Self-Ownership in DAO's

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Philippe Honigman:

""A DAO can be understood as a self-owned entity, which cannot be controlled by anyone but itself.


DAOs give a new meaning to “self-ownership” of organizations. DAOs work according to rules that are defined and enforced through code running on a censorship-free, distributed network. No party has the power to force the DAO to suspend or to change the rules that govern its activity. Political, economic and social forces have little sway over software constructs shielded by a public blockchain.

In this sense, DAOs are truly “autonomous” (from αὐτός — autós, “self”, and νόμος — nómos, “law”), i.e. they are governed by themselves. They achieve a form of self-sovereignty thanks to the emancipation power of the code, even when surrounding jurisdictions do not recognize them as legal persons. Their code is their essence. To the extent that it runs on a public blockchain impervious to political and economic powers, nothing can alter their behavior. De facto, they own themselves, and nobody really owns them.

The same logic applies to the value side of the ownership. A DAO controls its own crypto-assets and can use them to perpetuate itself — if this is what its code dictates. These assets cannot be seized by any party unless the DAO’s code authorizes it.

What can we conclude from this tension between decentralization and autonomy, between the ownership of many and the ownership of none? How may it affect the way we should design DAOs?

We’re contemplating here two irreducible dimensions of DAOs:

“Owned by many” refers to the social layer, a diverse set of parties who hold influence over the governance of a DAO. “Owned by none” alludes to the automation layer that expresses and automates the working rules of a DAO. As a deterministic protocol, the automation layer is fundamentally incapable of transforming itself in order to provide adequate responses to evolutionary pressures.

Of course, it is possible to organize social processes through the automation layer by specifying how the parties may voice their preferences and how decisions should be taken as a result, including decisions that might change the protocol itself. However, such convergence of social and automation layers, often called on-chain governance, has its limits.

The jurist Carl Schmitt asserted that it is the function of the sovereign to deem a situation as an emergency that requires the activation of a state of exception, to suspend the normal legal order as a consequence, and to implement decisions that might lead to a new order. Personal judgment is required to do so — it can be a collective personal judgment — rather than the mere execution of an algorithm.

Reijers, W., Wuisman, I., Mannan, M. et al. have argued that the measures taken by the Ethereum community in the wake of The DAO attack in 2016 can be interpreted in a similar fashion. Social normality was disrupted by the hack, which introduced a systemic financial risk for Ethereum itself. Eventually, a hard fork was decided and implemented, which can be compared to the inception of a new legal order.

The DAO drama was a paroxysmal illustration of the tension between the social layer and the automation layer. From the Bitcoin block size debate to the latest controversy about Szabo’s Law, this tension is constantly at work in crypto-networks." (