO wants to pursue profits as a business model, something that I have never heard formalized, then it would require some changes.

I’m having a random memory of talking about how Spain declared half the world to belong to the King post-Columbus (pretty sure this conversation involved you, forgive me if it didn’t). Really, it is the same thing. A Law can proclaim anything, doesn’t mean it has any teeth. The SEC has real teeth because you can’t do business on the big exchanges unless you abide by their rules. Demand for the exchanges is what gives them actual realized power.

For sure, this is the big question. I guess get your popcorn and find out. China has tried to crack down many times, it has more authoritative power than Gensler. I personally don’t see it as possible.

I don’t think we disagree on anything substantial in a legal sense, just the hypothetical of just how resistant the blockchains are to government regulation. I think they are both technologically safe, and, even if they weren’t, there really is very little legal president to come after something like the Citizens NFT. Of course, we shouldn’t take risks we don’t have to. But, we shouldn’t also take drastic costly steps to avoid risks that aren’t that severe.

I’ve been following along the discussion and haven’t had time to address specific points on the above yet but have few general thoughts to share:

  1. There’s a difference between seeking profit and seeking the longevity of CityDao’s ability to continue to fund nodes & tech for a network city.

  2. The benefits suggested above are weak given goal #1. Access and discounts won’t create a machine to fund projects.

  3. I believe @daovolution is indicating that we can navigate legislation with goal #1 in mind without neutering CityDAO and it’s project by making them all non-profit entities. It’s worth trying rather than giving up and hiding behind a non profit status.

  4. A strong tie back would be a % of revenue paid to CityDAO and special benefits for CityDAO Citizens codified in the operating agreements of each funded project.

The vision of CityDAO that is exciting to me is one where CityDAO acts as the link between dozens of autonomous physical spaces and provides them a way to coordinate funding for the primitives needed to run these spaces and the people who will frequent them.

I tend to agree with you @kkopczyn . Funny, in this thread, I have heard DAOs can’t compete with businesses or governments. Well, what is the point then? To early to pull the plug IMHO. I think we tend to lose the forest from the trees. We see how hard it is to get things done, yet we don’t realize how many ideas we have coming into CityDAO. We clearly have areas of weakness compared to govs and businesses, but we lose sight of the advantages.

I for one think it is to innovate… and potentially gap-fill in places where government has proven inefficient/incompetent! In the short run anyway


I agree with this. I think the list of government inefficiencies is very long.

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