DAO

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= this page refers both to a generic concept, i.e. the Decentralized Autonomous Organization and to a specific (failed) investment project, TheDAO


The concept

1.

"A Decentralized autonomous organizations (“DAO”) is a new type of organization, best comparable to a digital company, but without an attached legal entity. Made from irrefutable computer code, it is operated entirely by its community, which backs its future growth by purchasing DAO tokens using ETH, the fuel of the Ethereum network." (https://slock.it/dao.html)


2.

"The DAO phenomenon is an example of the networked firm in practice. It has been described as an organizational structure with an automated centre (standardized protocol) and human edges. This organization is powered by smart contracts which many believe, due to the nexus of contracts theory of the firm, can replicate the governance capabilities of the firm. For this reason, it has been speculated that blockchains will kill the traditional firm, rendering its boundaries porous and fluid and decentralizing the activities that once resided within its hierarchies."

(https://daobase.org/orgtech-and-the-networked-firm/)


Description

Primavera de Filippi:

"While some argue that Bitcoin is effectively the first DAO (Buterin 2014)(Hsieh et al., 2019), the term is today understood as referring not to a blockchain network in and of itself, but rather to organisations deployed as smart contracts on top of an existing blockchain network. Although there have been several attempts at instantiating a DAO on the Ethereum blockchain (Tufnell, 2014), the first DAO that attracted widespread attention is a 2016 venture capital fund confusingly called “TheDAO” (DuPont, 2017). Despite the short-life of the experiment , TheDAO has inspired a variety of new DAOs (e.g. MolochDAO, MetaCartel), including several platforms aimed at facilitating DAO deployment with a DAO-as-a-service model, such as Aragon, DAOstack, Colony or DAOhaus. The DAO concept has enabled other derived terms: the term Decentralized Collaborative Organization (DCO) is typically referred as a DAO with strengthened collaborative aspects (Hall, 2015)(Schiener, 2015)(Davidson, de Filippi and Potts, 2018); a more elaborate concept derived from those attempts is “Distributed Cooperative Organization” (DisCO), which highlights its co-op and democratic nature (DisCO Manifesto, 2019).

...


There are multiple coexisting definitions of DAOs in use within the industry. The most relevant are the following:

● Buterin, in the Ethereum white paper (Ethereum, 2013), defines a DAO as a “virtual entity that has a certain set of members or shareholders which [...] have the right to spend the entity's funds and modify its code”. That is, the aim is to replicate “the legal trappings of a traditional company or nonprofit but using only cryptographic blockchain technology for enforcement”.

● Some of the most popular DAO platforms, such as DAOstack and Aragon define a DAO similarly as ”a network of stakeholders with no central governing body” (https://daostack.io), “which is regulated by a set of automatically enforceable rules on a public blockchain” (https://aragon.org/dao). Conversely, other DAOs platforms have opted to use a different terminology as a proxy to a DAO, such as the “colonies” of Colony (https://colony.io) or DAOhaus’ “magic internet communities”(http://daohaus.club).

In the academic literature on DAOs, although some works avoid picking a definition (Norta et al 2015) or refer to industry definitions (DiRose and Mansouri, 2018), multiple attempts have been made at providing a specific definition of DAOs." ([1])


Characteristics

Primavera de Filippi:

"Most of these definitions include the following distinctive characteristics:

● DAOs enable people to coordinate and self-govern themselves online. Although no mention is made as to the minimum size of the group, the term “organization” is generally understood to refer to an entity comprising multiple people acting towards a common goal , rather than a legally registered organization.

● A DAO source code is deployed in a blockchain with smart contract capabilities like Ethereum—arguably always a public blockchain.

● A DAO’s smart contract code specifies the rulesfor interaction among people —although it is unclear to which extent there may be other governance mechanisms that can affect or overrule such code.

● Since these rules are defined using smart contracts, they are self-executed independently of the will of the parties.

