Cherubs DAO

Owned by Ashu Sikri (Unlicensed)
Feb 07, 2022
4 min read

One pager

"Like all things Web3 it is a work in progress and we will likely need to modify it as we go. We raise funds through the daily sale of NFTs. So functionally this is a product sale to a buyer like other NFT sales. These NFTs also contain rights to vote in the DAO's use of the Treasury. For our DAO the use of Treasury is to apply 80% of the net (more on this below) funds to making Impact Investments for ROI to the DAO and 20% of the net funds for making grants. The Cherub NFTs as members vote on chain to make these investments and grants. The Cherub NFTs also have the right to make investment and grant proposals. Since we are conducting product sales and making investments, we needed a structure to allow for paying taxes and ensuring liability limitation to the DAO members. We also wanted to be careful about governance. So we wrap the Cherubs DAO with a Swiss Association structure - which functions like a member cooperative. This enables it to pay taxes, engage in contracts (e.g. make equity investments in startups / therapeutic companies), have a bank account, and provide liability protection to members. Taking a cue from the Nouns DAO project, I've incorporated a "slow start" governance process where Cherubim Labs (the parent company that developed the DAO) has veto rights over governance. This is done through the Board and Assembly of the Cherubs DAO Association. The Cherub NFT holders have a position in the Association as Community members. The role of the Association Board is to approve all votes made in the DAO by the Cherub NFTS (the Community) UNLESS they are illegal, unethical, or not on mission. Over time the Cherubs DAO Community will nominate and elect the Board and the Assembly of the Association and the entire DAO will be self governing and the veto access will be removed. In observing many DAOs, an intentional decentralization over time is the best approach to true decentralization and self sustainability. Since the DAO is an Association, the Association is the taxable entity and not the individual members. The Cherubs DAO members could vote to do a distribution of funds or gains if it chooses - and that distribution would be individually taxable. However, my hope is that the gains will be recycled within the DAO and those that want to get liquidity would fractionalize or sell their Cherub NFT. Downside is the funding through Cherub NFT sales is taxable - hence the 'net proceeds'. We offset that some with charitable donations from the Association. My goal is a perpetual social impact investment vehicle through daily sales to new members and recycling of investment gains and making of grants with 20% of net proceeds and gains.

  • Price is set daily by the market via auctions. We may auction one or more Cherub NFTs (and therefore memberships to the DAO) per day. Current model is one per day but it could be 2, 3, 4, etc. 

  • Each Cherub NFT represents one membership interest and therefore one vote. IF a member wants more voting rights, they must purchase multiple Cherub NFTs (i.e. multiple memberships) 

  • The Cherub NFT / Membership purchase is an NFT sale to the member. The DAO recognizes the sale price as revenue and owes taxes on it. The DAO is wrapped by a Swiss Association therefore the Association is the taxable entity. We are looking at tax issues on the sale beyond that based on where the website is hosted (i.e. sales tax or VAT or not relevant). The Cherub NFT is NOT a charitable donation as it is the purchase of an asset (i.e. NFT Art) and represents a membership in the Association (which has a treasury which we expect to grow in value) 

  • The DAO membership decides on how many proposals are made for use of the treasury and therefore how many votes. The DAO will make decisions on impact investments seeking ROI + Impact and for charitable grants. The charitable grants are tax deductible to the Association to offset the Cherub NFT sales tax liability and any capital gains liabilities, plus to fulfill the mission. 

  • 80% of sale proceeds and gains are deployed for ROI Impact Investment and 20% to nonprofit grants 

  • We believe the value of the NFT on the secondary market will reflect the size of the Treasury divided by the outstanding Cherub NFTs plus an estimate of the discounted value of the illiquid portfolio of investments. However, the secondary market will determine this."