Protocol Introduction

The Mezzanine protocol is a set of smart contracts that enables any individual(s) to start and maintain an on-chain organization with minimal costs and effective shareholder governance. Decentralized Autonomous Organizations (DAOs) have enabled fair and democratic governance over on-chain protocols. However, they are often ineffective. The lack of organizational structure has created a vacuum in which duties, roles, and a decisional hierarchy are, for the most part, unclear. In contrast, traditional, off-chain organizations are costly to maintain with little transparency. For nearly every substantial action, a series of lawyers, accountants, and other experts are needed.

The Mezzanine protocol aims to mediate these two extremes. The protocol simultaneously enables a clear organizational structure for DAOs while effectively reducing the costs associated with maintaining an organization. In place of litigation, smart contracts, themselves, are used to provide clear, executable logic for shareholder governance, equity financing, organizational structure, etc.

Most notably, Mezzanine introduces a capital stack and shareholder governance. The former provide novel financial tools to onchain organizations, such as preferred shares and debt that are directly tied to the organization itself. The latter provides governance tools premised on delegated accountability.

Most DAOs are limited to spending money, receiving money, and making clunky decisions. Mezzanine companies enjoy a much more robust set of features:

  1. Tracks and enforces economic rights, including debt and equity

  2. Tracks and enforces governance rights, like the shareholders' choices for the board of directors

  3. Enables delegation through the creation of departments and sub-departments

  4. Easy augmentation of modules for spending assets and generating revenues

Protocol Overview

The Mezzanine protocol creates a simple and scalable organizational structure for running companies. Every company has a treasury that is run by a Board of Directors. A treasury can create any number of departments and sub-departments with granular abilities. Board directors are selected through shareholder governance, ensuring proper checks and balances. All Mezzanine companies have a capital stack that automatically tracks all economic claims on the organization, like liquidation preference, debt obligations, and vesting shares. A Mezzanine company can easily add new features and functionalities by adding additional modules for spending, billing, vesting, raising money and more.

Organizational Structure

Spending and access control in Mezzanine is hierarchical and follows a tree-like data structure. A company built using the Mezzanine Protocol has three critical components to its structure: Treasury, Departments, and Modules.

The Treasury of a company lies at the root of the company's organizational tree. The treasury signers act as the Board of Directors of the organization, granting powers and allowances to departments and modules. The treasury holds the vast majority of a company's assets at all times.

Departments are created under the treasury or another department. They're given allowances to spend money and granted rights to control modules. Departments can add modules and additional sub-departments.

Modules are bespoke, standalone contracts designed to support companies and departments. Technical teams (and 3rd party developers) can easily create new modules with limitless possibilities.

Enforcing Economic Rights

Each Mezzanine company is deployed with a capital stack. The capital stack tracks and enforces the economic rights of varoius stakeholders. It is comprised of instruments like common shares, preferred shares, and debt. From the capital stack, one can create a crystal clear picture of a company's ownership structure, liquidation preference, debt obligations, and cap table. The capital stack dictates which stakeholders receive assets in the event of a company's liquidation, recapitalization, or acquisition. Shares are also used in the governance of the company.

Shareholder Governance

Shareholder governance is predicated on shareholder supremacy, meaning that shareholders should hold ultimate control of a company. Among other things, shareholder governance selects the board of directors.

Governance is designed to be flexible to meet an organization's needs at any given state of maturity. In the first version of Mezzanine, there are a few governance modules available: Startup Governance, Share Class Governance, and Late Stage Governance.

Shareholder governance assumes that most shareholders are relatively naive and uninvolved, so it limits their required participation to a handful of key decisions. Most day-to-day responsibilities are delegated to the board of directors.

Shareholder governance is responsible for a few primary actions:

  • Managing an organization's board of directors

  • Changing the shareholder governance structure

  • Authorizing new shares

  • Approving liquidation or acquisition

Smart Company Modules

A set of module-like contracts easily augment any Mezzanine company:

  • Governance Modules: dictates the logic of how board members should be added and removed from the board of directors

  • Capital Stack: dictates the distribution of assets during a company's liquidation, recapitalization, merger, or acquisition

  • Payroll Manager: manages the cash and equity compensation for a company's employees

  • Billing: companies can easily track request payments, track outstanding bills, and categorize revenues

  • Equity Financing: responsible for raising capital in exchange for ownership of the company

  • Delegate Registry: manages the delegates of shareholders, such that their voting power can be given to another individual(s)

  • Token Timelock: manages the vesting and unlock schedule of shares

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