● The DAO governance should remain independent from central control: e.g. some definitions specifically refer to self-governed (De Filippi and Hassan 2018), self-organizing (Singh & Kim 2019), peer-to-peer and democratic control (Hsieh et al., 2018).

● Since they rely on a blockchain, DAOs inherit some of its properties, such as transparency, cryptographic security, and decentralization." ([2])


DAO's are institutions

Joshua Tan:

"Institutions are defined as stable patterns for regulating human behavior. Lots of things are institutions, including many things that one does not normally think of as institutions. Courts, markets, and contracts are institutions, but so is the design of the aisles in your local supermarket or even a baby’s reflex to cry. Code, too, is a kind of institution, insofar as it regulates human behavior. DAOs are computational institutions — they facilitate governance through a series of smart contracts — and like any institution they should be designed with those being governed in mind. The modern approach to institutional design was pioneered by Elinor Ostrom and others in the context of common-pool resources, but here we’ll focus explicitly on DAOs and other computational institutions. Further, we will distinguish between classes of institutions (e.g. markets, legal associations, DAOs) that follow an institutional pattern, and actual instances of institutions (the Superior Court of New Jersey, the reputation feature on Reddit). When we talk about DAO institutions in this article, we’ll be examining them as an “institutional pattern”, a class of institutional design that can have widely varying instantiations. From an institutional perspective, DAOs are not just bundles of smart contracts; they are also social organizations, entities composed of individuals gathered for a common purpose. This implies that the bundle of smart contracts that defines the DAO is not a complete representation of that DAO; the same code, used by different groups of people, can lead to vastly different organizations. The group of people participating in the DAO can choose to abide (or not abide³) by the rules as they are set out, and they can also collectively decide to change how the organization behaves by amending the DAO’s rules. In MolochDAO, for example, decisions regarding funding grants or accepting new members would be made and executed according to the predefined rules, whereas a decision to switch from 1-token-1-vote to 1-person-1-vote would be an adaptation to those rules. The process of constitutional amendment is amongst the most sensitive aspects of an organization’s rules."

(https://medium.com/commonsstack/exploring-daos-as-a-new-kind-of-institution-8103e6b156d4)


DAO's have Computational Constitutions

Joshua Tan:

"Collectively, these on-chain (and off-chain) rule sets, smart contracts, and social decision processes are described by a constitution: a body of values and rules which govern the collective decision-making process of an organization. A constitution may be organized into one centralized document, but in many organizations it is distributed across several documents and instructions, from formal charters to codes of conduct to pinned posts by authoritative members. In an opt-in organization like a DAO, a constitution serves as a contract for participation — by participating, one implicitly or explicitly agrees to abide by the organization’s constitution. By regulating decision making in an organization, constitutions help us set the principles and rules for how we make rules (e.g. rules of order for a legislature), modify existing institutions (e.g. amendments to voting eligibility), and even design new institutions (e.g. creating an independent monitoring body). Good constitutions help institutions adapt to new circumstances, new memberships, and even new code.

Lastly, a computational constitution, implemented via constitutional code, is that portion of a constitution which is made up of software. For example, the way that a DAO runs its online voting processes (including user authentication, quorums, token weighting, proposal timing, etc) is part of its computational constitution. The underlying blockchain of a DAO has its own computational constitution, namely its consensus protocol. A computational constitution (for example, a smart contract) automates the administration of the decision-making procedure; this enforces the process but not the outcome. Among other benefits, the digital nature of DAO governance allows us to capture and translate repeatable governance patterns — constitutions as well as more basic rules and proposals — to serve as best practices for applications in various contexts. It is within the context of these patterns that we wish to develop an ontology of institutional economics that fits the DAO ecosystem, along with a map of how various projects could collaborate on and across these different layers of patterns."

(https://medium.com/commonsstack/exploring-daos-as-a-new-kind-of-institution-8103e6b156d4)

Example

What are some interesting DAO projects?

Theodor Marcu:

What are some interesting DAO projects?

