October Updates on The Network City

Fellow Citizens,

On behalf of the CIP-100 Team, I have several exciting announcements for you on CIP-100: The Network City. But first I want to thank everyone for the overwhelming support. CIP-100 received a 94.17% approval vote and Citizens have offered their support in every way imaginable! It is an incredible achievement when people – many of whom have never met each other – are able to come together to build something that can change the world!

Let’s dive in:

  • With the help of Hathaway & Kunz, Wyoming’s leading lawyers, we have incorporated in Wyoming under the name Commons Labs, Inc.! As detailed in CIP-100’s operational steps, this legal entity is being structured as a non-profit. A “non-profit” is a company structure that incentivizes people to build companies that benefit society rather than only seeking to earn a profit. Structuring as a non-profit will help The Network City achieve our mission to provide for a new model for public goods funding and city building. As we experiment with innovative ways to improve the world around us using Partial Common Ownership and Quadratic Funding, the benefits will accrue to both CityDAO and society as a whole.

  • Through discussions with Hathaway & Kunz, it has been determined that Commons Labs, Inc., the art, and the land cannot be owned by CityDAO, LLC (or anybody else) and, from a legal standpoint, the CIP funds are a donation and not an investment by CityDAO, LLC. This is for two reasons:

    1. By law, non-profits cannot have owners. This helps to ensure that non-profits place the interests of the public good first, resulting in fair treatment for everyone. Fairness is paramount to the long-term success of The Network City because, in the words of Vitalik, “everyone participating must be able to see that the mechanism is fair, and everyone participating must be able to see that everyone else is able to see that the mechanism is fair, because everyone participating wants to be sure that everyone else will not abandon the mechanism the next day.”

    2. As written in the proposal text, we plan to purchase “1-3 fine artworks that have proven cultural and market value” and land with “low market value”. Through the actions of The CIP-100 Team, as previously written, we plan on increasing the value of both the artwork and the land through the development of cultural tourism, new business ventures, and development of public goods infrastructure. If CityDAO were to own the land and the artwork, the likelihood substantially increases that the SEC would view the CityDAO Citizen tokens as investment contracts. Such a finding would likely mean the end of CityDAO.

    I recognize that this is a deviation from the CIP text which promised that “the land and artwork … be wholly owned by CityDAO”. However, it is in the best interests of CityDAO and its citizens not to own appreciating assets that could be reasonably construed as investments. This reality applies to all CityDAO projects, including Parcel 0, Baby Parcel, CIP-111, and t0wn, and we hope to set the example for how to safely scale a CityDAO project and provide value to Citizens without running afoul of the government!

  • As previously announced, CityDAO token holders will be able to mint (for the price of gas) soulbound “Network City Citizen” tokens which make them members of The Network City for life! Citizenship will be like museum membership: when you donate money to a museum (which is typically a non-profit) you receive certain exclusive benefits in exchange for your donation. Citizens will be able to enjoy these benefits once The Network City is built - more details to follow!

  • Several Citizens have questioned how we will be able to build a city from scratch with only $1M. Structuring as a non-profit enables Commons Labs to receive donations from anyone including corporations, universities, private individuals, and governments while remaining committed to fairness and the interests of the public. This makes it far easier to scale beyond our starting $1M without “selling out” or compromising our values, prove out Partial Common Ownership and Quadratic Funding, and deliver on our vision – to build the world’s first Network City!

  • Matt Prewitt, the President of the RadicalxChange Foundation has joined our team! Matt is a thought-leader in Web3 and has collaborated with local and state governments across the United States to advance Quadratic Voting. His work alongside Glen Weyl and Vitalik Buterin has brought Soulbound Tokens, Partial Common Ownership, Quadratic Voting, and Quadratic Funding into the public consciousness. Most importantly, Matt is a wonderful person, and The Network City is lucky to have him on our team!

  • We have already started to receive interest from the art community - world-renowned artist Matthew Stone has expressed interest in permanently exhibiting his artwork in The Network City! Celebrated in both the Web2 “art world” and Web3, Matthew’s works have been shown in galleries worldwide, including New York City, London, and Seoul. Matthew recently collaborated with pop star FKA Twigs for the cover art on her album Magdalene and is collected by UnicornDAO.

We are collectively changing the world. I am both grateful for the trust you’ve placed in The CIP-100 team, and honored to be able to share in this journey with you.

Sincerely,

Will Holley
on behalf of the CIP-100 Team

I see this as a serious concern. A CIP contained language, a promise, that has proven to be false and, on that basis, obtained a million dollars for a project. I think that when it was learned that the vote was passed based on a statement that was untrue, a new CIP should have been created. I trust that a nonprofit is the best avenue, but the fact remains that the CIP contained a misstatement of fact regarding a key element of the proposal.

