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October 2023 Recap
This October, we're putting the web in web3
We hope you’ve enjoyed spooky season as much as we have and are getting your fill of sweet treats (with minimal tricks). Although the end of the year is quickly approaching, we at LexDAO continue to work diligently to bring the best resources, education, and information to the web3 community. Keep reading to see what (not so) scary stories we have for you this month!
What’s New in LexDAO
LexDAO continues its mission to bring the best web3 content and education to the community. This month’s newsletter features updates from some of our content writers, as well as information about projects that LexDAO’s members have been working on. Follow below to learn more!
Real Estate Tokenization: Unpacking Fee Simple Tokenization
Written by @haroldo_msn
In this second installment of the series on Real Estate Tokenization, we go deeper into Fee Simple Tokenization. As previously discussed, Real Estate Tokenization is just on-chain property rights, and Fee Simple Tokenization is an on-chain representation of the complete bundle of property rights. For the remainder of this piece, I will sometimes say tokenized/tokenizing but am referring at all times specifically to Fee Simple Tokenization. Whether a type of token or standard is inherently better or more useful for Real Estate Tokenization is outside the scope of this series.
Fee Simple Tokenization can be carried out by an individual or a group. If Person 1 owns a real estate property outright and decides to tokenize it for themselves to hold in their own wallet, there isn't any more to it. Person 1 has their property rights recorded on-chain and can exercise their rights off-chain as they normally would. When tokenization is done by or for a group, the off-chain rights will usually be held by a DAO’s legal wrapper. Prominent tokenization frameworks include “Single-Asset DAOs”, “Multi-Asset DAOs,” and “Dual Token DAOs.” The distinctive execution of each framework influences critical factors, such as the exercise of property rights by token holders, taxation, and the potential creation of an investment contract around the token.
Single-Asset DAOs are created or repurposed to own a single real estate property or a fractional interest in one.
Multi-Asset DAOs hold more than one real estate property or fractional interest. In both cases, the governance token associated with these DAOs represents the proportional governance, revenue, and disposition rights that the token holder has in the DAO and its real estate property.
Dual Token DAOs create separate security tokens representing revenue and disposition rights over the real estate property. In these cases the security token is separate from the DAO’s governance token. We are ignoring instances where governance tokens are given to security token holders in an identical proportion so that it is indistinguishable from a Single-Asset DAO from the point of view of token holders’ rights.
While these framework differences may seem trivial, they influence the amount of trust that token holders will have to place on third parties.
On a scale of one to trustless
Single-Asset DAOs are generally going to be least subject to centralization. In a Single-Asset DAO, the governance token holders control the entity and the real estate property. There is a real alignment of interests as the DAO exists to be the on-chain vehicle for the property’s collective ownership, and a single class of token holders has all the rights. As in any on-chain or off-chain community, there is the possibility individuals that are more active will take an outsized role. But the simplicity of the single-asset framework allows for it to be the easiest for true community control. Multi-Asset DAOs are essentially the same as Single-Asset DAOs but have additional complexity as divergent risk tolerances may develop when scarce resources require that one property be favored over another.
Dual Token DAOs are necessarily going to be the most exposed to centralization because of the misalignment of interests between governance token and security token holders. The interests of governance token and security token holders are distinct because these two groups have different rights vis-a-vis the DAO and the real estate property. Although the interests of these two groups may overlap significantly at times, their interests are unbundled and can diverge due to differences in short-term and long-term objectives. As only governance token holders have decision-making powers, any divergence in interests can result in power centralizing around them.
So, now you know how these different DAO frameworks generally function. Even if you are presented with a Fee Simple Tokenization, where the entire bundle of a real estate property’s rights will be associated with the token you purchase, there are important differences to consider if the token is issued as governance token by a Single or Multi Asset DAO or as a security token by a Dual Token DAO. There are, of course, additional tax and security issues that you might want to consider with your attorney, and nothing in this article should be construed as legal advice.
A General Forum on Ethereum Localism
Written by Christina @borrowlucid
It was technically still part of Portland, but the city was nowhere in sight. Typical for the Pacific Northwest, the sky was mostly grey, with some patches of sunshine breaking through every now and then, and lush green all around us.
The day began at Tryon Life Community Farm, a collection of orchards, trails, gardens, a preschool, a sauna, goats and chickens and beautiful trails that lead to Tryon Creek State Natural Area. The community farm doesn’t prioritize high speed internet, but they make decisions together in similar ways that DAOs do. When I asked Brenna, one of the founders, what she would like us crypto folks to take from the farm, she said, Get outside and discover something wonderful everyday.
