Ref #1681 has brought up some issues that I was curious about how other people in the community feel. Regardless of how you feel about this particular referendum I believe these subsidiaries will become more popular for certain operations as time goes on. The question I have that I have not been able to answer is, what is the appropriate level of community oversight over a PCF sub?
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Thank you for bringing this up.
It seems to me that* the PCF itself is in the bootstrapping phase (e.g. limited budgets, limited HR, limited mandate) and still has to âwinâ Polkadot stakeholders on many fronts (e.g. roadmap, reporting, communications).
My view is that:
- As a Foundation, the PCF should stick to facilitating the execution of new ecosystem initiatives whose specific deliverables are funded by OpenGov.
- As a legal structure, the PCF should not be used to provide an endorsement/agreement for existing projects/companies/government offices to operate on behalf of the PCF.
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The community already does have full oversight over the PFC. Thatâs how it was set up from the beginning. OpenGov can instruct the PCF at any point via a new Ref to do literally anything it likes. This also applies to its fully owned subsidiaries.
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The community already does have full oversight over the PFC.
Of the PCF, not of wholly owned subs. The PCF has no mechanisms in place to make sure for example no one is using a wholly owned sub for money laundering or violating arms controls. The most common problem here would probably be something like failure to file some paperwork at some necessary time. But very important to get guidance and understand the exact current and possible future implications of a HK LTD or similar. I was hoping that someone from the legal departments of W3F or Parity might chime in.
I would argue that we donât really have full oversight of the PCF since both community seats are still open. Iâm planning to nominate one person for a seat soon.
It seems to me that* the PCF itself is in the bootstrapping phase (e.g. limited budgets, limited HR, limited mandate) and still has to âwinâ Polkadot stakeholders on many fronts (e.g. roadmap, reporting, communications).
I would disagree with this assessment if you look at 1591 there are 45.38M aye and 26.69M nay. If you remove the DV votes weâre left with 33.38M aye and 8.69M nay. If you remove chaos dao weâre left with 33.38M aye and 1M nay. In my experience, Iâve spoken with maybe 5 people on the community side who have some basis or understanding to formulate an opinion on something like 1591. No shortage of opinions though 
I would agree though at this point that refs looking to spawn wholly owned subs have a substantial bar to cross to prove need.
My concerns were mainly like the above situation where, a wholly owned sub, while owned by the PCF, does incur liabilities and issues on the PCF, and on the wider community. Being its own entity without proper oversight can allow directors and executives to run amok.
Since we have no existing oversight plan for this, I was curious what everyone thought would be a good level of oversight of these wholly owned subs.
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The PCF has no mechanisms in place to make sure for example no one is using a wholly owned sub for money laundering or violating arms controls.
This is the crux of the matter, and also the reason why I donât currently see sub-subsidiaries as a viable growth plan for the PCF.
I would disagree with this assessment if you look at 1591 there are 45.38M aye and 26.69M nay. If you remove the DV votes weâre left with 33.38M aye and 8.69M nay. If you remove chaos dao weâre left with 33.38M aye and 1M nay.
There needs to be some nuance here. The PCF funding renewal got approved on the basis that it can and will provide some value to the Polkadot Community in the short-term (e.g. executing contracts and proposals). This doesnât mean that the PCF is off the hook.
The PCF still has A LOT prove to Polkadot stakeholders in terms of transparency. This is something they highlighted themselves in the PCF Goals and Strategic Priorities for Year 2.
As you said, the appointment DOT Directors should help steer the ship in the right direction sooner rather than later. Once that is done, I am sure many people will feel more confident to join the PCF bandwagon with their experimental proposals. 
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OpenGov can instruct the PCF at any point via a new Ref to do literally anything it likes
Iâm trying to be positive and not assume everyone is out for some grift, even with the ridiculous rates in that budget.
But I find it difficult not to see that answer as disingenuous.
Youâre intending to build in a layer of delay in direction (referenda take time, as you may have noticed), and obfuscation of accountability.
And you have provided no reason why that is necessary.
Which looks, frankly, kinda shady.
