Why Legal Roadmap is important for Web3 startups and how to prepare it
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.
Nestor Dubnevych, co-founder and COO at Legal Nodes, created a guide to explain why Web3 startups need a Legal Roadmap, what parts such a Roadmap consists of, and how Web3 founders should approach the creation of their Legal Roadmap.
More articles about Web3 legal issues you can read in Legal Nodes blog.
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.)
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):
- 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.
- 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.
- 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:
- 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;
- provide general information on token legal qualifications in different jurisdictions;
- tell about the most crypto-friendly jurisdictions for the registration of the Web3 project, and discuss the advantages and disadvantages of each;
- 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).
How Legal Nodes helps Web3 founders to PREPARE Legal Roadmap
You can book the Legal Discovery Session at the Legal Nodes website. Our Head of Web3 will conduct the session with you. This person 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.
After conducting the Legal Discovery Session (usually it takes 1-3 sessions), we will help you prepare a Legal Roadmap. This Roadmap will contain a list of legal tasks to implement the chosen legal strategy, the timing and cost of those legal tasks and a list of local legal providers who will help solve a legal task.
How Legal Nodes helps Web3 founders IMPLEMENT a Legal Roadmap
Web3 founders are usually busy working on the concept of their project, hiring the right people, sorting out finances and fundraising. With this in mind, it is usually not enough for such a founder to get a Legal Roadmap with a list of legal tasks and their performers. It is also vital to have a competent (qualified) person to manage the execution of such a Legal Roadmap.
To achieve this, Legal Nodes provides Web3 founders with a “Virtual Legal Officer” service where a remote legal professional can manage the implementation of the Legal Roadmap, developed based on the results of the Legal Discovery Session. Here, you can read more about how Virtual Legal Officers help entrepreneurs on our platform.
Written by Nestor Dubnevych, co-founder and COO of Legal Nodes