# MIP55c3-SP14: Defense Fund

## Preamble

```
MIP55c3-SP#: 14
Author(s): @layerzero
Contributors:
Tags: spf
Status: Accepted
Date Proposed: 2022-12-07
Date Ratified: 2023-01-23
Amount Requested: 5M DAI
Recipient Address: TBD
Forum URL: https://forum.makerdao.com/t/mip55c3-sp14-self-insurance-fund/19076
Ratification Poll URL: https://vote.makerdao.com/polling/QmUbqKMy
```

## Sentence Summary

This SPF requests 5M DAI for establishing a Defense Fund which will have the purpose of reimbursing legal defense expenses incurred by active participants of MakerDAO in case they are the target of legal or regulatory action.

## Paragraph Summary

The Defense Fund will be used as a contingency budget to reimburse legal defense expenses in case of legal or regulatory action against specific participants of MakerDAO.

Initially, coverage will be provided to the following group of persons, which will be the initial set of beneficiaries:

- Recognized Delegates
- Core Unit Facilitators
- Core Unit permanent contributors
- Active MKR holders (i.e., MKR voting token holders that actively participate in governance) 

The legal action against the beneficiary must be directly related to its activities at MakerDAO.

## Motivation

Self-insurance is a well-known risk management technique that consists in setting funds aside for covering a possible future cost. Technically, it is a tool for retaining and managing risks professionally. Typically self-insurance is used when risk can not be transferred through traditional insurance. Self-insurance instruments can be used as an alternative or a complement to insurance.

DAOs are novel organizational structures and, as such, may expose their participants to novel legal risks. MakerDAO is not a legal subject, hence is unable to limit liability risks for its participants.

Self-insurances are customizable instruments that can be tailor-made to manage novel or complex risks. Therefore, they are suitable risk management instruments for DAOs.

## Special Purpose Fund Name

Defense Fund

## Special Purpose Fund Scope & Work Credentials

This SPF will be used as a contingency budget with the purpose of covering legal defense costs in case a MakerDAO stakeholder is a target of legal action.

All claims and payouts will be managed according to a process contained in the Claim Procedure Manual. This Procedure Manual is under development by the companies [Gallagher](https://www.ajg.com/us/) and [Artex](https://www.artexrisk.com/). These companies are world leaders in insurance and risk management and have successfully delivered a feasibility study. This feasibility study analyzes the average legal defense costs in jurisdictions where MakerDAO participants have most exposure, describes possible legal and operational setups for the fund, determines its minimum capital requirements, and recommends coverage amounts and limits. Additionally, the feasibility study describes the claim process, which will be as follows: 

- A beneficiary is the target of a legal or regulatory action and requires legal representation. The beneficiary must first assume its legal expenses and then, if eligible, submit a claim to the fund for reimbursing legal costs. Claims must be accompanied by supporting documentation.
- Claims are first submitted to an external technical committee. This committee will be composed of insurance and risk management experts. They will verify the eligibility of the claimant, assess the claim, and evaluate supportive documentation. Based on this information, they will issue a recommendation to approve or reject a payout. The committee will have a term of 8 (eight) working days to make a decision.
- This recommendation will be submitted to the SPF multisig signers. According to the rules contained in [MIP55c2](https://mips.makerdao.com/mips/details/MIP55#MIP55c2), the funds in escrow must be in a multisig with signatory requirements of a minimum of two Comptrollers. 
- Comptrollers will review the recommendation of the technical committee and decide whether they approve it or they reject it. If approved, funds will be released to the final recipient's designated address, which is a whitelisted address controlled by the beneficiary. If they reject it, they must provide an explanation on their reasons. From the moment that the external committee recommendations reach the Comptrollers, they have a term of 8 (eight) working days to execute the payout or provide an explanation on why they reject it. During this term, they can request additional information or opinions from the external committee.

 The Claim Procedure Manual will define all necessary operational aspects, including:

- User Guide
- Registration process
- Elaboration of terms of use
- Definition of beneficiaries
- Policy description, coverage amounts and exclusions
- Claim process, timing, and decision-making rules
- Requisites for submitting a claim, required supporting documentation and forms
- Process for updating the Claim Procedure Manual (i.e., variation of coverage amounts or inclusion of new beneficiaries to include new emerging roles in the Endgame Plan). 

### Funding Breakdown

- Funding will be done in a lump sum upon governance approval of the SPF.
- Funds in this SPF are destined as a contingency budget for covering legal defense and legal representation expenses.
- Funds in this SPF will not cover operational costs of the project.
- Payout decisions and claim management will follow the ruleset contained in the Claim Procedure Manual.
- The Maker Protocol (`MCD_PAUSE_PROXY`, 0xBE8E3e3618f7474F8cB1d074A26afFef007E98FB) will be listed as a beneficiary on the multisig wallet. This allows the protocol to withdraw funds from the multisig wallet, ensuring control over these funds.

### Special Purpose Fund Details

```
Official Contact : @layerzero
Contact Email/Handle: layer.zero@ses.makerdao.network
Date Added: 2023-01-23
Total Amount: In Dai. 5M DAI
Wallet Address: Public wallet address of Multi-Sig.  TBD
Comptroller signers: @tadeo (https://forum.makerdao.com/t/mip55c3-sp14-self-insurance-fund/19076/54), @prose11 (https://forum.makerdao.com/t/mip55c3-sp14-self-insurance-fund/19076/56)
```