Updated: Dec 21, 2019
I was listening to the podcast “Unchained” hosted by crypto/blockchain journalist, Laura Shin, the first time I ever heard of DAO, (Decentralized Autonomous Organization). Laura was interviewing Luis Cuende, the CEO of Aragon, during the podcast, and none of what they were talking about really made sense to me at first. I forgot about it until the Medium article “Introducing the Ethereum Marketing DAO” popped up in my news feed. That article intrigued me to learn more about DAO. This is what I found out:
DAO: Decentralized Autonomous Organization
Decentralized: There are two aspects of decentralization to keep in mind. First, Blockchain is the underlying technology to provide a secure digital ledger. Decentralization means that, technologically, it is not in control of a central authority. No one can unilaterally shut down a DAO as they are primarily built on a public blockchain. The second aspect concerns the organization structure itself. DAO runs without a leader or hierarchy, and is governed by a cooperative community.
Autonomous: First is execution autonomy - A DAO's rules are pre-programmed in smart-contracts at the beginning and built into the code. The code is transparent for all to analyze. During execution, there is no interpretation of the rules from humans, and rules are enforced by software. DAO also has financial autonomy because transactions get done in DAO's native cryptocurrency. For operations to continue, there is no dependence on existing financial systems.
Organization: The organizational structure is flat, having no hierarchy, and governance is handled through democratic processes of proposals and voting. Owners make decisions about the DAO. The number of tokens that a person purchases forms the basis of ownership. That number also defines their relative voting power within the DAO structure. The seed money used to acquire tokens is also the starting capital for the organization.
A study of DAOs would not be complete without looking at the history of DAO and how it forever impacted Ethereum. In the summer of 2016, "The DAO" was started by a token sale. It was created on Ethereum as a set of smart contracts and it was meant to be a venture capital fund for projects. Its members, who contributed capital, were able to vote on projects to get funded using the DAO token. Profits from investments were distributed back to the members. But before the experiment could take place, someone found a vulnerability in the code and siphoned away approximately $50 million USD. The "hacker(s)" was working within the realm of code in the smart contract, and nothing could be done to stop it since the deployed smart contract was now immutable - as per Blockchain characteristics. This event put Ethereum's reputation at stake, and the community had to respond. After debate, a decision was made to introduce a hard fork. And so we now have Ethereum Classic and Ethereum. At best, "The DAO" was a failed experiment. You can read more about the shaping of Ethereum in this article by the Coin Insider, “The Story Of DAO, And How It Shaped Ethereum.” To understand how the DAO experiment is progressing today, I took a closer look at a few functioning DAOs:
DAOstack.io - Creating the platform for governance of decentralized organizations on a global scale. The benefits touted are to cut costs, effective budgeting of shared resources, and to scale limitlessly. DAOstack is also managing its development project using Genesis DAO, which I am assuming runs on its platform.
Colony.io - Also provides a platform to build Dapps and also a Dapp that provides tools to create and run DAOs.