MakerDAO launches $5M legal defense fund

According to a new social post on Feb. 1, Maker decentralized autonomous organization, or MakerDAO, has approved the creation of a new fund dedicated to expenses related to legal defense. 

MakerDAO is the issuer of the DAI United States dollar stablecoin. As told by developers, Maker will allocate 5 million DAI to "reimburse legal defense expenses in case of legal or regulatory action against specific participants of MakerDAO." The post further explained:

"Initially, the coverage will be provided to Recognized Delegates, Core Unit Facilitators, Core Unit permanent contributors, and active MKR holders. The legal action against the beneficiary must be directly related to its activities at MakerDAO."

In explaining the decision, developers pointed out that such costs couldn't be "transferred through traditional insurance." The MakerDAO Defense Fund will therefore serve as a self-insurance tool for its participants. On the other hand, the pre-existing DAI foundation fund is used to take action against third parties that infringe on Maker's intellectual property.

Maker Governance approved the creation of a new Special Purpose Fund called the Defense Fund. https://t.co/JVrUjhpDrxThe fund will reimburse legal defense expenses incurred by active MakerDAO participants in case of legal or regulatory action.How will it work? ↓ pic.twitter.com/XNPbAafw9v

— Maker (@MakerDAO) February 1, 2023

The organization stated that an external technical committee would manage claims and payouts with authority to recommend the approval or rejection of payouts based on claim submissions. Simultaneously, a controlling committee will review the technical committee's recommendation and have the final say on the claim. Upon approval, funds are paid out in lump sums.

Related: MakerDAO revenue tumbles 86% on Ether and Wrapped BTC woes

While not unique to Maker, the DAO industry has faced mounting concerns over the legal standing of many entities and which statutes would apply to their relevant operations. Among many items, experts say that developers can be, at times, pressured by community members to perform illegal tasks, which would not hold up as a legitimate defense in most courts of law.