Web3 Project Legal Roadmaps Part 1: Why Legal Roadmaps Are Important and How to Prepare Them

June 21, 2022
TABLE OF CONTENTS

Web3 Project Legal Roadmaps Part 1: Why Legal Roadmaps Are Important and How to Prepare Them

June 21, 2022

At Legal Nodes, we always start working on the legal side of a Web3 startup by creating a Legal Roadmap for it. During creating such a Roadmap, founders answer critical legal questions for their project (like where it's best to incorporate, how to structure token issuance etc.) and understand what legal tasks they need to achieve at each stage of their project development.

In this guide, we're going to cover: 

  • Why Web3 startups need a Legal Roadmap
  • What parts does such a Roadmap consist of
  • How Web3 founders should approach the creation of their Legal Roadmap
  • How Legal Nodes helps to prepare and implement Legal Roadmaps

And let's start with a quick definition of a Legal Roadmap. In a nutshell, this is a  document that describes the stages of development of a Web3 project (e.g. Issuing tokens, Launching a DAO etc.) and the legal works that correspond to each stage (e.g. Registration of a Token Issuer Company, Obtaining a Token Legal Opition etc.)

This is a part 1 of a guide into Legal Roadmaps for Web3 founders. To read part 2 where we dive deeper into how the roadmap looks like and what stages it includes, follow this link.

Why Web3 startups need a Legal Roadmap

Many Web3 founders plan their projects to be completely decentralised, and, at the beginning of working on it, they do not see the need for legal registration. However, in the latter stages of the Web3 project, founders begin to face certain legal issues. 

Let's go through examples of the common legal issues with which Web3 founders come to Legal Nodes:

  • A project starts attracting investments and plans to sign a SAFT. Which company should be specified in the document to be acceptable to the investor?
  • Web3 founders have issued tokens and plan to list them on the launchpad. Usually, they need to obtain a Token Legal Opinion to do that, which most lawyers aren't able to prepare without a registered company (distributor of such tokens).
  • When launching a DAO, founders think about how to protect themselves and other DAO members from liability (judicial, tax, financial) for DAO activities. Similar to how registering a limited liability company protects its shareholders and directors from liability for the company's actions.

It becomes hard to answer these questions quickly without digging into other aspects of the project. And, as no Web3 project is created equal, creating a custom Legal Roadmap will help founders answer their immediate legal needs without spoiling any plans like fundraising and launching a DAO.

Why there are no universal legal solutions in the Web3 industry today?

Some Web3 founders conclude that a legal framework is necessary to operate and fund their Web3 projects successfully. And the high variability of business models in the Web3 industry (DEX, wallets, DeFi, play-to-earn, etc.), types of tokens (utility, governance, security, NFT, etc.) and approaches to launching a DAO require an individual (custom) approach to preparing the legal structure of Web3 projects.

The fact that the legislation governing the Web3 industry is at an early stage of development in most countries also confirms the need for a bespoke legal structure for Web3 projects. Creating such a structure, in turn, requires a more careful approach to selecting the most favourable jurisdictions to register a Web3 project.

Another piece of a legal puzzle which complicates the process of creating a Legal Roadmap is that most Web3 founders live the life of digital nomads. It requires lawyers to consider not only the favourable regulatory climate for the Web3 project itself in the country of its registration but also solving operational tasks related to the employment of the team members, personal tax planning of founders, etc.

What does a Legal Roadmap for a Web3 project consist of?

Now that we have accepted that today there is no universal legal structure for all types of Web3 projects, let's discuss the most common legal needs of founders of such projects (based on our experience at Legal Nodes):

  1. Understand the legal qualification of their business model and the legal status of the token and also understand the legal consequences that may arise if they ignore this question.
  1. Find out what legal best practices currently exist in the Web3 industry, namely the most crypto-friendly jurisdictions, types of documents for the issuance and sale of tokens, the necessary licenses, authorisations and verification procedures.
  1. Determine which legal structure is the most suitable for the Web3 project and understand the list of legal tasks to create such a structure, the timing of their implementation and the cost.

It's pretty challenging to gather ALL this information as Web3 founders have to independently research crypto-friendly jurisdictions, seek local legal providers from those countries for advice, and analyse all the legal information to determine the optimal Legal Roadmap for their project. All these tasks can turn the process of legal structuring a Web3 project for a founder into a full-time job.

How should a Web3 founder tackle preparation of a Legal Roadmap

To avoid drowning in the sea of legal information while finding the perfect legal strategy for a Web3 project, the founder may engage an international legal specialist with experience in Web3 who can conduct a Legal Discovery Session for the founder. At this session, such specialist will:

  1. help Web3 founder to find out in which jurisdictions the business model of their project can be considered regulated activities and therefore require appropriate authorisations or licenses;
  2. provide general information on token legal qualifications in different jurisdictions;
  3. tell about the most crypto-friendly jurisdictions for the registration of the Web3 project, and discuss the advantages and disadvantages of each;
  4. tell about the best practices in the legal structuring of Web3 projects that are acceptable to Web3 funds and used by mature Web3 companies.

The task of such an international legal consultant is to help Web3 founders navigate the complex world of Web3 industry regulation and to choose the most appropriate direction for legal structuring. And local qualified lawyers will perform the actual legal work "on the ground" (in jurisdictions selected by the results of the Legal Discovery Session).

Read more: How to prepare a Web3 startup for fundraising.

How Legal Nodes helps Web3 founders to PREPARE Legal Roadmap

You can book a Legal Discovery Session via the Legal Nodes website. The session will be hosted by our Head of Web3 Legal, who has seven years of experience in international legal consulting and has the latest information on the new regulations of the Web3 industry in the most crypto-friendly countries.

How Legal Nodes helps Web3 founders implement their Legal Roadmap

After conducting the Legal Discovery Session (and any additional sessions, usually no more than a total of 3 are needed), we will help you prepare a Legal Roadmap. This Roadmap will contain a list of legal tasks designed to implement the legal strategy, and containing information on scheduled timings for each task and the costs, provided from the local legal specialists working on each task.

Web3 founders are usually busy working on the concept of their project, hiring the right people, sorting out finances and working on fundraising. With this in mind, it is usually not enough for such a founder to receive a Legal Roadmap with a list of legal tasks and service providers. During the course of Legal Nodes’ work with our Web3 clients, we’ve discovered that it is vital to have a competent (qualified) person to effectively manage the execution of the Legal Roadmap.

In response to this need, Legal Nodes now provides Web3 founders with a Virtual Legal Officer service, in which a remotely-based legal professional, specially trained to orchestrate the tasks from the Legal Roadmap, is dedicated to your project and helps manage all the service providers working to deliver the tasks. Read more about how Virtual Legal Officers help entrepreneurs on our platform.

Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice.

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Nestor is a Co-founder & Head of Web3 Legal at Legal Nodes. Having over seven years of legal consulting experience, Nestor loves working with innovative startups and Web3 projects, helping them navigate the regulations and scale on global markets.

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