We believe ownership and governance in a startup, company, or DAO should be earned by those who provide real value by contributing their talent, energy, and skills — not just those who are founders or ‘in the boardroom’.
One of the major pain points for early-stage projects is how to split equity among founders and contributors in a way that’s fair, transparent, and aligns incentives for the long run. Sporos enables for-profit projects to reward all contributors with sweat equity tokens that represent ownership and governance rights in the DAO based on the value of their contribution. Importantly, this all done in a way that complies with U.S. securities and tax regulations and builds on top of the Moloch DAO framework using Kali DAO as a key infrastructure partner.
The idea is pretty simple:
- Continue to contribute more value to a project = earn more sweat equity tokens.
- Stop contributing value = get diluted by those who continue to provide value.
We’re asking these questions:
What if contributors were rewarded with tokens that represent actual ownership and governance in the project/company? (not just the veneer of governance and with zero ownership as is typical with DAOs)
What if a contributor’s ownership and governance was proportional to the amount of value they provided relative to all other contributors?
What if a contributor’s percentage of ownership and governance ebbed and flowed based on their sustained involvement relative to other contributors?
That’s what we’re building.
We’re creating an equitable environment to assist for-profit projects to wrap themselves in a Delaware LLC and utilize a sweat equity distribution system during their initial bootstrapping phase.
Ultimately, our solution and associated legal framework is intended to answer one simple question (and provide the tools to support it):
How can a sweat equity token (SET) represent both financial and governance rights in a company while complying with U.S. tax and securities regulations and while also eliminating the associated administrative burden for both the company and its contributors?
It’s difficult to attract, compensate, and retain contributors while bootstrapping a project.
Sporos makes this easier by providing a level playing field where everyone shares in the upside of the project based on the value they provide. This is true incentive alignment.
Many contributors are willing to be compensated with upside but doing so while complying with U.S. legal, tax and securities regulations is costly and complicated.
Sporos provides a simple, out-of-the-box solution designed to comply in the U.S and minimize compliance headaches for both the company and its contributors.
Cap table decisions are traditionally arbitrarily made by a concentrated few. As such, it’s impossible for contributors to gain meaningful ownership in a project without being an early founder or investing capital.
With Sporos, your ownership in a project is the direct result of the value you provide relative to other contributors. To maintain your level of ownership and governance, you must continue providing value on an ongoing basis or risk being diluted.
Web3 ownership usually isn’t really ‘ownership’.
DAO governance tokens give contributors the facade of ownership with negligible associated governance rights. Sweat equity tokens give contributors actual ownership interests in the project and the equivalent amount of governance rights.
Project needs are dynamic and can change at any given time. However, projects often find themselves with meaningful amounts of equity/tokens owned by people who are no longer helping build the business or not providing their expected value. As a result, incentives aren’t aligned and projects are unable to recruit new participants and reward them with upside.
Instead of being stuck with a poorly designed and static cap table, Sporos enables dynamic cap tables where projects can flex to new contributors and reward them appropriately. Instead of having a capped supply and splitting among founders/contributors/advisors/etc., projects using Sporos have an uncapped supply with new tokens being minted as contributors provide work.
While investors get to diversify risk by placing multiple bets with their capital, employees are forced to make concentrated financial (and time) bets on the success of their employer.
Sporos enables contributors to earn upside in multiple projects simultaneously when contributing to projects that reward in sweat equity tokens.
Projects create their own Delaware Series LLC under KaliDAO’s Master Ricardian LLC through KaliDAO’s dAPP. During the LLC creation flow, projects are able to adopt the Sporos LLC Operating Agreement (OA), which is a custom OA developed by Sporos and our network of legal contributors. The details of the OA reflect the tenets of the underlying smart contract protocol and sweat equity management system. The company formed under the LLC wrapper is contributor managed, not member managed, and sweat equity tokens (SETs) shall carry and disperse both financial and governance rights.
The system designed by Kali and Sporos starts with a strong foundation: the Kali DAO smart contract protocol. This protocol is designed to allow for intuitive proposal creation and dynamically amendable quorum definitions, allowing companies to adjust when and how voting occurs within their DAOs to best suit their needs. From there, the Sporos Equity LLC operating agreement mirrors and reflects the language of the smart contract to bring it into legal existence.