Based on the belief that CityDAO would entirely own this project.

It’s great that Matt Prewitt has joined the team and that Matthew Stone has expressed interest. I’m just concerned about the above issue. Personally, I think another CIP just confirming The (Nonprofit) Network City could be a reasonable fix. I’m in favor of any project that benefits CityDAO. It just seems like a loophole that might be better off closed.

This could set a precedent that a CIP can go to vote, pass and receive a large amount of money based on a promise that CityDAO will own something, and then “deviate” with no repercussion, accountability or consequence. This is potentially dangerous.

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I will make a simplistic statement that I think is a good way to look at Web3 right now – in Web3, no one owns anything IRL. DAOs and individuals own things on the blockchain, allowing us to govern IRL collectively. Own on chain, govern IRL. If we agree on that, the big issue is that while not wholly owning “The Network City,” might make complete sense. It isn’t clear whether CityDAO governs “The Network City.”

Some criticism of t0wn was that CityDAO would lose control, but it is built right into the CIP that governance rights would be issued to CityDAO, (though, CityDAO would not fully govern t0wn). With “The Network City,” isn’t it the case that, as of now, CityDAO doesn’t govern anything? I mean, the optics aren’t great; it went from “Wholly Own” to a donation. I get why, but it does seem to be something that should be addressed. How does CityDAO get compensated in terms of governance rights? Or should it just be put in a new CIP where any talk of owning is replaced with rights to govern? A new CIP for the new rules and framework?

Note: I initially had some musings about securities, happy to discuss them if anyone read them, but I took them out as I don’t want to get into a long tangent not directly related to the issue at hand.

Thanks for the responses, @Da3vid and @ScottA . I’ve mentioned the issue on a few calls, and my goal in bringing it up again, in writing, is to start a community-wide dialogue and come to a consensus on how to move forward!

When thinking about it the issue of ownership, I asked myself several times what ownership means in our context. Put another way, ownership, by default, is simply a set of rights over some property – what are those rights?

In my thinking, the change in “ownership” announced above strictly concerns the right to profit-interests. Consistently throughout CityDAO’s operations – on Parcel 0 and Baby Parcel, and within the Operating Agreement – token holders have been granted no right to CityDAO, LLC’s profits. Simply, this is because profit-interests earned by the efforts of others is one of the clearest indicators of an investment contract under the Howey Test. While the CIP-100 text stated that we would be seeking non-profit status, it did not explicitly state that no right to profit would be granted (which is an absolute prerequisite for non-profit status).

In this light, I believe CityDAO Citizens can enjoy many of the same rights they would reasonably think of when they hear “ownership” without legally being considered owners of the non-profit & assets. This is what I meant by

CityDAO token holders will be able to mint (for the price of gas) soulbound “Network City Citizen” tokens which make them members of The Network City for life! Citizenship will be like museum membership: when you donate money to a museum (which is typically a non-profit) you receive certain exclusive benefits in exchange for your donation. Citizens will be able to enjoy these benefits once The Network City is built.

I was in Washington D.C. a few months ago and visited the Hirshhorn Museum. They had a Yayoi Kusama Infinity Room exhibition that was limited to 10 visitors per hour and was fully booked for the day. However, by becoming a member of the Hirshhorn, I could visit the exhibition as I pleased. I paid $100 and was granted this right. I also received 25% off at the gift shop and receive weekly emails inviting me to member’s only visiting hours and meet and greets with artists. Do I own the Hirshhorn? No. Do I enjoy rights in exchange for making a donation? Yes.

Thoughts?

This is not the point. I personally think CityDAO itself could and maybe should be a non-profit. I agree that CIP-100 should be a non-profit. That is not the point, either. CIP-100 contained false information and then a vote granted one million dollars based on a clear misrepresentation. I do not suggest that this was intentional.

A vote was passed on a CIP with misrepresentations. Therefore, it was not a valid vote. CIP-100 the non-profit does not pass, and should not receive funding. This mistake, unintentional though it may be, MUST be rectified or else the DAO is now allowing CIPs to make material misrepresentations and then allocate funds based on false information.

No one doubts that buying a membership confers certain rights. This is not the point. The only matter at hand is a CIP with false information that passed a vote. The citizens of CityDAO voted to allocate one million dollars to a project that CityDAO would wholly own. That fact is false. CityDAO does not, will not and cannot own it.