A General Forum on Ethereum Localism, GFEL, was held in Portland, OR, from October 11-15, 2023, brilliantly hosted by PDX DAO. It was an experiment on bridging structure and unconference, theory and practice, and digital with IRL. A young couple who have been living van life for seven years discussed reputation with experts in complex systems and incentive design. Gitcoin launched a Quadratic Funding round for local projects and Justin Holmes had an impromptu jam session with Tony Lai and Kyle Smith, who we know and love as bestape of LexDAO and LexClinic.
I’ve been thinking about entanglement since Primavera De Filippi generously explained it during DAO Palace 2023. But it was Felix Fritch’s reference to context, while discussing the commons and currencies at GFEL, that caused the next dimension of decentralized organization to start to click. We’re not just humans relating with each other any more; we’re communities, of humans relating with each other, relating with communities, of humans relating with each other, and so on. It’s getting complex my friends!
If I owe you $5, and you owe our friend $5, and they owe me $5, let’s just call it even. If we want to stake some ETH for yield, maybe that should be a totally different currency than if we’re trading a community token in exchange for daily goods and services. It’s not just a dream. Radical Systems is building case studies for mutual credit and multilateral exchange. Imagine if lawmakers took Doug King’s advice to heart, that if you can create a system for the most vulnerable in your community, then it works for everyone.
Thank you to PDX DAO for hosting such an impactful and meaningful event! I hope we get to do it again soon! And thank you to Ben for giving us a revitalized definition of civics, which he described as showing up and caring for our fellow human beings.
And for the curious among you, here are some additional relevant and indulgent rabbit holes from participants of GFEL. Enjoy!
LexDAO does not endorse any of the opinions, projects, products, or services discussed in this article.
LexDAO member Kyler Wandler (kyler56) published an article on October 2, 2023 discussing the impact and importance of minimizing governance in decentralized finance protocols. These protocols often pose a tension between pillars of decentralization and control, oscillating between the two. “Ungovernance” is seen as an emergent paradigm that defines true decentralization as the operation of a system without traditional layers of bureaucratic decision-making. Governance minimization is then defined as “the reduction or limitation of human intervention in the decision-making process of decentralized systems.”
The result is a reduction of the interference of human shortfalls—for example, manipulation, biases, and indifference—in the governance process. And by reducing these negative factors, protocols are able to perpetuate themselves based on predetermined algorithms and parameters. To learn more about ungovernance and its benefits, read the article here.
Fortunado’s Work with Pepperdine Caruso School of Law’s National Entertainment Law Moot Court Competition
LexDAO member Anthony Glukhov (fortunado_) created the problem for Pepperdine Caruso School of Law’s 2023 National Entertainment Law Moot Court Competition. This year’s problem examines the interaction between a fictitious generative AI model and United States Copyright law to determine whether (1) that AI model’s inclusion of copyrighted works as part of its training dataset is protectable as fair use under the Copyright Act and (2) outputs generated by that model, which resemble those copyrighted works included in the model’s training dataset, would be considered infringing derivative works that hold the model’s creators liable for indirect infringement. These questions draw upon the nuances of copyright jurisprudence spanning all types of copyrightable works. As similar litigation has begun appearing across the United States, it will be interesting to see how courts handle the tension between technological innovation and copyright protection for rights holders.
Oral argument at the competition will take place in mid-November this year. Visit the 2023 Competition page to read the problem and anonymous briefs submitted by competitors.
Web3 Legal Engineering Continuing Legal Education Course
LexDAO member Scott Stevenson (tenfinney) has launched a continuing legal education course that promises to open doors to the web3 world for California lawyers. The course, titled “California MCLE: Intro to Web3 - How Web3 May Affect the Legal Industry,” offers 1.25 credits and is designed to provide California lawyers with a solid foundation in web3 concepts and their implications on the legal profession.
Scott Stevenson’s extensive experience as web3 legal application developer, combined with legal expertise and a deep understanding of web3, ensures participants in this course receive top-notch education from an industry leader. Any LexDAO membership token holder who enrolls in the course using this link and the discount code “DAO15” will receive an additional discount.
LexDAO does not endorse any of the opinions, projects, products, or services discussed in this article.
Crypto Futures & Legal Engineering - A Próspera Builders’ Summit on November 3
As a final reminder, a Builders’ Summit on Crypto Futures & Legal Engineering will be hosted by Infinita and LexDAO in Próspera on November 3 from 10:00 AM to 6:00 PM CST. This will be a multi-session event for cypherpunks, legal hackers, financial engineers, and others working and investing in startups seeking to challenge the status quo and accelerate innovation using digital assets powered by blockchain-enabled financial systems.
Speakers from across the industry will host introductory sessions on the Próspera legal and regulatory system, workshops for attendees to discuss business ideas a new technologies, and present startup and project ideas currently in development. And all of this is taking place on a beautiful island in the Caribbean with plenty of sights to see, places to visit, and experiences to bring back with you.
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