One abstraction to explain DAOs is that it is a bank account on a blockchain. A group of people can collectively manage and control assets and resources. With traditional organizations on the other hand, there is a legal entity and a (traditional) bank account and resources are usually managed through that - usually more or less by one person at a time. The risk is that within that it can be closed down by the government or that one person embezzles funds, is reckless with them, or simply abuses their power because they have access to the bank account.
With DAOs, no bank account is tied to a central authority, but the value is tied to the blockchain and can be transferred accordingly within the blockchain without relying on a central authority. A smart contract can also be set against the DAO to create funds, which gives full transparency as to who is accessing the funds and this access could, for example, only be given collectively or proposed by the collective.
The term DAO has been watered down somewhat - an autonomous organization could basically be something like a fully anarchist organization; like one that is not dependent on the state. Not every organization with a smart contract is autonomous or decentralized - rather, it is augmented by smart contracts. Of course, a DAO, for example, encompasses shareholder voting, disputes, and accounting matters, as well as the organization's behavior and operating rules through the use of smart contracts, thus ensuring "social justice."
The main differences from a Traditional Top-Down Organization could be the following:
|Traditional Top-Down Organizations||Decentralized Autonomous Organizations|
|Top-Down Management||Distributed network of autonomous stakeholders|
|One legal entity||No centralized legal entity|
|Employment contracts||No employment contracts|
|Many levels of management to coordinate & enforce processes. Many information & decision bottlenecks and sources of corruption.||Machine consensus around token governance rulebooks and smart contracts instead of legal employment contracts.|
DAO service management platforms
In 2016, one of the early DAO, The DAO (Wikipedia), was developed and became the world's largest crowdfunding project at that time. Since then, a number of DAOs have been launched, such as Aragon DAO, DAOstack, Colony, and so on.
DAO service management platforms provide the ability to design, create, and manage companies, open source projects, foundations, hedge funds, and NGOs.
Idavoll Network is a decentralized organizational platform that provides infrastructure and services to users of the Idavoll Network and Polkadot Parachains. Each Idavoll Network organization exists as a set of modules that define the organization's stakeholders and their associated rights and privileges. Each Ethereum-based DeFi can run its governance process on the Idavoll Network through Polkadot Bridges.
Aragon focuses on providing a "secure and common backbone for building a general organization" rather than building products around specific decision-making mechanisms.
Aragon is built on the Ethereum blockchain. It aims to create an ever-growing ecosystem of dAPPs, crypto protocols, and DAOs that would compete in the form of governance capitalism. The goal would be to discover the most effective governance model that could later be implemented in real organizations and institutions.
Internal decisions, developments, and disputes are governed by a code of fundamental principles called the Aragon Manifesto. Some of the guiding values in this document are:
- Freedom of choice
- Disincentivization of violence
- Decentralization of power
- Long-term value over short-term gain
- User participation
Anyone wishing to develop a new project on Aragon must abide by these rules. The developers consider this document in its "alpha" form and expect the community to develop it over time.
Limited Liability Autonomous Organizations (LAOs)
LAOs are DAOs that are wrapped in a legally compliant entity, such as an LLC or C-Corp. The LAO can enter into legally enforceable contracts, hold off-chain assets (e.g., SAFTs), and pay dividends. Investors in an LAO must be accredited, but service providers who are compensated in LAO shares can earn their shares of the LAO portfolio.
Moloch is an Ethereum foundation program to fund infrastructure projects on Ethereum. Unlike Aragon, which has moral roots in the struggle against bad government, and DAOstack and Colony, which oppose the dysfunction of human organization, Moloch's foundations are solidly rationalist and cryptoeconomic, rooted in the trauma of TheDAO, among other things.
Members are anonymous, voting and ETH donations are all done on the chain, and voting rights are determined by the number of ETH donations. If a member holds a large number of votes and makes "wrong" investment decisions, the other members can drop out; ETH funds from the pool are then allocated according to the voting shares.
