Monolith Legal Entity & Capital Raise Proposal

[patb]

Summary

This proposal seeks DAO approval to:

• Form Monolith’s legal structure (Cayman Foundation, BVI token issuance vehicle, UAE Labs Corp).

• Engage a leading law firm as Monolith’s outside counsel after reviewing multiple law firms and fee proposals.

• Authorize Monolith to raise external capital post-formation, with the expectation of raising at least $6 million, while retaining flexibility to raise a higher or lower amount depending on market conditions.

• Authorize 60,000 DOLA in the form of a 0% interest loan from the DAO to fund Monolith entity formation and related legal expenses, to be repaid from Monolith seed round proceeds.

This framework gives Monolith the capital and structural autonomy it needs to grow while ensuring ongoing governance protections for INV tokenholders.

The Case For a Legal Entity

Launching Monolith without a legal structure would put the protocol at a severe disadvantage vis-a-vis competitors. Operating Inverse Finance as a DAO-only project showed us the limits of remaining entity-less. For Monolith, those limits translate into hard barriers:

• No Access to Institutional Capital – Nearly all institutional investors require a compliant entity for AML/KYC purposes. Similarly, investment platforms like Echo require a legal counterparty. Without one, raising large amounts of capital from top-tier funds is difficult.

• No Access to Key Growth Channels – Grants from ecosystems like Arbitrum or Optimism, and listings on major CEX’s and at least one major DEX, are often unavailable without a legal counterparty.

• Legal & Security Exposure – Without an entity, Monolith contributors and tokenholders face potential liability, and the protocol has no legal standing to engage regulators or law enforcement.

Remaining entity-less would cap Monolith’s growth, force reliance on Inverse Finance’s treasury, and significantly reduce the protocol’s valuation.

By contrast, a Cayman Foundation + BVI issuance structure unlocks:

• Fundraising at Competitive Valuations – Positions Monolith to raise capital from well-known investors at market-standard terms.

• Access to Listings, Grants, and Institutional Partnerships – Enables exchange listings, ecosystem funding, and broad participation across chains.

• Asset & IP Protection – Monolith IP will be safeguarded, preventing dilution and unauthorized forks (a costly mistake for other protocols like LUSD, which saw dozens of unauthorized forks.)

• Tax and Liability Shielding – Protects contributors and tokenholders while optimizing the project’s tax posture.

In short, without this structure, Monolith is unlikely to raise capital at competitive valuations, list $MONO broadly, or scale sustainably. With it, the DAO unlocks external funding, strategic partnerships, and long-term growth—without draining Inverse Finance’s treasury.

Why Monolith Must Stand Alone

Monolith is more than a new product line; it is a standalone sister project, as first described in Nour’s March 2025 proposal. This approach:

• Allows Monolith to finance itself independently, rather than forcing Inverse to divert valuable resources away from FiRM and other initiatives. Today the DAO is diverting, either in the form of DOLA or in-kind contributions, significant spending into Monolith to finance engineering, marketing, and risk deliverables. 100% of Monolith spend today is expensed on the Inverse Finance P&L while a standalone Monolith entity can absorb those in-kind expenses and therefore improve Inverse’s profitability.
• Supports a rapidly expanding Monolith product roadmap – new Monolith factory designs, a decentralized exchange, and additional tooling – which requires team expansion, audits, operational speed/flexibility, capital beyond what Inverse resources, and without the engineering tradeoffs present if Monolith is structured as an additional Inverse Finance product line.
• Ensures that the Monolith brand is built independently of Inverse Finance, avoiding the risk of creating confusion or diluting the Inverse brand and messaging.
• Ensures Monolith is valued by the market as a stablecoin-as-a-service “pure play” rather than being “hidden” as a new product line within Inverse Finance.
• Aligns Monolith team members with the long-term vision and goals of Monolith – something only achievable via a standalone structure.

Legal Counsel Selection

We have identified, via partner recommendation, a law firm with deep crypto experience and a presence in the Cayman Islands. This firm, whose name will be withheld until after passage of this proposal, will handle formation, inter-entity agreements, IP assignment, and provide ongoing legal support to Monolith. This firm may also be retained for capital raising advisory.

