Case Study: Cougar DAO

What started as a group of friends trying to bid on an island ended with the first-ever purchase of an actual farm by a DAO. This case study on CougarDAO LLC begins a series documenting how projects are using smart contracts to drive their operations.

The idea was simple: to purchase and manage income-generating property with a DAO. In order to do so, members of the Real World Asset Consortium deployed Cougar DAO — a member-managed LLC formed through the Kali app. Every token holder of Cougar DAO is a member of the LLC, and has rights encoded with smart contracts and protected by Wyoming law. This means that members can securely vote over financial decisions and hold real world assets, like land titles. The DAO LLC Operating Agreement explicitly states that the DAO is the source of truth and capital for the LLC.

To start, funds to purchase Cougar DAO properties were received in $USDC, and investors were minted $COUG to represent their shares/voting power of the DAO LLC. These are ERC20 voting tokens plugged into a Kali DAO. DAO funds are then converted to dollars and the LLC handles property matters and receives income to distribute. Mercury was used to set up a bank account for the LLC.

The DAO.
The DAO.

When members vote, they are guaranteed that funds will only move if certain conditions are met: 30% of members must vote for 5 days, and there must be 75% agreement. A vote must be held to make shares transferable and there is no grace period for processing proposals. This is the power of programmatic governance for LLCs and the transparency of DAO smart contracts.

The Contract.
The Contract.

Buying the Farm

The original goal was to put a bid on an auction for Cougar Island, hence Cougar DAO, but the members ultimately decided to look for better income generating properties. To start, Cougar raised earnest money (10% of the committed investment) — 12k in just a couple of hours — without relying on banks or any middlemen. Notably, at this stage, if these investors wanted to refund their capital, they could simply ragequit their shares and automatically receive their money back since the DAO wasn’t committed yet.

One of the members then put a bid on a farm that was up for auction during the RWAC weekly call, and Cougar DAO ended up buying the property before the call was over for a total of $172.5k.

For efficiency and to move more quickly, Cougar didn’t require all investors to deposit into the DAO’s on-chain treasury — the DAO simply directed them to deposit to the LLC’s bank account. Cougar then proceeded with an offchain vote using a polling of DAO token holders to grant certain member the legal authority to carry out the acquisition through the LLC.

The purchase and final possession of the farm was transferred on December 5, and by the 22nd, the LLC signed a 5-year leasing agreement with a local farmer to manage the farm for the DAO and send bi-annual returns to the members.

The Lease.
The Lease.

Obstacles & Observations

Coordination on-chain was effective, but the DAO members faced some hurdles when interacting with off-chain parties. Banking delays were the main obstacle during the farm purchase, since the LLC had to buy the property through wire transfers, which initially had a limit of $25,000 per day. In other words, this settlement took a while to process.

As a result, the DAO had to perform a total of 3 transactions and it took roughly 3 days to get all DAO funds to the title company. This shows the difficulty of DAOs using financial services that are not yet built for their assets. A potential solution to this delay would be to use faster crypto-to-fiat off-ramps (such as an exchange company account).

However, one issue related to on-chain governance stood out — the delay of DAO voting when time critical decisions needed to be made. To work around this, Cougar opted for off-chain voting to give quick legal authority to members — in this case, they needed to vote on the leasing of the farm before the end of year, and the members couldn’t wait for the proposal to be executed on-chain.

Thanks to the interoperability of the ERC20 token standard, CougarDAO LLC shares can be plugged into a range of governance and social apps, as not all matters require on-chain execution, such as giving legal permissions to members to act on behalf of the DAO.

Learn More

The Kali community is building the rails to own RWA on-chain and incorporate. Projects like Cougar DAO demonstrate the practical ways that DAOs can return real yield through income-generating properties. If you are a project building on Kali or with RWA, get in touch or explore RWAC as we continue our case study series on DAO legal structures and opportunities.

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