Just go and make your arrangements with HK.gov with the company you have already set up to do shit like that, and ask the treasury for funding for actual activities or results, not ridiculously priced admin and legal work for creating structures which serve mostly to obfuscate OpenGovâs already limited view into things.
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The reason why weâre not signing the contract with the HK Government via our PPE entity, is because this entity [obviously] does not represent the Polkadot DAO. The PFC and its wholly owned subsidiaries however do. The HK Government can only enter into this type of agreement with a HK-based company, hence the need for a subsidiary.
Regarding the questions of oversight over PCF: Indeed the idea of setting up PFC in the first place was to make sure that the only body with oversight of this entity is OpenGov â not W3F or Parity or anyone else. A DAO governing a real world entity is a pretty unique idea, and this is novel legal territory. However, compliance with AML and CTF under Cayman law (also mentioned in this post) is well within the responsibilities of the PCFâs directors, so it is incorrect to say that this is a blind spot of the structure.
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But realistically, the new entity would not represent the Polkadot DAO either.
To say that OpenGov would be able to exercise a meaningful level of day-to-day control over this subsidiary is, to put it politely, optimistic (so optimistic that, even with goodwill towards you guys, I cannot but see it as disingenuous).
Anyone with the experience that you have knows full well that such a structure relies on us placing trust in directors (you havenât even said who they would be, or what the articles of association of this proposed entity would be, BTW).
The fact your PPE entity does not represent the DAO inherently doesnât mean that it cannot do so within the scope of this activity. Again, this should be very obvious to someone with the experience of corporate structures that you have which, again, begs the question - why do it this roundabout way or, more specifically, why have you chosen to do it this roundabout way?
Given that the DAO can only in reality provide strategic direction, and the day-to-day will be left to the directors, there seems no advantage in the structure you propose and, in fact, OpenGov would have more control over PPEâs dealings with HK.gov if it were done via the normal mechanism of treasury (and non-treasury) proposals.
PCFâs oversight over the new entity would, in reality, be limited to issuing direction to directors, and a power to remove those directors. That power would have to be laid out specifically in the articles, in which case why not just lay out a similar procedure in a proposal establishing the dealings with HK.gov as a line of treasury-funded work?
The practical level of detail of accountability (in particular in terms of information) is way less for director â shareholders than it is for proposer â DAO. Which again, begs the question why have you chosen to do it this roundabout way, rather than the way with more practical accountability?
As you say, a DAO governing a real world entity is a novel idea and novel legal territory. there are so many things that would need to be specified upfront - and which should be approved by OpenGov - to which we need to add more due to the novelty.
But I see no sign of an intention to run these by OpenGov, nor any easy way for Open Gov to stop the process if it becomes clear, after the initial proposal passes, that it is a bad idea.
I see how youâre excited by the novel structure but it just looks shady and I donât see any honest reason why you would want to do it this way rather than the normal way.
Iâve said the exact same words myself. There are some operations that would be better siloâd in a wholly owned sub of the PCF. The caymanâs FC structure is quite novel and unique being memberless and headless to an extent. I could see wholly owned subs acting as a âweb 2.5â bridges. Being able to satisfy legal requirements of web 2.0 while allowing 3.0 to function in the real world.
An example of this, you need an entity to interact with icann to register a gTLD. A gTLD is like â.comâ so if I want to register â.dotâ or â.kusamaâ so I can have website.kusama, I have to do so through icann. Most chains are partnering with a web 2.0 partner for this compliance portion. But in the end it means their domain is registered to this web 2.0 partner, not to the chain. Having a wholly owned sub can allow the PCF to directly play that role becoming a neutral 3rd party.
Another example would be in holding assets, a wholly owned sub could for example, own stock and issue receipt tokens.
To me itâs about ownership. Using these structures itâs possible to have ownership by simultaneously everyone and no one.
As of right now, to my knowledge, the PCF is unique and the social layer of polkadot is probably the most valuable piece of polkadot right now. We currently have first mover advantage here.
The problem is as you highlighted in your last post and I alluded to in my second post.
Anyone with the experience that you have knows full well that such a structure relies on us placing trust in directors (you havenât even said who they would be, or what the articles of association of this proposed entity would be, BTW).