Legal Structure

Following recommendations from multiple law firms, as well as precedent set by leading DeFi protocols, Monolith will adopt a three-entity structure:

1. Monolith Foundation (Cayman Islands)

• A decentralized, founderless Cayman Islands foundation company

• Owns Monolith IP and issues grants to developers.

• Why a Cayman Islands Foundation:

  • Most popular structure for DeFi foundations.

  • Provides tax advantages, regulatory flexibility, and strong privacy protections.

  • Recognized by institutional investors and centralized exchanges as a stable jurisdiction, making fundraising and listings easier.

Recommended by multiple law firms and used by other protocols including Velodrome, Maker/Sky, Eigenlayer, EtherFi, and many others.

2. Monolith BVI (Wholly-Owned Subsidiary of Monolith Foundation)

• Handles token issuance and capital raising

• 100% owned and controlled by the Foundation.

• Why BVI:

  • Low setup and ongoing costs with minimal compliance burden.

  • Separates token issuance liability from the Foundation, and is a more permissive regulatory regime for a public token issuance, a common best practice in DeFi.

  • Provides favorable tax treatment while allowing seamless coordination with the Cayman Foundation.

2. Monolith Labs (UAE)

• Uses an existing development entity led by Nour Haridy.

• Receives grants from the Foundation and assigns all IP to the Foundation on a fully paid-up basis.

• Non-exclusive, allowing additional development teams to be funded as Monolith scales.

Governance

The Monolith Foundation will be founderless and decentralized, governed via a combination of a single Caymans-based outside director who strictly adheres to a foundation constitution, contributor multisigs, and, following the adoption of foundation bylaws, $MONO token holders serving as the foundation’s supervisor.
The Inverse Finance treasury will receive an allocation of $MONO tokens. (See below).

Why this structure overall:

• This Cayman–BVI configuration is among the most commonly adopted frameworks in DeFi, recommended by multiple legal advisors we consulted.

• Other jurisdictions — including Panama, El Salvador, Singapore, Switzerland, the USA, and others— were discussed/evaluated in collaboration with prospective law firms. However, the Cayman–BVI combination was determined to be:

  • The most cost-effective for setup and ongoing compliance.

  • The most investor- and exchange-friendly (widely accepted by venture funds).

  • The most flexible and familiar for DeFi projects, reducing legal and operational friction as Monolith scales.

This configuration allows Monolith to raise capital, operate internationally, and maintain a governance-first, decentralized structure while aligning with industry best practices and investor expectations.

Capital Raise Parameters

To balance flexibility and DAO protection:

• Raise Size & Structure: Authorize a financing round with a target raise of $6 million in external capital, with no pre-determined ceiling on total raise size. This ensures the project can scale fundraising efforts based on market conditions without requiring additional DAO approvals. Raise proceeds will fund engineering, marketing, legal, risk, growth, and other operating expenses for Monolith. Current plan is use of a SAFT with no equity and $100 million cap.

• Vesting: 24 month linear vesting with 6-month cliff for investor, Inverse Finance, and airdrop allocations. 36 month linear vesting with 1-year cliff for team allocations.

• Investor Interest: We have received unsolicited interest in the round including from prominent funds, but have not set terms nor marketed the round.

Target Profile: The round will target a small group of “A-list” funds, with a portion allocated to an Echo or similar platform.

MONO Token Allocations

• 50% of Monolith’s total token supply will be allocated to the Inverse Finance Treasury, governed by INV tokenholders.

• 5% of Monolith’s total token supply will be allocated to INV stakers in the form of a vested airdrop.

• 25% will be allocated to seed investors, community incentives, and liquidity programs.

• 20% of Monolith’s total token supply will be allocated to Monolith team hires.

Funding Request

Loan Amount: Authorization of up to 60,000 DOLA (0% interest)

Use of Funds:

• Formation of the Cayman Foundation and BVI subsidiary. ($32,500)

• Inter-entity agreements and other documents required for fundraising. ($9,000)

• Third party service fees ($18,500)

  • Third party Director for ~90 days and temporary third party Supervisor
  • Annual Company Secretary fee
  • Annual Registered Office and Cayman government fees

• Note: U.S. securities and SAFT legal counsel expenses will be funded from the capital raised for Monolith, not Inverse Finance DAO funds.