The resulting system is the Sporos Sweat Equity Management Platform. Enacting sweat equity from there is simple: contributors perform tasks and keep track of their hours. Hours can be tracked using a number of apps or tools - the choice of which is up to the DAO. After a given period of time (whatever the DAO as a whole identifies to be the proper “pay period”), the contributor will create a proposal listing out what objectives they’ve completed, and how long it took them to do so. In this proposal, the contributor will ask for compensation in the form of Sweat Equity Tokens - or SETs - in an amount consistent with an agreed upon rate within the DAO. After that, democracy runs its course! The proposal will either pass - and the tokens will be allocated to the contributor - or fail (at which point a discussion would likely need to be had with the contributor.). Once a proposal has passed, the process repeats itself. Contributors can work as much or as little as they desire, and their efforts will be reflected in the amount of equity ownership they accrue in the company. This information is all accessible via Kali DAOs app - from each DAO member’s current allocation of equity to all past and pending proposals.
Additionally, Sporos is creating a project management tool where a PM makes a proposal on-chain for a project to get approved by the DAO and requests a project budget in SETs. SET holders vote on-chain whether to approve the project, and if approved, the PM has autonomy on how to use the SETs to execute their project. For example, a contributor may request 10k SETs for a ‘website revamp’ project. If approved, the contributor would use the PM tool to manage the project and distribute the 10k SETs to other contributors based on milestones and deliverables.
While all of this is occurring, the overhead and legal considerations of the DAO are mitigated on multiple fronts. First, the distribution of tokens are protected from securities registration considerations by remaining non-transferable, or illiquid. These tokens represent two things: governance rights, and warrant rights. The governance rights entitle contributors to participate in the control and direction of the company. The warrant rights represent the contributor’s share of the company’s equity, or ownership. This equity is accessible only after a “graduation”, or liquidity event. By delaying the receipt of this equity, the DAO is allowed to build and develop while delaying the administrative burdens of managing cap tables and taxable events related to equity. Meanwhile, the contributor gets the upside of discounted equity in the company’s future value. In addition, this delay mitigates taxation considerations until the exercise of the warrants as well. See this twitter thread for more information.
The core tenets of the platform include:
- Intuitive formation process . The Sporos platform enables a “self-service” Company formation process which requires no lawyers or third party involvement. We’ve built Sporos on top of what the giga-brains at KaliDAO have built which enables users to mint an on-chain Delaware LLC as an NFT in minutes. (NOTE: Though an attorney is not required to form this entity, users are encouraged to discuss matters with competent legal counsel as they see fit.)
- Cost-Effectiveness. Set up costs less than $500.
- Compliance. The Sporos Equity LLC is designed to optimize and prioritize compliance with U.S. Securities and Taxation regulation.
- Protection. The Sporos Equity LLC provides liability protection for all SET holders.
- Dual rights. SETs have both financial and governance rights in the company.
- Privacy. No mandatory doxxing required to receive or own SETs.
- Tax minimization. Nominal to no tax liability for SET holders, and minimal tax reporting overhead for the project.
- Securities compliance. Our system minimizes securities registration (requires Form D](SEC.gov | Filing a Form D notice) because: 1.) SETs are non-transferrable, 2.) You cannot receive SETs by investing money, thus there is no investment contract (as mentioned in Howey), 3.) There is no reliance on the effort of others, as the only way to earn SETs is to contribute time and energy personally, and 4.) SETs are distributed under a compensation plan that is approved by founding members of the LLC and accepted by each new contributor prior to receiving their first SET. This addresses the intended use of the tokens and explains why they should fit under the rule 701 exemption.
- A level playing field for all. Companies formed using the Sporos Equity LLC are SET holder managed, not Member or Founder managed.
The MVP includes:
- Create Series LLC under KaliDAO Ricardian Master LLC on mainnet, polygon, arbitrum, or optimism.
- Adopt the Sporos OA for your LLC
- Provide visibility to OA for all contributors
- Create DAO proposals
- Vote on DAO proposals
- View list of all DAO members
- Create a project
- Propose project on-chain (task title, description, link to proof of work, mint amount, contributor address.)