The new structures would all be trad structures where executives and directors could effectively do whatever they want after being placed into the position. I do not have the knowledge or the experience to know in what way would be best to limit them and how to design those structures. I was hoping someone else would have a better idea and be able to provide some guidance, or a frame work or something.
Yes, agree.
BTW, apologies @Max - though my points still stand, I went off topic a bit there ragging on Ref #1681 (This is the forum, not subsquare, and @tom.stakeplus you were asking about community oversight of PCF subsidiaries more generally, not just that proposed one, and that is a conversation we should have.)
There are, certainly, potential use cases appropriate for PCF-owned subsidiaries.
As you point out, holding IP or assets is one - the appropriateness there would still be case-by-case, as the PCF itself can own things, so why not just do it like that?
Placing trust in directors is the biggest use case that answers that question, where doing so is a necessary evil - an example would be to allow flexibility if owned assets were to be traded in a time-sensitive manner.
But the trust placed in directors is inherent to having a subsidiary.
The trust would usually be to the extent I outlined - PCF would have the power to give the directors direction (which might be fine grained, if the PCF is fast enough to do that, but would more likely be strategic), and it would have the power to remove the directors (if, for example, they were underperforming or malicious). So the extent of the trust we place would be:
(degree of freedom provided in directions) X (time from appointing directors until removing them).
This is a large degree of trust, which also does not account for the possibility of malicious action - the amount/ degree of malicious action possible by directors extending their given authority is greater than the amount/ degree that they could realistically be sued for.
The risk of malicious action could be minimised by appointing professional directors such as a law firm (which is the setup of the PCF), but a law firm would only perform specific, narrowly drawn actions - which is something that we can already do with the PCF setup.
The risk of directors acting badly within the freedom granted them to act is something that can only be cured either by proactively giving them narrower direction (and if this is a necessary, it limits the usefulness of the setup), or else retroactively, which takes us back to the same trust model and degree of control that we would have with a proposal requesting funding (or authority) upfront - and though this is imperfect, at least with Open Gov proposals, they are more widely discussed and we can require funding to be retroactive. With contracts directly executed by PCF we have as much control upfront as through Open Gov (though less subject to oversight) and more recourse in the case of underperformance or malice.
So, TL;DR - in any cases where a subsidiary could be useful, we would need to place significant trust in directors and this trust can only really be minimised by all directors being regulated professionals in a field (eg lawyers or fund managers), who would then only be acting within narrowly defined scopes - which in most cases will limit the utility of having a subsidiary in the first place.
Not to say there are no cases where subsidiaries have a use case.
I can think of two potential ones:
- holding assets, with the intention of either limiting liability for those assets, or actively trading them.
- performing some kind of low-trust day-to-day function that can only be done by PCF (or on its behalf), solely for the purpose of paying a lower rate for the admin that the PCF professional directorsâ fees
I canât think of any other cases which donât involve an unacceptable trust risk in the directors, or which would not be better done through Open Gov proposals or through the PCF contracting directly. If anyone can think of any, please do share.
I think the best way to think of the PFC is as an entity that can implement the decisions made by the DAO in the real world. Nothing more and nothing less.
With regards to the proposed OASES partnership, I think you are overthinking this a bit. What do you think is the worst case scenario we could do with this subsidiary? Keep in mind, weâre not getting any funds for it. The currently budget only goes to lawyers and company registration fees. Any new budget would have to be separately approved by OG. And PPE also cannot sign contracts on behalf of this new entity, only the PCF can. And that in turn, as per its bylaws, can only be done if instructed by OG.
as the PCF itself can own things, so why not just do it like that?
I mean, it did occur to me but my immediate thoughts were concerns about liability. It was my understanding that itâs SOP to silo your liability. If for example a ref passes to have the PCF hold stock and issue depository / receipt tokens and then someone gets hacked or loses access to their wallet⌠They sue⌠Judges being judges, rules against the PCF and then what? Wouldnât that liability fall back on the treasury?
I mean, obviously we could always just spin up more FCs as subs with their own directors but that sounds costly.