One technical achievement is the innovation around "ragequitting" (see whitepaper, page 5), where participants can opt out (with their share of resources) if they are dissatisfied with the decisions of their peers. This innovation creates a disincentive for bad faith and implicitly exerts social pressure on participants to remain aligned with organizational goals.
Moloch v2 (with legal compliance)
The LAO, in collaboration with the Moloch DAO and OpenLaw teams, along with MetaCartel Ventures, has introduced a number of enhancements to the original Moloch v1 smart contract design to support revenue-generating DAOs.
The current Moloch v2 contract standard was developed in collaboration between MetaCartel, ConsenSys's The LAO and Moloch. The MetaCartel Venture DAO is the first deployment of Moloch v2.
|MetaCartel Ventures||The LAO|
|Highlight||MetaCartel Ventures is a for-profit investment DAO project that associates with a legal entity. MCV has all the characteristics of a traditional venture capital fund, but lowers the barriers to entry for those who want to participate.||The LAO is an autonomous limited liability organization supported by OpenLaw that provides legal and fundraising support to new Ethereum companies.|
|Size||Grantees collectively raised $5.5M+ (cf. MetaCartel 2020 Recap, 4th January 2021)||14,809.82 ETH contributed|
|Future strategy||MetaCartel Ventures will continue to support the development of the DApp ecosystem and web3, which is dedicated to building and connecting encrypted application layer communities.||In the long term, it is hoped that multiple LAOs can be built on top of other protocols to ensure that protocol developers and other early supporters of the protocol can continue to drive network development.|
|Members||64 members||Limited to accredited investors and 99 members (current number unknown)|
|Investments||20 projects||62 projects|
|Focus area||Application layer||Focus on the development on Ethereum ecosystem, especially startup projects, and get investors involved.|
|Governance||Members are divided into three categories: mages, goblin and summoner.
1. Mages – Those actively sourcing deals, conducting due diligence and asset management. Requires active participation and will mainly consist of non-accredited investors.
2. Goblins – Passive investors contributing funds to the DAO to be invested in deal. This role assigned to accredited investors who wish to contribute without actively sourcing deals.
Summoners – Operational delegates for MCV responsible for coordination, legal and financial tasks for the DAO to make investments in any given deal, entity, company.
|Using OpenLaw, the LAO can be set up as a traditional legal entity.
The voting for the project is based on The LAO share held by the members. All shares are token and protected by official legal documents.
Members can also exit the DAO by "Ragequitting". To accept the investment, the project part must apply to become a legal entity in Delaware. After accepting the financing, it is necessary to continue to comply with the existing laws and regulations under the supervision of OpenLaw.
|Social media||Twitter: 5,605||Twitter: 5,785, Telegram: 1,648|
|How to participate||To join DAO as an investor, there are three requirements:
1. Legally accredited investor
2. Assets held meet the standard of DAO constraint
3. The injected capital meets the minimum standard of entry conditions.
|Only those who meet the U.S. legal definition of a "Accredited investor" can participate. An pledge of 120-1080 ETH is required to obtain 1-9% share.|
Original source: IOSG Venture, 2nd June 2020; updated: 31st March 2021 Axel Quack
DAOhaus strives to be "the most forward-thinking, user-friendly DAO experience." DAOhaus allows people to discover and join existing DAOs, as well as start individual DAOs. Starting a DAO on DAOhaus provides a landing page where others can commit to join. In addition, the DAO offers services such as:
- Custom Themes
- Discord Notifications
- Discourse Forum
- Gnosis Safe
- Offchain voting
- Liquidity Pools
- NFT Banks
DAOs may have their limitations, but the sheer idea of letting an entire collective decide how to manage and operate an enterprise is enough to keep one excited about decentralized autonomous organizations.
Let's proceed soon with how DAOs and LAOs are integrated off-chain.
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