- Mint SETs to a project budget controlled by PM (if project is approved)
- PM submits Tribute to mint SETs to a contributor (with link to evidence of completed task or ‘proof of work’).
While we’ve been working on Sporos since Feb '22, much of the work up until this point has focused on the research for how to create a sweat equity management system that both complies with US regulations but also enables the company to be managed by SET holders where everyone is on a level playing field. We think the culmination of this work (which is 95% complete) will enable new corporate governance and business formation primitives, the same way defi created new financial primitives.
So, our validation to this point includes:
- Dozens of attorneys helping us create our Sporos Operating Agreement. Many of them see what we see and are excited to help for sweat equity in Sporos
- An extremely tight and symbiotic relationship with Kali DAO. Their team is helping us build and vice versa.
- Roughly ~10 projects on our waitlist (just now starting to market)
- Eating our own dog food. We have 18 contributors on our cap table with 1-2 added per week. Everyone working on Sporos DAO is earning SETs in Sporos.
Please find our rough MVP here https://app.sporosdao.xyz/
and our github activity here GitHub - SporosDAO/sweat-token: Sweat Token code and resources - Sweat Equity Vault for DAOs
We plan to have our minimum marketable product (MMP) finished by mid September. You can see a few of the designs here https://www.figma.com/file/HjgPX0qjMYgvDjeliS4EwD/Sporos-DAO-App?node-id=0%3A1
Our OA should be finished in the next week at which point we will have 5-10 attorneys review for final feedback. We’ll then need to create a Contributor Comp Benefit Agreement (see above related to Rule 701) and a Warrant to Purchase Equity Agreement. Neither of these agreements will likely keep us from launching. We can develop those after launch and provide to our users once available.
Differentiation (from other projects)
There is no other project offering this solution. This is ‘tip of the spear’ stuff, in our humble opinion. The ability for a company to be owned and operated completely decentralized and comply in the US is new and novel. In a wild success case, Sporos could be for DAOs and legal wrappers as the Delaware LLC was for trad businesses.
- Ivelin.eth (co-founder, engineering lead)
- Kleb (co-founder, ops and content lead)
- lipman (co-founder, dishwashing lead)
- opny (developer)
- Yesi (designer, also Microsoft)
- Netbee (designer, also OlympusDAO)
- edgecaser (PM, also OlympusDAO)
- Shiv (dev, also Kali)
- Capitano (marketing analytics, also OlympusDAO)
- Kyler (consultant)
- Gerald (consultant)
- cryptotaxguy (consultant)
- briareus (dev, prev OlympusDAO)
Grant Request $
What the Funds Are For
($10k): Completion of the Contributor Compensation Plan Agreement. prepare a baseline Benefits Comp Plan template to go along with the OA, which is needed as an additional backup for SEC securities inquiry. Comp plan ensures all members of the DAO are onboard with warrant structure and is approved by token holders. Makes it easier to fit under rule 701 exemption for securities. This agreement also stipulates things such as IP created by the contributor for benefit of the DAO being owned by the DAO.
($10k): Completion of the Warrant to Purchase Equity Agreement. Outlines the terms by which SET holders can exercise their warrants for equity in the company.
- ($30k): Completion of MMP (est. 6 weeks)
- ($3k): User testing rewards ($100 per, 30 total)
- ($15k): Add enhancements to Project Management tool and complete People section of Sporos app
- ($5k): Sporosdao.xyz buildout (product page, FAQ page, About the DAO page, marketing analytics setup, email service provider, web hosting, etc.)
- ($17k): Operations process and systems buildout + subscriptions (e.g. ‘Sporos Constitution’ such as this from [gitlab](Handbook | GitLab, notion/clickup setup and onboarding, discord, etc.
- ($5k): User acquisition incentives and sponsorships (e.g. affiliate rewards, podcast sponsorship test, etc.)
- ($5k) Networking and partnerships (travel and ticket for 2-3 to devcon Bogota, travel for 1-2 to DAO Research Collective conference at Stanford)
We would greatly appreciate working with Moloch to source early stage projects/founders who may be interested launching their project using the Sporos system, transitioning into Sporos (e.g. existing DAO but with no legal wrapper), or converting from current legal wrapper to the Sporos system.
Additional Resources, Links, Portfolio