DeFi Project Hector Network Mulls Legal Wrapper to Shield DAO

A legal wrapper proposed by leaders of the Fantom-based protocol would empower employees of Hector and, according to critics, undercut the community.

AccessTimeIconMay 15, 2023 at 8:22 p.m. UTC
Updated May 16, 2023 at 8:29 p.m. UTC

The future of Hector Network is in flux with leaders holding a vote on a plan to wrap the OlympusDAO fork in an offshore legal cocoon and – according to critics – dilute token holders' rights.

Hector Improvement Proposal 40 (HIP 40) would clear up the myriad legal uncertainties that Hector faces as a “decentralized autonomous organization,” or DAO, according to a vote ending May 20. Other DAOs including SushiSwap have also endeavored to change their legal formation in response to growing regulatory scrutiny of purportedly decentralized crypto projects.

Alongside clearing legal liabilities, however, the new structure would give broad powers over the levers of governance to employees of Hector Network itself, according to a CoinDesk review of the proposed changes.

A fork of Olympus DAO

Built on the Fantom blockchain, Hector is one of the many derivatives of Olympus DAO that use complicated tokenomics to prop up value; these so-called “Ohm forks” built massive treasuries in late 2021, with Hector’s swelling past $100 million.

With much of that money long spent on various endeavors and project bloat, the remaining team members have tightened Hector’s belt and pledge to clean up the DeFi project’s act. But the legal clean-up job proposed in HIP 40 caught immediate ire Monday for allegedly undercutting Hectors status as a community-run DAO.

“This HIP essentially creates a worthless governance token instead of a true DAO, said the pseudonymous Lazer, a member of Hector Network’s influential proposal-writing committee.

New legal structure

The structure would supplant Hector’s existing DAO – its community of token-holders who vote with their HEC on project direction – in favor of a lawyer-approved setup rooted in the Cayman Islands to administer treasury and voting, and own DAO assets. Tokenholders would have no ownership claim to the DAO’s assets according to a constitution proposed in HIP 40 as well as screenshots of internal discussions shared with CoinDesk.

DAO members criticized the proposal in Hector’s Discord server Monday, with some arguing the legal structure would dilute their powers over the entity. One point of criticism focused on a clause in the DAO charter that would give broad powers to an 11-person “steering committee” staffed almost exclusively by employees of Hector Network.

That setup would ensure Hector’s own employees would have final say over all proposals considered by the DAO. The only non-employee, the pseudonymous Sonoro, is currently the chief of a group of “oracles,” community members who currently have the power to write HIPs but under the new setup have the right to review and comment on proposals.

Lazer, a pseudonymous member of Hector’s oracle committee, said HIP 40 would give Hector “team complete power over the composition of their so called “oracle group” and therefore unilateral power to propose HIPs and further distance the community from governance.”

Zeus, the pseudonymous operational lead of Hector, did not immediately comment on the setup of the steering committee. In a private message on Discord he said “nothing will change to the token holders governance btw, it's just more legal protection in corporations, taxes and possible regulatories.”

Zeus said a community AMA will occur in the coming days.

Edited by Nick Baker.


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Danny Nelson

Danny is CoinDesk's Managing Editor for Data & Tokens. He owns BTC, ETH and SOL.

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