Repayment: Full repayment within 6 months of the date of execution of this proposal via proceeds from the Monolith capital raise. While Monolith fundraising is expected to begin shortly after its formation, if the capital raise is unsuccessful any unspent amounts from this loan will be returned to Inverse Finance DAO treasury and the remainder forgiven.

YES – Approve $60,000 DOLA loan authorization to Growth Working Group multisig

NO – Reject $60,000 DOLA loan authorization to Growth Working Group multisig

[0xJMG]

Suggestion: don’t marry to idea of BVI / Cayman until legal team is retained.

Legal landscape is fast changing in 2025 and what was popular 2 years ago may not be later this year. Qualified legal team will help you navigate pros and cons of jurisdiction and structure. Hire the best qualified least overhead!

[patb]

We are receiving good and constructive feedback to the proposal - major points and responses below:

“Monolith and FiRM are basically the same business so sounds a lot cheaper to me to just share the team instead of having to fund 2 separate teams and replicate functions. It looks to me like the only working group stretched for resources is PWG so we can just hire more engineers as Inverse is profitable now”

FiRM is growing but all profits are diverted to repaying bad DOLA debt, funding DOLA liquidity, and payroll. There is little to no budget capacity for new growth spending and Monolith requires more than just hiring additional engineers - for example new factory designs require audits, acquiring and retaining deployers requires business development and marketing support, etc. Monolith requires additional capital to go forward and to be competitive.

I see two options for funding Monolith:

1. Spinout, raise external capital.

By raising external capital for a standalone entity where Inverse Finance DAO is the top tokenholder, Monolith funds itself without diluting INV holders or negatively impacting Inverse OPEX or its balance sheet. Based on conversations with investors interested in Monolith as well as current INV valuation relative to metrics like fee revenue, I estimate Monolith’s valuation will accrue substantially more to INV holders as a spinout rather than as another project within Inverse Finance. NFA/DYOR.

2. New Inverse product line, raise external capital.

Alternatively, we could decide to keep Monolith as a separate product line within Inverse and finance it via an INV OTC sale - same $6 million target as the outside raise - incurring significant dilution for INV holders while Inverse retains $3.4 million in bad DOLA debt. In terms of the value to INV token holders, this approach assumes the market will value Monolith rationally/accurately if Monolith operates as another product line within Inverse Finance. It is also worth noting the real organizational challenges under this second scenario as Monolith requires its own brand, voice, community, marketing, etc. in addition to its distinct product and distribution strategy.

“Splitting it out as a separate legal entity may make sense, but so does doing the same for Inverse as a whole.”

Agree. This has been an ongoing - albeit unsuccessful - effort for a long time. This should be pursued separately from Monolith.

“It’s not clear on the proposal who ultimately controls the Foundation. Is it MONO tokenholders or a contributor multisig? And by what mechanism is control enforced? It’s not clear what powers this single director will have, and how is he chosen or removed”

This section deserves more detail.

• The Foundation will be controlled by a multisig initially comprised of the current signers on the Inverse policy multisig.

• The director is a legal requirement under Cayman law and has limited discretion and executes only what the governing Constitution and/or multisig authorizes. Based on advice of outside counsel as well as partners like Velodrome, the director role will be filled via a third party service provider, Leeward Management. Additional director roles may be added through governance.

• The Foundation’s supervisor role - which will be fulfilled by MONO on-chain governance voting - ensures the director is complying with the constitution (or bylaws, if and when adopted) and has the power to replace the Director. The supervisor also reassures regulators that there is an additional independent party overseeing fiduciary duties. In the short term, a third party supervisor will be appointed via Leeward Management until MONO on-chain governance is live.

“It’s not clear what is the need for the BVI entity instead just issuing tokens normally like we have thus far”

The Foundation cannot legally issue tokens under Cayman law. Token issuance requires a separate legal entity, which is why a BVI company is commonly used per advice from outside counsel. Many well-known DeFi projects are organized using a Cayman-BVI-devco configuration.

