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docs/general/pcf.md

@@ -33,6 +33,183 @@ So long as the PCF receives sufficient detail, funding, and authority to carry o
 the PCF administrators will do so within the confines of any legal, regulatory, and contractual
 obligations.
 
+## PCF Background
+
+Decentralized protocols and organizations increasingly require a bridge between the analog,
+centralized world and a more fully digital and decentralized future, while complying with applicable
+laws and regulations.
+
+In the past, there has been a large reliance on the [Web3 Foundation](https://web3.foundation/) and
+[Parity Technologies](https://www.parity.io/) to advance the ecosystem off-chain. While those
+organizations are philosophically aligned to the health and growth of Polkadot, their corporate
+governance structures offer no formal role or rights to DOT holders (nor are they in a good position
+to do so).
+
+As Polkadot evolves to further decentralize governance, and as Parity and the Web3 Foundation look
+to turn over critical functions to the community, it will benefit from a legal entity to effectuate
+Polkadot community governance in the “real world.”
+
+The PCF is designed to explicitly represent and serve DOT holders’ interests off-chain. Its
+governing documents grant DOT holders permanent, irrevocable rights to guide its activities and
+oversee significant matters through the existing on-chain Polkadot OpenGov system.
+
+## PCF Activities
+
+The PCF will take on activities delegated to it by Polkadot governance. The community will likely
+discover and evolve its thinking over time about which activities are best delegated to the
+Foundation, but as a rule of thumb, any activity that is best served with a legal contract, that
+requires fiat payments or physical presence, or that requires active project management is
+appropriate for the Foundation to execute on the community’s behalf.
+
+Initially, the Foundation will have a minimal scope to:
+
+- Create and maintain a compliant off-chain organization capable of acting on directives from the
+  community,
+- Taking custody of accounts, logins, keys, and assets as a form of community ownership,
+- Executing contract agreements with partners, vendors, and service providers.
+
+Additional activities that require additional resources for project management, capital
+expenditures, business development, technical development, etc., will likely require incremental
+budget, staff, and/or legal design, which can be provisioned through subsequent line-item OpenGov
+treasury proposals. This allows the Foundation to adapt and grow to suit the community’s directives
+as they become concrete.
+
+Some hypothetical future activities that the community may consider delegating to the Foundation can
+include:
+
+- Retail marketing activities, e.g. social ad campaigns targeting developers
+- Educational programs, e.g. Polkadot Blockchain Academy
+- Complex grants programs, e.g. tranched or actively managed awards tied to milestones
+- Community events, e.g. contracting with venues and service providers for physical gatherings
+- Code management, e.g. maintain the polkadot-js GitHub repo
+
+As the community gains interest in various use cases, it can direct the Foundation to explore them
+in greater depth and report on how it might be able to execute them.
+
+## PCF Entity Design
+
+The proposed structure incorporates several features designed to optimize across trust, risk, and
+efficiency. It balances community representation with professional robustness, minimizes the
+treasury assets at risk, maximizes ability to adjust and evolve over time, and allows each proposed
+activity to be evaluated on its merits.
+
+## PCF Corporate Structure
+
+Cayman Islands foundation companies offer a unique way to assign important rights to a broader
+stakeholder pool beyond traditional shareholders, directors, and employees. This proposal uses that
+feature to give DOT holders significant oversight and important powers to ensure that the Foundation
+carries out its business appropriately.
+
+**Memberless:** There are no members or shareholders who hold an economic claim over the Foundation.
+This eliminates a common source of conflict between legal entities and the communities they serve.
+
+**Supervisor:** There is a supervisor role, whose primary purpose is to oversee the Board of
+Directors and ensure that the Foundation’s governing documents are upheld. The supervisor holds
+legal standing to act on behalf of the foundation in the event that directors diverge from their
+commitments or fail in their fiduciary duties. Given that the governing documents specifically
+instruct the directors to respect tokenholder preferences, provide adequate transparency, and not
+dilute the rights given to tokenholders, the Supervisor acts as a direct safeguard for tokenholder
+interests.
