2020: What are DAO's and Why Would I Want One? Hint: Maybe the Best Thing Since Smart Contracts

Copyright 2020  Dr. Charles Robinson  [email protected] 

The times they are a changing… The automation and streamlining of information and decisions is moving out of controlled centralized systems into decentralized systems. What this means for companies in the future it is believed, will be the reduction in staffing and management using an Ethereum based DAO (Decentralized Autonomous Organization system. There may no longer be the need for a CEO, Mid-level management or other types of single point decision making choke points, because of the DAO.   

The DAO has hard fixed and at times unchangeable rules regulations and processes to follow. It takes the voting of the group to make a change in the system or the decision as to where funds or decisions may flow.  

There is an ever-growing belief that no one person / nation / corporation / financial organization should be able to make all of decisions relating to an organization or even the outside world. Hence the emergence of Decentralized Autonomous Organizations that will allow diverse groups to make decisions concerning things such as funding or special projects, the flow of an organization such as; payroll, invoicing, payments, reordering and such to be done without the involvement of a single person or entity, thereby giving control to the mass of the organization versus a single entity or person.  

What this means in simple terms is many of the systems we have in place today to handle ordering, payroll, utility payments, manufacturing schedules, bill paying, and such can be totally changed and or eliminated using a DAO system.  

This is still a new and emerging technology with new players being added to the field daily. It is expected to be a multi-billion-dollar business by 2024. 

This industry was started by The DAO in 2016 and it successfully raised $150 million in a short amount of time with a small (by investment standards) number of investors. Then it happened. A flaw in the system caused a large percentage of the funds to be siphoned off by someone that cracked a flaw in the source code. The DAO is now closed; however, it has proven to be the foundation stone for a whole new industry with new programmers. While there have been twists and turns along the way, several companies are emerging that have laid new stronger foundations for companies, charities and such to build their new visions and models on. This event also caused a hard fork in the Ethereum blockchain creating Ethereum and Ethereum Classic. 

The DAO in simple terms is a program that runs on the Ethereum blockchain and requires funds to operate. The old saying nothing happens until money gets involved is being proven as the incentive to motivate the masses to participate in a project and or program and to vote on various projects being presented to the DAO.  

Pros and Cons 

There are pros and cons to the DAO based technologies. The pros include decentralized voting for projects. This can include; whether to deploy a nuclear weapon or not (doubt Norad will ever be decentralized), vote on artwork or fund a charity or business. No one person can push the button to send a missile, select the art or pick the company to fund, it must be a consensus of voters. This could also be a hinderance if there is an immediate need to prevent yourself from being wiped out in the nuclear attack though while you’re waiting on votes.  

There are numerous analogies on the web today, however many fail to mention that a DAO-run Coke machine still needs someone to stock it, plug it in, and collect the funds for those who pay in cash. IOT Beacon technologies whether Bluetooth or RFID may in time remove a few wrinkles in this process, however they are still being developed to some extent.  

Major cons can include flaws in the code as was the case with The DAO allowing funds to siphoned off. If you have a project you want to get funds for, you must invest in the decision-making process through the capturing of Ether in many cases, that then gets converted into the DAOs own currency for the voting process. Once the votes are cast the winning project can collect the Ether (after conversion in some cases) to pay for the project.  

Reputation Tokens are an integral part of DAO’s. Someone trying to be nefarious in his proposals can be voted down by the DAO denizens and lose face and reputation. No one will take him seriously again. DAO’s are described as the next generation of Social Media. Instead of just taking about a project and sending photos and having a good time denizens can now actually accomplish something project-wise bigger than themselves and change the world. Vermont has a DAO-Friendly tax code and is a popular haven for these unstoppable entities. By the way, DAO’s can be sued and sue.  

Another con is that ongoing participation has been low - perhaps 10% on average of the voting-eligible members participate. There have also been hacks on DAOS where the hackers attempted to steal all the money (tokens) in the system. Again, members punish the hackers by voting to give them zero reputation (tokens). 

The DAO works as a separate entity with its own rules in some cases only using Ether as the funding source. Votes in some DAOs are set into pools with the pool making the vote like the electoral college in elections. Each state is worth “X” number of votes and it’s the consensus of the votes that elects the new official.  

There are as many pros and cons with some of the DAO companies out there today.  