“Like traditional organizations, DAOs come in all shapes and sizes. However, there are a few categories of DAOs that have been particularly popular during the past few years. These categories include decentralized funds for investments and grants, crypto projects focused on decentralized finance (DeFi), and art (using Non-Fungible Tokens, aka NFTs).

MakerDAO is a prominent example of a DeFi project governed by a DAO. Maker is a stablecoin protocol that allows users to lend and borrow crypto without the help of third parties. Maker is governed by a DAO that allows the holders of its token to change the rules of the protocol as well as provide the team with a mandate when it comes to community decisions. Currently, over $6.5 billion is locked into Maker.

Besides Maker, other DeFi projects use or have adopted DAOs for their governance. These include Compound, which is a protocol for algorithmic interest rates on your savings, and Yearn.finance, which helps users navigate the increasingly complex landscape of DeFi products (similar to a robo-advisor like Wealthfront). Together, these projects have over $11 billion locked in their tokens.

Another class of projects that leverage DAOs is that of automated market makers (AMMs). This class notably includes projects like Curve and Uniswap, which use liquidity pools in order to enable users to trade assets without the help of a centralized order book. Unlike a centralized exchange, using a DAO allows the most active and energetic users of these projects to help steer the direction of their organization, which leads to more active community involvement.

In addition to financial instruments, DAOs have also been used to manage funds that seek to invest in specific types of projects. One of these funds is MolochDAO, which seeks to fund projects that advance the Ethereum blockchain ecosystem and increase collaboration between different parties. Similarly, PleasrDAO is a group that leverages a DAO with the goal of buying art in the form of NFTs. Most members of this group have never met, and some are still anonymous, but this hasn’t stopped them from buying an NFT of Edward Snowden for over $5M in April.”

(https://1729.com/daos)


DAO Tools

See also: DAO Governance Tools


1. Theodor Marcu:

“The popularity of DAOs has also led to the appearance of projects focused on helping people set up DAOs. For example, Aragon is a DAO focused on building tools for creating and managing DAOs. Aragon’s products include a protocol for creating DAOs as well as a voting solution for managing community proposals and enacting them. DAOs like Aragon enable users to add DAO-like capabilities to their own projects without having to worry about the complexities of writing smart contracts.

The set of popular DAO tools includes DAOHaus, which allows users to find other DAOs. DAOHaus users can also create a DAO using a predefined set of parameters like the primary token, the proposal velocity, the voting period, and proposal mechanics like deposits and rewards. Other tools that focus on enabling DAOs include Snapshot (proposal voting management) and DAOStack (tools for launching a DAO).

A few projects also focus on providing high-level information about other DAO-related projects. These include defillama.com, which provides information about the amount of money locked in the top DAOs, and llama.community, which is a hub that allows users to find interesting DAO projects.”

(https://1729.com/daos)


2. Kei Kreutler:

"In its simplest form, DAO tools have been described as a group chat and a bank account (11). In 2021, this generally takes the form of a Discord server and a Gnosis Safe Multisig, which is a web3 platform for creating multi-signature accounts. Multi-signature accounts allow pseudonymous groups, across jurisdictions, to pool and manage funds within minutes, a capacity far beyond a traditional joint bank account. This “minimum viable” DAO, or MVD, tooling shone in the first half of 2021 with initiatives like PleasrDAO.

...

Though a group chat and multi-signature account may be enough to initialize a DAO mission, a token often becomes the next step toward embracing the principles of a digital cooperative. For example, PleasrDAO issued $PEEPS, a token distributed internally to represent members’ stake in the collection (12), which they are considering making public to fractionalize ownership of their collection."

