Decentralized autonomous organization

A decentralized autonomous organization (DAO), sometimes labeled a decentralized autonomous corporation (DAC), is an organization represented by rules encoded as a computer program that is transparent, controlled by the organization members and not influenced by a central government.[1][2] A DAO's financial transaction record and program rules are maintained on a blockchain.[3]:229[4][5] The precise legal status of this type of business organization is unclear.[6]

This article is about a type of organization. For the former organization that followed this approach, see The DAO (organization).

A well-known example, intended for venture capital funding, was The DAO, which launched with $150 million in crowdfunding in June 2016, and was immediately hacked and drained of US$50 million in cryptocurrency.[7] This hack was reversed in the following weeks, and the money restored, via a hard fork of the Ethereum blockchain. This bailout was made possible by the Ethereum miners and clients switching to the new fork.[8]

Background
DAOs lead to decentralized economy. Tokens allow contribution to collective works, micropayments, and tracking metrics to allow algorithmic measures of contribution utility.

Decentralized autonomous organizations are typified by the use of blockchain technology to provide a secure digital ledger to track financial interactions across the internet, hardened against forgery by trusted timestamping and dissemination of a distributed database.[3]:229[4][9] This approach eliminates the need to involve a mutually acceptable trusted third party in a financial transaction, thus simplifying the transaction.[4] The costs of a blockchain-enabled transaction and of the associated data reporting may be substantially offset by the elimination of both the trusted third party and of the need for repetitive recording of contract exchanges in different records. For example, the blockchain data could, in principle and if regulatory structures permit it, replace public documents such as deeds and titles.[3]:42[4] In theory, a blockchain approach allows multiple cloud computing users to enter a loosely coupled peer-to-peer smart contract collaboration.[3]:42[10]

Vitalik Buterin proposed that after a DAO was launched, it might be organized to run without human managerial interactivity, provided the smart contracts were supported by a Turing complete platform in "DAOs, DACs, DAs and More: An Incomplete Terminology Guide". blog.ethereum.org. Ethereum, built on a blockchain and launched in 2015, has been described as meeting that Turing threshold, thus enabling such DAOs.[3]:229[11][12] Decentralized autonomous organizations aim to be open platforms where individuals control their identities and their personal data.[13]

List of DAOs
Name Token Use cases Network Launch Status Homepage Socials
API3[14] API3 Governs over and provides insurance to data feeds consisting of off-chain APIs, which smart contracts use Ethereum Operational https://api3.org/
Dash (cryptocurrency)[15] Dash Token governance Dash (cryptocurrency) Operational https://dash.org/
The DAO (organization) DAO Venture capital Ethereum April 2016[16] Defunct late 2016 due to hack[17]
dOrg[18] DORG Freelancer Web3 development agency Ethereum 2018 Operational https://dOrg.tech
DxDAO REP, DXD Develops, governs, and grows DeFi products Ethereum May 2019 Operational https://dxdao.eth.link/#/
Augur (software) REP Prediction market, Sports betting, Option (finance), Insurance Ethereum July 2018 Operational https://www.augur.net/
Steem Data distribution, Social media, Name services, Industrial March 2016 Operational https://steem.com
Colony CLNY Ethereum Operational http://colony.io/ https://t.me/joincolony
Aragon [19] ANT Ethereum Operational https://aragon.org/
Moloch Ethereum Operational https://www.molochdao.com/
Navcoin[20] NAV Token governance Navcoin Operational https://navcoin.org/
Ocean Protocol OCEAN Hand out grants to ecosystem acceleration projects, the plan is to evolve into a governance DAO over time Ethereum December 2020 Operational https://github.com/oceanprotocol/oceandao/wiki

Issues

Social

Shareholder participation in DAOs can be problematic. For example, BitShares has seen a lack of voting participation, because it takes time and energy to consider proposals.[5] However, misalignment of interests between shareholders, operators, users and customers – a legacy of the industrial revolution codified in for-profit corporations – has created an environment of broken promises that could be addressed by smart contract systems like DAOs, realigning the interest of users, reducing friction and removing middlemen.

The precise legal status of this type of business organization is unclear;[9] some similar approaches have been regarded by the U.S. Securities and Exchange Commission as illegal offers of unregistered securities.[6][21] Although unclear, a DAO may functionally be a corporation without legal status as a corporation: a general partnership.[22] This means potentially unlimited legal liability for participants, even if the smart contract code or the DAO's promoters say otherwise.[22] Known participants, or those at the interface between a DAO and regulated financial systems, may be targets for regulatory enforcement or civil actions.[22]

Security

The code of a given DAO will be difficult to alter once the system is up and running, including bug fixes that would be otherwise trivial in centralised code. Corrections for a DAO would require writing new code and agreement to migrate all the funds. Although the code is visible to all, it is hard to repair, thus leaving known security holes open to exploitation unless a moratorium is called to enable bug fixing.[23]