+
+**Directors:** The Foundation will have a five member Board of Directors, divided between:
+
+- A three director majority served by Cayman resident professional governance service providers to
+  ensure the Foundation is sufficiently independent of other entities in the Polkadot ecosystem and
+  to comply with Cayman Islands economic substance requirements.
+
+- Two seats reserved for future directors to be appointed by Polkadot governance, to ensure
+  tokenholder interests are fully represented and considered in all matters.
+
+**Staff & Administration:** Day-to-day administration will be outsourced to a Cayman Islands based
+professional services firm, reporting to the Board of Directors. These needs may fluctuate over time
+depending on the scope of activities delegated to the Foundation, and the Foundation will maintain
+flexibility to add to, modify, and redirect the administrative staff as needed. The administrator’s
+duties include:
+
+- Operational support and project management
+- Engaging and managing corporate service providers including legal and bookkeeping
+- Actively engaging and collaborating with the community to help craft, review, and execute
+  governance proposals for Foundation activities
+- Maintaining appropriate documentation and transparency reports, and
+- Ensuring legal and regulatory compliance under applicable law
+
+**DOT Holder Rights:** The Foundation’s bylaws ensure special voting rights and protections for DOT
+tokenholders, including: - Polkadot OpenGov treasury proposals are the Foundation’s funding source,
+so DOT holders can choose to withhold future funding to cover basic operating expenses if they are
+unhappy with the Foundation.
+
+- Delegating specific activities to the Foundation. These activities are to be approved as referenda
+  through on-chain Polkadot governance via OpenGov, using any track with adequate spending
+  permissions. If approved, the Foundation’s Directors will review approved referenda and if they
+  are appropriate and actionable, then the Foundation will execute the requested activities. The
+  tokenholder-appointed Directors have full access to represent tokenholders’ interests in all
+  matters, and may notify the Supervisor and/or the community of any improprieties.
+- Tokenholders can vote via Polkadot OpenGov’s General Admin track to remove the Supervisor or
+  Directors who are not serving appropriately.
+- Tokenholders can vote via Polkadot OpenGov’s General Admin track to amend the Foundation’s bylaws.
+- A requirement that the Foundation cannot agree to any deliverables, responsibilities, or payments
+  to third parties unless they have been pre-approved by tokenholders.
+- A requirement that the Foundation make public transparency reports detailing the Foundation’s
+  activities, including but not limited to transactions, proposal status, and ongoing efforts to
+  carry out approved proposals.
+- Tokenholders can vote via Polkadot OpenGov’s General Admin track to wind up the Foundation or
+  instruct it to transfer some or all of its assets to another charitable object.
+
+## PCF Initial Personnel
+
+Actum Node interviewed several candidates for each role, including referrals from the
+above-mentioned law firms, and members of the Polkadot community, and selected the following to
+propose as the initial office holders.
+
+Please note that some of the candidates requested that their names and backgrounds be partially
+redacted in public internet posts to prevent spam and phishing vectors that could compromise
+themselves or the Foundation. We extended the same level of privacy to all of the candidates for the
+same reasons.
+
+### Supervisor
+
+**J. Bain** is a career fiduciary services professional. He has a regulatory background, having
+previously worked at the Cayman Islands Monetary Authority, and he has significant experience
+overseeing DAO foundations, other crypto-related entities, and traditional investment fund entities.
+Mr. Bain was introduced by our Cayman Islands counsel and recommended by the CEO of a crypto
+investment firm that he governs.
+
+### Directors
+
+**G. Kennedy** is an experienced governance professional. He has a legal background, having served
+as General Counsel and outside counsel to several Cayman and European investment funds, and he sits
+on the board of several blockchain-related companies and foundations. Mr. Kennedy was introduced by
+our Cayman Islands counsel and strongly recommended by the General Counsel of an L1 development
+company and the CEO of a decentralized identity protocol where he also serves.