But my instinctual thoughts about these structures is âget assets on chain asapâ. Why can I not already buy PDR (polkadot depository receipt) TSLA and NVDA shares.
Is there some sort of more generic trust structure or something that would be readily available that we could use for these subs versus paying the full price for a FC or having the flaws of the LLC, C Corp, etc structures?
Edit: Another bad thing about being stuck within the confines of the FC structure is that youâre forced to work within Caymanâs law, specifically the VASP which isnât really a positive or a negative, but it would limit what could be done âon-shoreâ to some extent.
Well the worst case scenario is you guys do something crazy and were all along a front for China to launder North Korean funds, resulting in some court bankrupting the PCF, token price goes to zero and Xi Xiping buys 50% supply to go mad Giotto on what it knows is the best tech out there.
But thatâs not what I think is likely.
What I think is likely is that we overpay for a structure which, at best, has less utility and less accountability than the standard Open Gov way, and then having the added labour of engaging this weird structure in a non-standard (ie not just normal Open Gov proposals) every times we want to use it. For no benefit.
And my spidey-senses are up because Iâve made the case a few times now here and the fact that you seem wedded to the idea, and are not engaging with the negative points is a bit red-flaggy.
Anyway, probably better to summarise and have the discussion on subsquare.
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Yeah, assets that come with liability is one usecase, and a solid one, but will the PCF want to be holding any of those?
for example a ref passes to have the PCF hold stock and issue depository / receipt tokens
Owning stocks, etc. doesnât come with liability (thatâs literally what the âLâ in LLC/ plc./ Ltd. means).
The complex legal structures we see around for onchain stock-like assets are to do with the liability to investors for carrying out or not carrying out one investors instructions as against the others/ the collective. If we just have one owner, the PCF, which has itâs own legal setup of who controls it (ie the token holders), then rights within the investment fund donât need balancing against each other or against the whole - because there is only one participant (ie the PCF).
Is there some sort of more generic trust structure or something
There are generic company structures in every jurisdiction, and many generic trust structures. Most will probably be cheaper than a Caymans foundation. Or we could choose do to an expensive offshore dance and build some Frankenstein monster of jurisdiction-shopping entities.
But the question is whether it is desirable.
They all will cost and add complexity.
And, in almost all circumstances will have the danger (or at best, lack of utility) I outlined above (the TL;DR)
Owning stocks, etc. doesnât come with liability (thatâs literally what the âLâ in LLC/ plc./ Ltd. means).
My example was issuing receipt tokens / depository tokens and allowing peer to peer trade. I canât even count the number of liabilities. Weâd effectively be opening a brokerage.
Instead of an âADRâ it would be a âPDRâ. I spent some time today digging around in AI, it seemed to believe the easiest route would be in allowing non-us citizens access to securities from all markets, including US ones. It presents an interesting opportunity since many brokerage firms require minimum deposits in excess of $10K to open accounts for non-us citizens. It seemed to believe this could be done for <$2M, $50K/country partner setup & $500K/yr maint costs.
We could utilize DID and a global network of partners to meet the necessary criteria (FATF, CIMA, EU NCA, etc).
Under the VASP unrestricted secondary trading would classify it as a virtual asset trading platform which would require a VASP license. VASP would require 3 CIMA approved AML Compliance officers, an enterprise level virtual asset risk asssessment, full FATF (KYB/KYC), Enhanced due diligence, active transaction monitoring, pattern analytics, etc. Transfers over $1000 would be required to push originator and beneficiary info to TRISA. Various on-going monitoring, reporting, etc.
So, probably not a good idea to issue depository or receipt tokens from a FC. But either wayâŚ
Now, if I were to just go setup a company to do this somewhere â the trust would still be required and there would be exactly no ownership conveyed. At any time I could yank the shares off chain or say weâre moving to ethereum, or whatever. These are things that could definitely be blocked by the articles of incorporation. Yugaâs web2 partner for the â.apeâ GTLD at any time could rug and say âWeâre not doing on-chain anymore, you have to use our website, good luck!â.