Again, we are NOT talking about individual expectations of profit. This is not a discussion about securities. I agree that CIP-100 should be a non-profit. This is a discussion only about whether it is acceptable for the citizens to vote yes to allocating a million dollars to a DAO-wide investment only to be later told that the project is now a charity and they have no chance to rethink or reconsider their votes in light of the true nature of the proposal. They are now locked into having voted for something that was misrepresented.

The vote that passed and the non-profit version of CIP-100 are not the same. A million dollars is a very serious portion of CityDAO’s entire treasury. I believe that a new CIP is required or else we lose our standards for integrity and anyone can change their proposals AFTER they pass. This cannot be allowed in honest governance.

Can you elaborate on “misrepresentations”? I’m not sure that I understand your logic.

Aside from profit interests which were implied but not explicitly stated (again due to non-profit requirements), we intend for CityDAO citizens to receive equivalent rights. “Ownership”, by default, is agnostic to the bundle of rights. I could be wrong, but the only change I see here is explicitly stating that which was implied. Is your concern that, if it were stated explicitly that CityDAO citizens would have no profit interest in CIP-100, it would not have passed?


Separately, do we have guidelines in the CityDAO, LLC Operating Agreement for handling operational changes to CIPs after their votes have passed?

A misrepresentation is a false statement of a material fact made by one party which affects the other party’s decision, in this case to vote on a proposal for a million dollars. This would likely be a negligent misrepresentation, as the facts could and should have been learned prior to making the statement of fact in the CIP.

The CIP stated a material fact, that CityDAO would wholly own the land and art. This was false. This is not implied. This was clearly stated and it was a misrepresentation. This false statement likely influenced the decision of citizens to allocate a million dollars to this proposal.

This is not the point, and I disagree. Citizens were not given the chance to vote on the true proposal, to DONATE a million dollars to a non-profit. They were given a false promise and told to vote on that. This opens CityDAO to a terrible precedent and to liability. It could easily be fixed by a new CIP ratifying the facts as they are, not as they were falsely presented.

I believe this is not a minor change that could be internally ratified, but a material change that goes to the nature of the proposal.

Just to add one point to the discussion, I was talking to the StudioDAO folks, who spent huge $ on lawyers to form a legal / compliant structure where movie profits could accrue to a DAO treasury without those profits extending to the token holders who govern the DAO. I could see an analogous situation here where profits from the CIP 100 endeavor go to the CityDAO treasury to which Citizens are NOT entitled (I believe this is one of the changes @DAOvolution is contemplating in the new OA).

Also, how does CityDAO sustain itself if it can’t own appreciating assets or endeavors that generate ROI?

That’s all to say, maybe if we are airtight on separating Citizens from CityDAO and its treasury, returning profits to the treasury wouldn’t be an issue. @DAOvolution @Da3vid

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Agreed that ties to citydao should be stronger than just access and discounts for citizens.

I voted for this project because it was to be owned by cityDAO. Any changes that material require a whole new funding allocation through CIP.

# Discuss: How should CityDAO capture value from proposals? - #18 by kkopczyn Expands further on my views. Should require a % of revenue for citydao and benefits outlined in any new entities operating agreement.

My understanding is that it is possible for a nonprofit to earn money for its treasury without ever presenting any returns to individuals. (Tax Concerns When Your Nonprofit Corporation Earns Money | Nolo)

This is one reason that I think CityDAO could be a nonprofit entity. This is also a reason that CIP-100 could be a nonprofit. Additionally, donations to nonprofit 501(c)(3) companies are tax deductible, which is another reason that CIP-100 might function well as a nonprofit. (Charitable Contribution Deductions | Internal Revenue Service)

The issue is that citizens were offered a vote for CityDAO to spend a large portion of the treasury to buy land and art that the DAO would own, and now are being told that the money was a donation and CityDAO will own nothing. This is not what the citizens voted for. This opens CityDAO to serious liability concerns and sets a dangerous precendent.

Ya, the reality is this has little to do with the pros and cons of non-profit vs. for-profit. It is simply the president of the CIP saying one thing and doing another. Things change, and nothing will remain exact, but going from owning to donating with a million dollars involved is a significant alteration.

I agree the Network City should be a non-profit.

I do believe that to eliminate any doubt about the willingness of Citizens to support the project, this should go to a vote as an amendment to the original one.

I would vote in favor of this proposal again, but would also participate in discussions around strengthening bonds between current Citizens and the project.

The original post entailed something like, CityDAO will own these assets and the project will be governed by the CIP-100 team.

The revised version says something like, a new entity will own everything and be governed by the CIP-100 team. The “Network City Citizen” token that is similar to a museum membership that was proposed after the vote is a great add and a nice cherry on top, but not as substantial.