+
+**M. Shaw** is an experienced governance professional. He is a serial finance entrepreneur, having
+founded a DeFi protocol, a digital asset management company, and a data analytics company, among
+others. He has a finance background with a focus on global markets. Mr. Shaw was introduced by the
+proposed Supervisor J Bain and strongly recommended by the Managing Director of a crypto investment
+firm where he holds a director seat.
+
+**E. Noyons** is an experienced governance professional. He has an accounting background from a “big
+four” firm and is a member of the Cayman Islands Institute of Professional Accountants. Mr. Noyons
+was introduced by our Cayman Islands counsel and strongly recommended by the COO of an NFT Gaming
+company where he holds a director seat.
+
+Two vacant seats, which Polkadot governance and only Polkadot governance can vote to fill at any
+time.
+
+### Administrator
+
+**Autonomous Projects** is a team of professionals based in the Cayman Islands with a collective 30+
+years of web3 industry experience spanning legal, regulatory, finance, operations and investment
+management. This includes working with clients across the asset management and web3 spectrum
+including Layer 1’s, Layer 2’s and other scaling solutions, DeFi, infrastructure, gaming and NFTs
+across multiple different blockchains where we support our clients in the development,
+implementation, maintenance, support and upgrade of their day-to-day operations layered with a keen
+understanding of the Cayman Islands legal and regulatory landscape.
+
+After a competitive process, Autonomous was selected for their previous experience working with the
+Polkadot ecosystem, their emphasis on sound financial & back office management, and their
+flexibility to adapt as the Foundation’s operations evolve.
+
 ## How can I utilize the Polkadot Community Foundation
 
 To execute a proposal, the PCF needs clear detailed instructions to ensure it acts in the
@@ -149,6 +326,114 @@ greater chance of being approved.
 
 ## PCF FAQ
 
+### PCF General FAQ
+
+**Why a Cayman Foundation Company and not a Swiss Foundation?**
+
+A Swiss Foundation structure is a valid option for this entity, but the Cayman structure offers
+greater operational ease and flexibility. Swiss Foundations are subject to income tax by default
+unless government authorities explicitly grant exceptions, which come with certain requirements. In
+contrast, Cayman Foundation Companies are tax exempt by default.
+
+**Can this Foundation service Kusama as well?**
+
+As the Foundation reserves certain rights and powers for tokenholders, it is unclear how the
+combination of DOT and KSM holders, with differing governance instances, can jointly indicate their
+preferences.
+
+After gathering input from key members of the Polkadot community and legal counsel, we suggest
+moving forward with a Foundation to serve only DOT holders initially. Later as a separate initiative
+we can consider creating a similar but separate foundation to serve KSM holders, and perhaps even
+help facilitate the creation of similar foundations for any parachain or DAO in the Polkadot
+ecosystem.
+
+**How does this foundation shield tokenholders and governance participants from liability?**
+
+If someone were to make a legal claim that an Polkadot OpenGov action harmed them in some way,
+everyone who participated in governance may be liable. However, if the action was taken by a legal
+entity with limited liability, like the Polkadot Community Foundation, then it may be held liable
+but it absorbs the risk and shields the liability of governance participants and tokenholders. This
+is an advantage of routing activities through the Foundation.
+
+**How will tokenholders know if the foundation is doing what it’s supposed to?**
+
+Tokenholders can appoint 2 of the 5 directors and the supervisor. The idea is that this lets them
+choose known people who share their values and are committed to Polkadot to gain full access to
+everything happening inside the foundation, and ability to represent the tokenholders in all
+decisions.
+
+The bylaws also require quarterly public transparency reports. Over time that can mature to become
+robust real-time reporting if:
+
+1. the foundation team does that proactively,
+2. if tokenholders provide additional funding and explicit instructions to enable real-time
+   reporting, or
+3. if tokenholders vote to amend the bylaws to require real-time reporting.
