If you can’t trust a DAO, why put money in it?
We’re also wondering how exactly you steer (and incorporate) a ‘leaderless’ organisation
It’s been called one of the big tech trends of the year: the Decentralised Autonomous Organisation (DAO).
What the Gregory is it? Well, imagine a leaderless cybernetic mob existing online; one which, potentially, has millions in shared crypto assets at its disposal. A sort of crypto co-op.
Basically, DAOs are meant to be companies without a board, leader or centre. Into the executive vacuum steps a machine. For, to found a DAO, an entrepreneur with some particular purpose in mind must code smart contracts: software that autonomously manages relations between members and helps the DAO achieve its goal.
Before we come to the goal, what’s this about members? They are the aforementioned mob: usually crypto-enthusiasts who like the idea behind the DAO. It inspires laughter, tears, or thoughts of being filthy rich. They’ll stake hard-mined Bitcoin (or what have you) on the cause and may or may not be willing to labour for it.
To join, crypto assets are handed over in return for DAO-issued tokens. Wired writer Gilad Edelman compares this custom to the ‘secret handshake’ that affirms membership of a secretive group. But the DAO’s bespoke crypto token can also grant voting rights. In this way members, bound by the system of smart contracts, can influence the governance and operation of the DAO.
By the way, much of the important stuff happens on a blockchain. As a permanent public ledger, it allows the big decisions to be seen by just about anyone and your tech-savvy granny. Et voilà, a ‘trustless’ system run by machines for the people.
That’s the how. But (for now setting aside doubts on whether trust can be eliminated from human transactions) why start a DAO? Well, maybe you’d like to raise more than $45 million to buy a rare copy of the US constitution in a Sotheby’s auction. Or a more modest $4 million to buy a one-of-a-kind Wu-Tang Clan album. If successfully purchased—which, perhaps unsurprisingly, the US constitution, was not—members are free to dispose of their shared property in accordance with token-based votes.
Hmmm... To serious-minded readers, as put in a lauded guide on the subject, this may seem ‘a long way to go for a ham sandwich’.
Indeed, despite being music lovers, the prospect of a bit-share in a hip-hop album does not excite us here at SCALED, even one with so colourful a history of ownership as Once Upon A Time In Shaolin.
And, whilst we may enjoy political history, SCALED can’t seriously imagine sharing, with thousands of strangers from across the world, ‘governance’ (promised in lieu of ownership) of one of the 13 surviving copies of the original US constitution.
All the same, there is something quite exciting about all those crypto geeks raising $50-odd mill in a week. Crowdfunding through a website like Kickstarter in many cases may be more practical. That can even entail ownership of the funded product. But on-chain cooperation has the crypto advantage of flowing freely over borders and, to some extent, around the banking system. So you can see the attraction of DAO creation and membership to the world’s cyber-punks, especially at times when coins are up and wallets bulging.
For the ‘mad scientists of community governance,’ it’s a fun experiment, albeit one which may end in an attack from one’s own distributed Frankenstein.
These ventures are not without peril. Transactions can incur high fees, such that roughly half of ConstitionDAO donors saw a good chunk of their investment wiped out; a loss further compounded by the community’s dramatic failure to purchase the storied parchment. Some of these chaotic ‘chatrooms with bank accounts’ are constituted with more more realistic objectives in mind. But after the recent and spectacular stablecoin crash, is their future viable?
SCALED thinks so. Certainly, the crypto community is keeping the faith. At the time of writing, DAOs registered with data-collector DeepDAO are reported to hold almost $10 billion in assets. One issue that DAOists are working hard to resolve is the incorporation of an organisation without anyone to lead it.
For thoughts on that, and other related legal niggles, watch this space. Oh, and feel free to give us a shout through our socials.