So, basically, I guess for me (based on what youâre saying) it comes down toâŚ
Use a trad structure, still have to trust the executives and directors but have no ownership conveyed
Use a trad structure wholly owned by PCF, still have trust issues, can mitigate bad behaviors to an extent as you alluded to, but have 100% of ownership conveyed and have directives and rules that prevent the ceo from rugging the service from the chain as I mentioned above with the .ape gTLD.
In the articles of incorporation, couldnât we exactly spell out what actions directors, executives are allowed to take, when they need to get additional approval.. Then we could just build a portfolio of acceptable actions with anything else defaulting to requiring additional approval. If additional actions need to be taken, toss in a ref to instruct the pcf to modfiy the articles to add, modify, etc clauses / sections, verbiage, etc.
In theory, the community will have full control. The corporate groups are recognized in the Cayman Islands and Hong Kong jurisdictions, so the structure would be: Community â PCF Cayman â PCF Hong Kong.
However, there are several current issues:
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The proposal doesnât explain how this will be implemented, nor does it include any incorporation documents, drafts, or related materials.
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PCF currently has no community directors, so weâre essentially trusting.
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There are additional concerns, particularly regarding the liability of administrators and the potential piercing of the corporate veil.
Overall, I believe having a presence in Asia is a great initiative. The problem is that Polkadot lacks a proper legal infrastructure to ensure smooth and secure operations.
P.S. Thatâs the main reason behind Referendum 1676 â to provide legal clarity and guidance for everyone, so better decisions can be made.
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This best captures what Polkadotâs legal infrastructure is becoming. 
CARDANO FOUNDER CHARLES HOSKINSON SAYS $ADA TREASURY COMPANIES ARE INEVITABLE
Agree. Pretty sure Cardano is many years away from reaching the detail of onchain governance we already have in Polkadot. They wonât catch up now.
I would like to share my observations regarding the PCF, how it currently operates and how it could evolve to better serve both the foundation and the broader community.
At present, the PCF acts on behalf of the community, executing directives that must be clearly defined and thoroughly detailed within proposals.
From direct experience, Iâve seen that the PCF cannot realistically execute proposals entirely on its own. It requires active collaboration with proposers to ensure the communityâs will is implemented effectively and accurately.
It is also important to note that approved proposals are not automatically executed.
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The PCF retains the right, and responsibility, to refuse execution if a proposal is deemed legally problematic, impractical, or potentially harmful to the foundation.
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This safeguard is essential to protect the foundation from liability while ensuring that community-approved initiatives are properly vetted and compliant.
Currently, there are three directors in place, with plans to add two additional directors intended to represent the communityâs interests. However, I see a structural conflict of interest in this arrangement:
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These two âcommunity-sideâ directors would still be direct employees of the foundation.
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As such, they are legally bound to prioritize the foundationâs interests, since directors have a fiduciary duty to the organization they serve.
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At the same time, they would be expected to represent, oversee, and safeguard the interests of the community and token holders, which can sometimes diverge from the foundationâs objectives.
This creates a situation where the same individuals are asked to serve two potentially conflicting roles. Even with the best intentions, their independence would be inherently limited, and their decisions might be, or might be perceived as, biased toward the foundationâs priorities rather than those of the community.
My view:
Instead of appointing two additional community directors, I propose introducing two or three independent supervisors/facilitators.
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These roles would not carry legal obligations to the foundation, allowing them to act solely in the interest of the community.
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Their primary focus would be oversight, transparency, and ensuring smooth collaboration between the community and the PCF.
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This would create a clearer separation of responsibilities and reduce the risk of conflicts of interest or mistrust.
Additionally, I believe that all OpenGov proposals submitted by legally registered companies should be processed through the PCF.
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This would ensure that proper binding contracts and invoices are in place, in compliance with relevant laws and tax regulations.
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It would also enhance accountability and provide stronger legal and operational safeguards for both the community and the treasury.
In closing, I view the PCF as a valuable and powerful tool.
Like any tool, however, it must be carefully shaped, refined, and used correctly in order to deliver the greatest benefit to all tokenholders, the foundation, the community, and the broader ecosystem.
Therefore, before establishing subsidiaries, it would be appropriate to shape the PCF according to the needs of the community.
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