In 2016, a specific DAO, "The DAO", set a record for the largest crowdfunding campaign to date.[24][25] Researchers pointed out multiple issues in the code of The DAO. The operational procedure for The DAO allowed investors to withdraw at will any money that had not yet been committed to a project; the funds could thus deplete quickly.[5] Although safeguards aimed to prevent gaming the voting of shareholders to win investments,[6] there were a "number of security vulnerabilities".[26] These enabled an attempted large withdrawal of funds from The DAO to be initiated in mid-June 2016.[27][28][29] On the 20th of July 2016, the Ethereum blockchain was forked to bail out the original contract.[8]


See also

References
  1. Prusty, Narayan (27 Apr 2017). Building Blockchain Projects. Birmingham, UK: Packt. p. 9. ISBN 9781787125339.
  2. The Decentralized Autonomous Organization and Governance Issues Regulation of Financial Institutions Journal: Social Science Research Network (SSRN). 5 December 2017.
  3. Vigna, P; Casey, MJ (January 27, 2015). The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order. St. Martin's Press. ISBN 9781250065636.
  4. Hodson, H. (20 November 2013). "Bitcoin moves beyond mere money". New Scientist.
  5. "The DAO of accrue: A new, automated investment fund has attracted stacks of digital money". The Economist. 21 May 2016.
  6. Popper, N. (21 May 2016). "A Venture Fund With Plenty of Virtual Capital, but No Capitalist". New York Times.
  7. Price, Rob (17 June 2016). "Digital currency Ethereum is cratering amid claims of a $50 million hack". Business Insider. Retrieved 17 June 2016.
  8. Vitalik Buterin (20 July 2016). "Hard Fork Completed". blog.ethereum.org. Ehereum Foundation. Retrieved 27 September 2018.
  9. Wright, A; De Filippi, P. (March 10, 2015). "Decentralized Blockchain Technology and the Rise of Lex Cryptographia". SSRN 2580664. Cite journal requires |journal= (help)
  10. Norta A. Creation of Smart-Contracting Collaborations for Decentralized Autonomous Organizations. 18 August 2015 Perspectives in Business Informatics Research. Volume 229 of the series Lecture Notes in Business Information Processing pp 3-17
  11. Pangburn, DJ. (19 June 2015). "The Humans Who Dream Of Companies That Won't Need Us". FastCompany.
  12. Evans, J. (1 August 2015). "Vapor No More: Ethereum Has Launched". www.techcrunch.com.
  13. Deegan, P. (2014). "Chapter 14—The Relational Matrix: The Free and Emergent Organizations of Digital Groups and Identities". In Clippinger, JH; Bollier, D (eds.). From Bitcoin to Burning Man and Beyond: The Quest for Identity and Autonomy in a Digital Society. Amherst, Massachusetts: Institute for Institutional Innovation. pp. 160–176. ISBN 978-1-937146-58-0. creating an operational and autonomous Trust Framework [that can i]ntegrate with a secure discovery service in the form of a Decentralized Autonomous Organization ...
  14. Allison, Ian (12 November 2020). "Yahoo Finance 'Chainlink Killer' API3 Closes $3M Funding Round With Placeholder and Pantera".
  15. Stevenson, John (29 May 2018). "City academic makes link between cryptocurrency trading and machine learning". City, University of London.
  16. "What is a DAO?".
  17. Finley, Klint (2016-06-18). "Someone Just Stole $50 Million from the Biggest Crowdfunded Project Ever. (Humans Can't Be Trusted)". Wired. ISSN 1059-1028. Retrieved 2019-11-16.
  18. "The Evolution of dOrg: The Builder DAO | Hacker Noon". hackernoon.com. Retrieved 2020-08-28.
  19. "Next-level communities run on Aragon". aragon.org. Retrieved 2021-01-28.
  20. "NavCoin v5.0.0 Release Notes — NavCoin Core Documentation documentation". doc.nav.community. Retrieved 2021-01-26.
  21. "SEC Charges Bitcoin Entrepreneur With Offering Unregistered Securities". U.S. Securities and Exchange Commission. 3 June 2014.
  22. Levine, M. (17 May 2016). "Blockchain Company Wants to Reinvent Companies". Bloomberg View: Wall Street. Bloomberg News.
  23. Peck, M. (28 May 2016). "Ethereum's $150-Million Blockchain-Powered Fund Opens Just as Researchers Call For a Halt". IEEE Spectrum. Institute of Electrical and Electronics Engineers.
  24. Vigna, P. (16 May 2016). "Chiefless Company Rakes In More Than $100 Million". Wall Street Journal.
  25. Waters, R. (17 May 2016). "Automated company raises equivalent of $120M in digital currency". Financial Times.
  26. Popper, N. (27 May 2016). "Paper Points Up Flaws in Venture Fund Based on Virtual Money". New York Times.
  27. Popper, N. (17 June 2016). "Hacker May Have Taken $50 Million From Cybercurrency Project". New York Times.
  28. Price, R (17 June 2016). "Digital currency Ethereum is cratering amid claims of a $50 million hack". Business Insider. Retrieved 17 June 2016.
  29. Cimpanu, C. (June 18, 2016). "DAO Ether Trading Platform to Shut Down Following Ongoing Cyber-Heist - DAO creator says platform is shutting down". Softpedia.
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