+
+**How do we avoid service providers or directors turning passive or amassing power over time?**
+
+Any service provider, director, or supervisor can be removed by a vote of tokenholders at any time.
+In the future, the community could decide to implement a seat rotation, term limits, or other
+measures to reduce the risk of bureaucratic power. These are not provisioned in the current proposal
+but can be decided via a proposal on the Polkadot OpenGov General Admin track at any time.
+
+**Can a director just spend the foundation’s money however they want?**
+
+No. This will depend somewhat on the operating policies the foundation team puts into place, like
+how many people have to approve/sign any expenditures, if small expenditures are pre-authorized,
+etc. As with any traditional company, it is technically possible for someone to spend money they’re
+not supposed to. But ultimately, there are several types of recourse if this were to happen.
+
+If a service provider spends money in a way that wasn’t authorized by the directors, then the
+service provider is likely in breach of their contract and subject to legal actions. If a director
+spends money that wasn’t properly authorized by the board, then the other directors or the
+supervisor can take action. If they don’t, then the tokenholders can replace them with someone who
+will.
+
+Finally, the design of this Foundation as an option, with funding coming only as-needed, minimizes
+the funds at risk and ensures the Foundation stays reliant on community trust.
+
+**What if there’s a bad actor?**
+
+We built redundant checks and balances into the governance system. No one person, and no one layer
+of governance is immune. In addition, we selected professional governance professionals for each
+role, whose businesses rely heavily on maintaining a good reputation.Ultimately, all trails end with
+the tokenholders’ ability to fire people, withhold budget, or dissolve the foundation in case of any
+extreme events.
+
+**Who can fire a director?**
+
+The bylaws allow two ways for a director to be fired. By a director vote, or by a tokenholder vote
+via the OpenGov General Admin track.What if the directors collude?
+
+Colluding directors would have to do so in full sight of the tokenholder-appointed directors and the
+supervisor. If all of those people were colluding, then the tokenholders could remove them all,
+withhold budget, or dissolve the foundation.
+
+**Who can appoint a Cayman Professional director after one has been removed?**
+
+The 3 director seats that are not tokenholder-appointed are filled by a director vote, meaning all
+the seats that are currently filled including both those appointed by tokenholders and those who are
+not. If for some reason there are ever no active directors then the supervisor can appoint one as a
+backstop.
+
+Technically, these seats that are not tokenholder-appointed do not always have to be filled by
+Cayman professionals, but the advice we received is that having a majority based in the Cayman
+Islands is an important tax and regulatory consideration.
+
+**Can the tokenholders sue?**
+
+Potentially, but coordination to prove those bringing suit represent “the tokenholders” as a class
+would likely be difficult, costly, and require doxing themselves.
+
+However, the supervisor is a unique role in Cayman Foundation Companies with legal standing to sue
+directors who violate the Foundation’s governing documents. Those documents instruct the directors
+to respect tokenholder preferences. If tokenholders ever feel that the supervisor is not acting
+appropriately, they can remove and replace the supervisor at any time by approving a proposal to do
+so on Polkadot OpenGov’s General Admin track.
+
+### PCF Proposal FAQ
+
 **Who can submit a proposal to the PCF?**
 
 Any token holder who has a valid and actionable idea that aligns with the goals and vision of the
@@ -215,3 +500,11 @@ community, compromise their fiduciary duties, violate foundation governing docum
 community governance process, or any applicable laws or regulations, cause harm to the PCF, or
 breach existing contracts. The foundation will not enact proposals that are too broad and require
 discretion/opinion from the PCF.
+
+## PCF Supporting Documents
+
+- Polkadot Community Foundation Constitution
+- Polkadot Community Foundation Bylaws
+- Polkadot Community Foundation M&A
+- Terms of Service
+- Forum code of conduct