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)

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])


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

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)


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/)


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)


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