I do agree with you @will that “ownership” can be misconstrued and not fully understood. That’s why I’m not overly concerned that CityDAO wouldn’t own the land and art. It might even be a healthy thing to compartmentalize our projects. Out of the bundle the “Network City Citizen” would extend the right to use.

I guess what I’m saying is, I deeply want to see this experiment exist. The deeded ownership aspect that would instead be in the hands of a non-profit might be unsettling (or misunderstood) by most, BUT can be exchanged for additional rights to the project. One that comes to mind is formalizing the early access to land leases by Citizens for projects that have been discussed. Another is governance over specific aspects of it’s development, approval of future projects, approval(or temp checks) on a location, or other structured ways to be involved.

I see your line of reasoning. As much as anyone, I appreciate that owning something is contextual, similar to @alexthims point above. I have often said we should just stop using the word own, as it doesn’t mean what people intend it to mean in the context of DAOs.

However, the bottom line is the land and art were supposed to be an asset on CityDAO’s ledger. In theory, even if the art and land were never sold, CityDAO could use the asset as collateral. If it’s a donation to a non-profit, this isn’t true. For many reasons, mainly accounting aspects, the difference between owning and donating is significant. It decreases the value of assets on the CityDAO ledger; I feel this can all be sorted out by more clearly defining governance rights CityDAO would hold by giving up the ownership rights.

The problem here is that the nonprofit is subject to its own governance and bylaws, and proper separation of entities would seem to require that nothing directly tying CityDAO to the nonprofit entity be formalized, in the governance documentation anyway. The nonprofit entity for CIP100 does not have “members” and either way I do not believe granting CityDAO or direct citizens rights over the nonprofit is possible. The only conceivable way for the Citizens to properly have the right to exercise any decision-making with respect to a nonprofit entity would be probably to convert CityDAO to a nonprofit (something many have advocated for quite some time) and create (or reiterate) such rights in favor of the Citizen NFT. This would require some overhaul but could be considered. For example, CityDAO could try to convert to a 501c7 (social/rec club) or 501c3.

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Thank you, everyone, for the feedback.

Josh and I will be making ourselves available everyday next week (M-F) at 2pm EST on Discord in #town-square(voice).

We hope that you will join us to ask questions, to discuss the project, and to determine the best path forward!

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So here’s the thing, this is true in the world of the US legal system (as far as I know, I am not a lawyer). But, it isn’t true in Web3. You could issue a governance token, not yet binding IRL, but binding on the blockchain. I feel what Alex is saying, and please correct me, if CityDAO won’t own IRL, then how do we do this Web3 style? If CIP-100 isn’t accurate IRL, let’s correct that and explore blockchain compensation, i.e., increased governance.

In Web3 you can own anything. That’s what I was promised anyway when I signed up :slight_smile:

The way I see it there’s a few topics at play here;

  1. CIP-100 and seeing this experiment come to life as a concept

  2. How to structure it properly from a legal perspective

  3. The CityDAO treasury runway on continual decrease for the past 12’ish months consecutively

Re 1) I fully support

Re 2) open to suggestion and I see that is still on-going actively

Re 3) I (along with many of us) have brought this topic up numerous times on-going for the past several months and I think needs to be looked at very closely before making the decision of 2) above if non-profit donation ends up being the 100% confirmed best route to take.

The treasury is what gives us a heartbeat. Without it could be catastrophic. The runway of our current treasury is short even BEFORE having it decreased by a further $1million + the treasury replenishing it would potentially provide. Having revenues/profits/margins -or whatever terminology winds up being accurate for it from an accounting/legal perspective- come from the Harberger taxes of CIP-100 replenish the CityDAO treasury holds a reasonable chance -or at least a non-zero chance- at resolving the treasury runway issue.

Based on what I can see above, the potential conversion of CityDAO to a non-profit proposed by @alexthims seems like something we should explore, primarily if indeed it would allow CIP-100 to be owned by and contribute to the treasury of CityDAO.

As @Da3vid point out, proceeding to a direct switch of CIP-100 into a donation is not something I support without the proper voting procedure having taken place to validate the major substance and treasury impact of the change. The impact in my eyes is not just $1mil leaving the treasury, but also that of removing the potential revenue source by which to replenish that treasury. It’s a DOUBLE hitter, not a single.

Once the topic of potentially switching to a non-profit is explored I think we will be in a much better position to make an educated decision on CIP-100 & ownership related topics.

This does not mean progress or momentum needs to be halted. From what I can see, there’s a ton of good work that can be done with CIP-100 simultaneously while waiting for the non-profit topic answers. The physical treasury movement of the $1million should wait though for that piece of information as it potentially holds the answer to the double hitter problems I noted above -runway + revenue-.