(https://gnosisguild.mirror.xyz/t4F5rItMw4-mlpLZf5JQhElbDfQ2JRVKAzEpanyxW1Q)


DAO Tool Examples

Kei Kreutler:

"PleasrDAO is a collective that came together to bid on an NFT by the artist pplpleasr. Given escalating NFT digital art auction prices, the idea behind PleasrDAO was simple: a collective of fans using a multi-signature account could pool funds to place bids, and through holding in common, compete with other major bidders to win the auction. After winning their first eponymous auction, PleasrDAO went on to collect other works such as Stay Free, the NFT by Edward Snowden charitably supporting independent press, for a total of 2.2K ETH or USD 5.4 Million equivalent at the time. Their repeatedly successful missions means that while still acting as collectors, PleasrDAO will broaden their scope to begin incubating projects by their community. Initiatives like PleasrDAO most promisingly challenge institutional collectors through their expanded membership, inviting artists they collect like pplpleasr to become members of the collective in turn."

"Similar experiments like PartyDAO employ a token, with the $PARTY token representing membership to a group chat, governance rights, and co-ownership of productive value managed by the DAO. It’s important to note PleasrDAO and PartyDAO are not flat hierarchies, as they both have elected groups of individuals that manage their multi-signature account treasuries. Though PleasrDAO and PartyDAO focused on shorter missions initially, they are both evolving toward a longer term vision, as collectors, investors, and incubators that use tokens to represent co-ownership in the spirit of a digital cooperative. Tokenization creates both opportunities and challenges for the networks to come."

(https://gnosisguild.mirror.xyz/t4F5rItMw4-mlpLZf5JQhElbDfQ2JRVKAzEpanyxW1Q)

Status

What is the legal status of DAOs?

Theodor Marcu:

“While DAOs are very similar to regular organizations, only a few places around the world recognize them as legal entities that benefit from the protections usually afforded to traditional organizations like LLCs. One of these places is the US state of Wyoming, which passed legislation in April that allows DAOs to register as LLCs. Similarly, the European country of Malta also recognizes DAOs as valid legal entities.

However, while there is some interest in recognizing DAOs as new legal entities, these are still early days, so most DAOs operate under general partnership rules that may burden DAO members with any debts or liability faced by the DAO. To counteract this issue, people have started projects like OpenLaw, which promise a liability wrapper around DAOs that allows them to operate safely. Nevertheless, most DAOs still operate without any kind of traditional liability protection for their members.”

(https://1729.com/daos)



Discussion

Primavera de Filippi:

"The use of the term “decentralized autonomous organisation” or DAO is now fairly established in the blockchain space, yet there are still many misconceptions and unresolved issues in the discussion around the term.

(1) First of all, with regard to the “decentralization” aspect of a DAO, it is unclear whether decentralization only needs to be established on the infrastructural layer (i.e. at the level of the underlying blockchain-based network) or whether it also need to be implemented at the governance level (i.e. the DAO should not be controlled by any centralized actor or group of actors).

(2) Second, it is unclear whether a DAO must be fully autonomous and fully automated (i.e. the DAO should operate without any human intervention whatsoever), or whether the concept of “autonomy” should be interpreted in a weaker sense, (i.e. while the DAO, as an organization, may require the participation of its members, its governance should not be dependent on the whims of a small group of actors).

(3) Third, there are some debates as to when the community of actors interacting with a smart contract can be regarded as an actual “organization” (independently on the legal recognition). For instance, it is unclear whether the mere act of transacting with a smart contract qualifies as an organisational activity, or whether a stronger degree of involvement is necessary, such as having a governance model or collective interactions amongst participants.


The latter has triggered important discussions in the blockchain and legal field, as regards whether a DAO could be considered as an entity separate from the human entities that operate it (i.e. as a legal person) or whether it can only be considered as an entity when it is identified as such by the law (i.e. the law should identify a DAO as a legal person for the DAO to be considered as such). Yet, the common understanding today is that the “autonomous” nature of a DAO is incompatible with the notion of legal personhood, as legal personhood can only be established if there is one or more identified actors responsible for the actions of a particular entity. The discussion on whether a DAO should be recognized as a legal person has important implications in the legal field, as it can determine the extent to which a DAO can be considered as a separate legal entity from its human actors, and therefore the extent to which these actors can be shielded from the liabilities of the DAO." ([3])


As a network, the DAO is in fact a state, and it needs democratic governance

Read the full article here: Why Networks Are States That Need Democratic Government

Curtis Yarvin:

"What's the right lesson for the decentralization community to learn from the collapse of the DAO?

