Why Fluid devs want to give DAO ‘ultimate authority’

The developers of DeFi protocol Fluid have proposed transferring ownership of intellectual property to a nonprofit foundation in an attempt to balance the ideals of decentralisation with key regulatory requirements.

The foundation would allow Fluid’s developers to comply with anti-money laundering and know-your-customer rules as they seek to strike deals with traditional financial institutions.

“Establishing the Fluid Foundation allows the protocol to meet AML, KYC, banking, and regulatory requirements when interacting with off-chain counterparties, without compromising the decentralised governance that token holders have today,” DeFi Made Here, the new foundation’s pseudonymous director, wrote on X this week.

“The Foundation cannot be owned; it is governed by its constitutional documents, which give $FLUID token holders ultimate authority.”

DeFi Made Here, or DMH, was previously the chief operating officer at Fluid developer InstaDapp.

Fluid, a decentralised financial protocol with more than $1 billion in user deposits, features a decentralised exchange and a lending-and-borrowing platform, putting it in competition with Aave and Morpho.

All eyes on Aave

The proposal comes as stakeholders in Aave, the world’s largest decentralised financial protocol, clash over ownership of brand assets, including aave.com and related social media accounts.

Aave’s fight has seen its token plummet relative to rival protocol Morpho’s over the past 90 days, though its share of the crypto lending market has remained largely unchanged.

But DMH said the proposal was not motivated by the trouble at Aave.

“Regarding allegations that this is done because of Aave governance drama - this is not true,” they wrote on X this week.

“We’ve been actively working on setting up the foundation for the past 6 months - much earlier than things escalated at Aave.”

Aave Labs, the company that built the Aave protocol, has clashed with members of Aave DAO, the digital cooperative that controls the protocol. DAO members have chafed at Labs’ growing influence, and some have demanded that Labs relinquish brand assets, such as the Aave website.

In a bid to settle the fight, Labs recently proposed creating a foundation to own and defend Aave trademarks and “operate in alignment with DAO-approved parameters,” among other things.

Labs did not detail the proposed foundation’s structure, and DAO members have expressed displeasure with other elements of the proposal.

Token holders remain in charge

DMH said the new foundation has already been incorporated in the Cayman Islands, and its funding would come exclusively from the DAO that governs the Fluid protocol.

“Token holders will continue to retain oversight over objectives, budgets, and major decisions as they do now.”

Significantly, InstaDapp would relinquish all intellectual property, including websites and the protocol’s smart contracts.

“Instead of these assets remaining with the team or early contributors, they will transition into a neutral, mission-aligned entity: the Fluid Foundation,” DMH wrote. “This gives token holders real, enforceable control over Fluid’s IP for the first time.”

InstaDapp employees will hold director seats at the foundation and manage its day-to-day operations, though they will be bound by DAO votes, according to DMH.

The DAO controls the revenue generated by the protocol, and DMH has requested that it approve a $250,000-per-month grant to the foundation “to fund the team responsible for maintaining and growing the protocol.”

DMH and InstaDapp did not immediately respond to requests for comment sent over X.

The transfer of IP and the monthly grant are both subject to DAO approval. In the Fluid governance forum, one commenter said the grant took up too great a share of protocol revenue and questioned the need to transfer IP ownership to a DAO-controlled foundation.

But others were supportive.

“Doing this before a potential equity+token ownership conflict arises is smart,” Ignas, a delegate in several DAOs, wrote. “Aave is going through similar discussions now but under tension. Fluid is getting ahead of it.”

Aleks Gilbert is DL News’ New York-based DeFi correspondent. You can reach him at [email protected].