“If part of the 20% goes to the existing inverse team, will that then be a replacement for part of the current cash payments (/ operational costs)?”

Yes. Once Monolith is funded, it will take over direct responsibility for engineering, legal, marketing, and other expenses currently borne by Inverse. This improves Inverse’s financials immediately including lower OPEX, faster repayment of DOLA bad debt, more budget for Inverse-specific growth spend. For example, if an engineer spends 50% of their time building Monolith Factories, that time will now be billed to Monolith, not Inverse.

“20% MONO going to the Inverse team sounds like double dipping to me. The team was already paid for Monolith’s development on Inverse DAO’s dime. This share should be exclusively to retain Monolith hires long term. Mono was born out of DAO funds, and work made for hire.”

USD2 was developed by Nour in early 2024 before he re-joined as a paid contributor. The team allocation is intended primarily for new Monolith hires in order to provide token-based alignment for team members. A portion of the allocation goes to Inverse contributors - all of whom are involved with Monolith - to align long-term incentives as well as to reward Nour’s contribution for the invention(s) behind Monolith.

Also worth noting: Inverse DAO retains a 50% share of MONO tokens - a generous outcome by spinout standards where ownership is often below 20%. By comparison, veVELO holders received 40% of AERO tokens when Aerodrome was spun out of Velodrome.

“If they are going to be 2 independent projects then the 50% going to Inverse Treasury should just go to stakers”

The Inverse Treasury holds MONO on behalf of INV stakers and the DAO can vote at any time to distribute tokens to stakers via proposal.

“There are jurisdictions (i.e. Wyoming) that recognize a smart contract as the legal entity in and of itself, negating the need for human appointments other than as a liason- humans would have no authority or control outside of the smart contract’s parameters.”

We explored multiple jurisdictions for Monolith - including U.S.-based ones - and on the advice of multiple law firms decided on the Caymans-BVI-UAE Devco configuration for a variety of reasons including regulatory, tax, investor, and on-chain governance.

[patb]

Additional responses to feedback and questions:

“What do you mean by “if an engineer spends 50% of their time building Monolith Factories, that time will now be billed to Monolith, not Inverse”? Monolith and Inverse will share the same team?”

This means that during a transitional period of 6–12 months, if an engineer or other contributor at Inverse is spending 50% of their time on Monolith, the Inverse Finance P&L will bear only 50% of the payroll expense. Inverse contributors also working on Monolith can submit a monthly timesheet—similar to what we do currently with outside security consultants—for reimbursement by the Monolith Foundation to the Inverse Finance treasury.

This kind of resource sharing should no longer be needed by the second half of 2026 as Monolith sources its own talent directly, but, subject to governance approval, this reimbursement policy could persist on an ad hoc basis beyond that point.

“Of the 20%, what percentage exactly will go to Nour, to Inverse team and to Monolith new hires?”

• Nour – 2.5%. 1-year linear vest, no cliff.

• Other current Inverse contributors – 2.5% total, or 0.31% each. 1-year linear vest, no cliff.

• Full- and part-time Monolith contributors – 15%. 2-year linear vest, 6-month cliff. Includes pro rata allocations for part-time Inverse contributors during transitional period.

For all Inverse contributors receiving MONO allocations, INV vesting would be paused for one year.

“The Foundation cannot legally issue tokens, but Monolith DAO can. So again, what is the point of the BVI entity?”

Per outside counsel: a legal entity is required to issue the tokens, and in our case, that role will be served by the BVI company, not the Cayman-based Foundation. The BVI structure is preferable for the token issuance vehicle as it allows for a public sale of tokens. The incremental cost of forming the BVI entity is small, and it also provides better optics for investors who expect the common Cayman–BVI structure used in many DeFi projects.

“Why would the Monolith Foundation be controlled by Inverse team instead of Monolith DAO?”

For purposes of moving fast as an early-stage venture, it’s more efficient to have a small group of core contributors making day-to-day decisions versus the slower-moving pace of DAO governance. The Foundation’s supervisor ensures compliance with its articles of association and bylaws and has the power to remove a director. The supervisor role will be controlled by MONO holders. The Foundation’s director will have a fiduciary duty towards MONO holders and can have their powers restricted via an on-chain vote.