Legal 

For DAOs created in the USA, there are legal concerns that may influence the investors. There is also a concern as the SEC still has no framework for DAOs and how they fit in as an issuer of securities. Today there are still issues with the SEC and the original DAO created by Slock.it in 2016.  

Funds raised are considered investments under SEC rules and regulations and the regulators are beginning to file lawsuits with cryptocurrency companies and DAOs for securities violations.  So, care should be taken by a DAO to ensure it meets federal and state investment guidelines. Wyoming may be a new haven for projects looking to work as a DAO as they have passed in 2019 laws supportive of the cryptocurrency world. As mentioned earlier Vermont has taken a lead.  

Companies Using DAO Technologies 

Companies today can reach out to DAO developers to adapt the DAO system they have developed to bring into their centralized corporation to allow for the decentralization of a particular system such as payroll, invoicing and such that operate through a fixed set of rules on an ongoing basis. This will allow for the reduction of some entire departments, layers of middle and in some cases upper management bringing the company potentially into a more profitable state.  

DAO developer platforms such as Jelurida, Moloch, Aragon, DAO Stack and Slock.It (recently acquired by a Nevada company) allow companies to use their code to build projects to benefit the corporation, charity or organization.  

Voting / More on Reputation 

Some of the DAO systems such as DAO Stack and dxDAO use a voting system they refer to as reputation. In simplistic terms this represents a way of voting whereby voting authority or power may be based on credibility, financial prowess, or other measurable quantifying parameters. Once the reputation is earned it cannot be transferred and carries a weight that is somewhat fixed in all voting situations.  

The voting process can change the way the DAO works and functions as well as voting on a proposal for funding or funds distribution. The ability of everyone involved to weigh in on a decision is the main attraction to a DAO versus a centralized system such as a corporation. Both money for projects and reputation can be represented as DAO tokens which are usually funded in ETH. 

Proposal Submissions 

A person with a project can submit a proposal per the parameters of the DAO being submitted to, in order to obtain funding or validation. Once a proposal is submitted the voting process starts and can be carried out within minutes or hours depending upon the DAO and its functionality.  

Then There is Ethereum to Consider 

There are new emerging blockchains that will affect the future of the DAO in some ways. One major drawback of the Ethereum blockchain is the latency of transaction completion. With merely 15 transactions per second being completed the ability to transact millions of processes requires a new improved blockchain. A DAO project can be built on the Ethereum blockchain, or even develop its own blockchain functioning as a node of sorts.  

Another consideration to any blockchain backed / supported entity is cost. While cheaper than human employees now, a question looms as to the future cost of using the existing blockchains if their value continues to climb due to the expanded use by companies globally.  

When searching for a DAO to implement your vision on, there are numerous things to consider. The underlying blockchain, how voting is handled, has the DAO been tested and vetted for flaws, is it affordable.  

Below is a list of several DAOs available today. Some are simply currency plays that act as venture funds, some are voting machines for pet projects and then there are some that can be adapted to specific markets allowing you to adapt the DAO to your specific needs. 

Authored by Dr. Charles Robinson DAOs 

Copyright 2019                             [email protected] 

Some of the DAO’s below work on the Ethereum Platform or Have become Platforms to build DAOs on. 

DAO NAME Platform Purpose Active Token website The DAO DAO Decentralized Venture funding platform 

 Closed DAO None 

Trojan DAO Moloch Grants for art related projects 

Active Trojan https://www.trojanfoundation.com/ 

Digix DAO 

Ethereum Blockchain Interplanetary File System Proof of Provenance 

Gold backed stable coin 

Active 

DGX 

https://digix.global/ 

Jelurida DAO 

NXT /Ardor/Ignis 

Help companies incorporate blockchain in their companies 

4th Quarter 2019 / 1st half of 2020 

NXT 

https://www.jelurida.com 

Moloch DAO 

Ethereum 

Grant making DAO 

Active 

Shares, Any ERC 20 token 

https://molochdao.com/ 

Aragon 

Ethereum 

Allow companies to build their own DAO for their company 

Active 

ANT 

https://aragon.org/ 

dx DAO 

DAO Stack 

Funding for projects voted on by token holders 

Active 

GEN 

https://dxdao.daostack.io/ 

DAO Stack 

Ethereum 

Allow companies to build their own DAO 

Active 

GEN 

https://daostack.io 

Maker DAO Ethereum Platform to build DAOs on Stable Coin  

Active DAI https://makerdao.com 

Slock It Ethereum Created the DAO 

Acquired Ether https://slock.it/