Perhaps the simplest lesson is that even decentralized networks need governments, and have governments. Every network is a state. Every state has a government.

In Dijkstra's terms: decentralization theater considered harmful.

Decentralization theater means any system that produces not decentralization, but the appearance of decentralization. Security theater is the enemy of real security; decentralization theater is the enemy of real decentralization.

A network without decentralization theater is one that admits:

  • any network is a digital state with a central government.
  • any new state is born at war with full emergency powers.
  • limiting and/or eliminating governance is a slow, hard task."

(https://urbit.org/blog/dao/)


DAO's as Digital Cooperativism

Kei Kreutler:

"In 2021, a DAO could be described as a voluntary association with the operating principles of digital cooperativism. As voluntary associations, they are a cross-jurisdictional way for strangers, friends, or unlikely allies to pseudonymously come together toward common goals, supported by a token model, incentives, and governance. Members of a DAO can have representative ownership of its digital assets through a token, which often simultaneously acts as a governance right.

Although many DAOs would not embrace the label of digital cooperative, one could say DAOs embrace cooperativism as a protocol, meaning an evolving set of relational practices that are distinct from traditional corporate structures or decentralized autonomous corporations, because they prioritize member ownership. The label cooperative is further qualified here by digital because today DAOs act primarily to coordinate around digital assets. However, as the concept of DAOs evolves in practice, its digital primacy will fade. DAOs, as we will see, also introduce new dimensions that exceed what the operating principles of a digital cooperative notionally encompass.

Decentralized technology ecosystems tend to describe a phenomenon through its technical products. Yet as Ruth Catlow, co-founder of Furtherfield and DECAL decentralized arts lab, notes, “We need to be building cultures before structures” (10). While the overview below of DAO tools provides a concrete description of the concept in practice, it feels critical to keep in mind that DAOs ultimately coordinate through collective vibes."

(https://gnosisguild.mirror.xyz/t4F5rItMw4-mlpLZf5JQhElbDfQ2JRVKAzEpanyxW1Q)


More information

  • DAObase is a knowledge base for the Organizational Technology (OrgTech) sector.

TheDAO

= TheDAO is a specific project within Ethereum, not to be confused with the general concept of Decentralized Autonomous Organization ; it's a crowd-run, computer-managed distributed investment fund

URL = https://daohub.org/


Definition

1. Ryan Shea

"The DAO is a digital pool of funds that is governed by code. Anyone can contribute funds to the pool to purchase voting power in it, and a quorum of shares is required to release funds to support select projects, just like with Kickstarter. This “group fund” was implemented on a digital currency platform called Ethereum and recently raised $150 million from hundreds to thousands of backers." ?(https://blog.blockstack.org/simple-contracts-are-better-contracts-what-we-can-learn-from-the-dao-6293214bad3a#.ce3g8vvb9)


2.

"The DAO model answers the question "How can revenue be generated within a purely decentralized environment" by aligning the incentives of real world Contractors with the incentives of a DAO." (https://slock.it/dao.html)

Discussion

The $50m Crisis

Ryan Shea:

"Last week, cryptocurrency security researchers identified vulnerabilities in both the code that governs The DAO and in the Ethereum programming language (Solidity) that The DAO was written in. This week, it was discovered that an attacker was exploiting the bugs in The DAO and managed to withdraw over $50 million worth of Ether from the fund.

In order to avert the disaster of a $50M loss, the Ethereum core developers have presented a proposal whereby the withdrawal would be reversed and the code of the contract would be replaced with a simple contract that would allow the original funders to recover their funds." (https://blog.blockstack.org/simple-contracts-are-better-contracts-what-we-can-learn-from-the-dao-6293214bad3a#.ce3g8vvb9)


More Information