“If Inverse team controls both the Foundation and a majority stake then Monolith is a DAO in name only. It would be closer to an LLC owned by the Inverse team, meaning you can do whatever you want with it, such as giving yourselves huge salaries completely unopposed”

The Inverse team will not have a majority stake. The largest single tokenholder would be the Inverse Finance treasury. All tokenholder rights will be set out in the Foundation’s bylaws—a legally binding set of rules requiring the Foundation to follow tokenholder governance decisions. We can include terms stating that specific decisions, including salaries, must be approved by MONO holders. If directors take action in contravention of the bylaws, tokenholders can take legal action.

[patb]

Update: the proposal now reflects the following:

• Team allocations for current Inverse contributors and Nour are removed and will be part of a future proposal.

• 3 year vest for Monolith team members with 1 year cliff. Two year vest was chosen based on our experience with the two year INV vesting scheduled used in the DAO prior to switching to the seasonal budgeting/INV grants model for contributors. The 2-year vesting schedule proved useful in attracting engineering talent, however a 3 year schedule is also relatively common in DeFi and the proposal is now updated to reflect this.

Other responses to questions:

“Fine on BVI, assuming it’s just paper-pushing and doesn’t actually hold minting rights, correct?”

The BVI entity, a wholly owned subsidiary of the Foundation, cannot mint arbitrarily but rather follows written instructions from the Foundation which will be spelled out in the BVI company’s Articles of Association and a shareholder agreement. We have the flexibility to mint the tokens in the BVI entity and transfer the amount to the Foundation.

“Your explanation for a multisig controlling the Foundation over Monolith DAO doesn’t sound right. The Foundation is not supposed to actually do anything, so the slower DAO governance process should not be a problem”

The Foundation’s primary role is to act as a legal wrapper and steward of the Monolith protocol, however in practice it still needs to execute a range of time-sensitive operating activities that are not suited to the speed of on-chain tokenholder voting. These include hiring team members, approving urgent legal agreements, funding service providers, paying auditors, responding to exchange listing opportunities, engaging with regulators, opening bank accounts, and handling security-critical contract upgrades or parameter changes. Waiting days or weeks for on-chain governance to conclude introduces unnecessary delays. A multisig allows these actions to be executed swiftly while still being bound by the Foundation’s constitutional documents and subject to tokenholder oversight via the supervisor role. Tokenholders, through the supervisor role, also retain the ability to remove a director.

“In the case that the proposal goes through as is, at which point would the Inverse multisig hand over the Foundation to a Monolith multisig? The Treasury owns the 50% stake, but you’ll be asking to delegate its voting power to a multisig, right? Or will that stake be non-voting forever?”

The Monolith multisig is comprised of the same signers as the Inverse policy multisig but is separate from the Inverse policy multisig. The Monolith multisig operates within a binding constitutional and supervisory framework.

The MONO voting power from the Inverse Treasury’s stake will remain intact under the Foundation’s constitutional documents, but operationally it will be exercised through a multisig made up of the same trusted contributors who have reliably stewarded Inverse Finance. This multisig will be self-governing in its membership, allowing it to maintain continuity, cohesion, and the ability to make rapid decisions. The point here is to give Monolith the agility of a startup while operating within the clear legal and constitutional framework of the Foundation and the accountability of a director controlled by MONO holders.

While MONO tokenholders will not directly appoint multisig signers, they retain meaningful oversight through the supervisor role. The supervisor role — comprised of MONO tokenholders — can remove a director at any time under Cayman Foundation law, which can effectively redirect or halt the Foundation’s activities if needed. The Foundation’s bylaws can also embed specific guardrails or operational requirements that reflect tokenholder priorities. This structure avoids the paralysis and micromanagement risks of fully on-chain governance, while still ensuring that tokenholders have a powerful and enforceable mechanism to protect their interests.

“The $6M raise is at what valuation?”

The current plan is to raise via SAFT (convertible debt) that converts at a future fundraising event with a conversion cap of $100 million. $6 million is a target and the actual amount could be more or less, subject to market conditions.