In every corner of modern society, the disadvantages of a single leader also exist in enterprises or organizations.
1. What is a distributed autonomous organization
Lead: The thief catches the king first
We often see such a plot in war movies. The defending army led by the heroic and warlike male protagonists is defeated in the face of a crushing enemy attack of strength and number. , The city wall immediately fell behind. But on the occasion of a desperate attack, the male protagonist crossed the enemy camp with help, and successfully killed the enemy leader. Enemy soldiers were instantly like headless flies, even with a huge lead, they immediately collapsed and retreated immediately (in some plots with fantasy elements, the soldiers were directly wiped out). Although the senses are refreshing and pleasant, it can’t help but make people think: This kind of “capture the thief to capture the king” failure is too meaningless.
In every corner of modern society, the disadvantages of a single leader also exist in enterprises or organizations. In the recent Ruixing fraud incident, Ruixing’s stock price fell from 24 US dollars to 2.4 US dollars, and was forced to delist from the NASDAQ; Musk smoked a most expensive cannabis in history on a radio program (special The market value of Sila evaporates 4 billion U.S. dollars; The Liu Qiangdong incident, despite being suspected of being a competitor ’s game, also evaporates the market value of JD.com, which is in good condition, 7.2 billion U.S. dollars. From this series of events, we can see that for a traditional company, the ability of the leadership, credit and even private life are sometimes more like a time bomb.
So what are the solutions in the future?
Distributed Autonomous Organization (DAO)
We imagine a situation in a company where all systems, management, regulations, and performance rewards are written into smart contracts and stored on the blockchain. Connect all internal individuals and organizations through smart contracts. We no longer need CEOs, CFOs, CTOs and other roles. Our members are all over the world, we do n’t even need offices, and we do n’t have expenses such as utilities. All decisions and governance will be passed through relevant rules and token incentives to avoid dependence on central authorities or people based on the collaboration of free people, which can also greatly reduce the risk of rent-seeking fraud.
First, here, the double-entry bookkeeping method has become a distributed general ledger technology;
Second, the laws protecting private property have become smart contracts;
In the end, the enterprise became a decentralized autonomous organization.
DAO (Decentralized Autonomous Organization), Chinese means decentralized autonomous organization. We can be understood as an autonomous company or organization that builds a blockchain and whose governance and rules are encoded in the form of smart contracts. We can see from its Chinese translation that the most important and basic characteristics of DAO are “decentralization” and “autonomy”.
“Decentralization” is reflected in that this is a completely “code is king” organization, and all daily operations are based on the decentralized infrastructure-blockchain. Therefore, it is not around high-level or shareholders, nor can it be controlled by an individual or organization.
“Autonomy” is reflected in that its daily operation is automatically enforced after programming and reaching a certain condition. Therefore, the clause “xxx has the final interpretation right” naturally disappears.
Figure 1: The difference between DAO and traditional companies, Source: BlockchainHub
Vitalik defines DAO as “an independent entity that lives on the network, but also relies heavily on people to perform certain tasks that it cannot accomplish by itself.” Richard Burton even stated more clearly: “DAO is a peculiar way, it is a Crypto system that lives on top of Ethereum.” Proof of the integration of economic incentives and asset-based blockchain elements to maximize organizational effectiveness and value transfer. If the above-mentioned organizations and enterprises involved in the scandal adopt a decentralized autonomous organizational structure that is sufficiently open, open, democratic, and transparent, we believe that we can avoid unnecessary losses.
Second, the blockchain community in the eyes of IOSG
Exhibit 2: Blockchain community map, source: IOSG Ventures
We believe that a community is actually a place where users gather and interact. According to Exhibit 2, we roughly divide the blockchain community into three categories:
Consulting community: It is mainly a platform for providing investors and developers with industry information and in-depth analysis.
Forum-type community: mainly to provide a platform for industry technical discussions, and self-media people and technical personnel can freely exchange technology and experience in the blockchain.
DAO: Various types of decentralized autonomous organizations (the focus will be further subdivided and compared).
3. Overview of Decentralized Autonomous Organizations (DAO)
In 2019, DAO is ushering in the first year of a collective outbreak. Various new concepts and expansions are emerging, especially this year we see the birth of new compliance financing and financial asset management DAOs. We take existing DAOs at an advanced stage. Sex is divided into two major categories-financing and governance, and Moloch and its fork are divided into four stages. The characteristics, scale, domain, governance model and other dimensions are introduced and compared.
https://shimo.im/sheets/qCtCrdgpcQ8r36RC/7tDgV/ “DAO Community Comparison Chart”, you can copy the link and open it with the graphite document app or applet.
3.1, DAO builders and infrastructure
Although this category belongs to the underlying service provider, it is not strictly DAO. However, DAO builders and infrastructure providers are designed to provide tools and platforms to build large-scale decentralized organization projects, which play a vital role in the development of DAO. The most famous DAO builders and infrastructure platforms that support decentralized governance are:
Aragon: A DApp on the Ethereum blockchain that allows anyone to create and manage any organization (company, open source project, non-governmental organization NGO, foundation, hedge fund, etc.). Aragon focuses on providing a secure and universal backbone network for the formation of general organizations, rather than building products around specific decision-making mechanisms. The biggest highlight of Aragon’s governance mechanism is that all its ANT Token holders have the right to supervise all decision-making proposals, including (the order of importance from highest to lowest): the scalability of smart contracts, the court (rank, structure, Processing fee), ANT Token policy, Treasury’s fiscal policy. In addition, Aragon is building a very complete ecosystem, including arbitration, and recently they have just established the Aragon court. All Aragon-based companies, organizations, or individuals can be adjusted through the Aragon courts if disputes arise.
DAOstack: Focus on building a larger-scale coordination platform for DAOs, using so-called holographic consensus and prediction markets to find out what organizational members should focus on (taking attention as a scarce resource). DAOstack clearly attaches importance to the decentralized decision-making mechanism, and the project focuses more on solving the inherent problems of large-scale decentralized decision-making. Daostack’s governance model is to use a token called GEN, and GEN owners can “promote” a proposal that they think is very important. The influence of GEN is added to Daostack’s algorithm, which makes the proposal “promoted” by GEN will be ranked first in the DAO vote, thereby attracting more effective attention from DAO members earlier.
Colony: Digital company platform, collaboration and payment tools with similar plug-ins, can be used by ordinary companies to take advantage of some of the community-led DAO. Compared with Aragon’s organization-based organization, Colony is web-based, more open and borderless.
3.2 Types of financing
The most salient feature of this type of DAO is-the main voting decision is based on whether to allocate or invest in a certain project.
The most famous project among them is The DAO, which is an investment fund, but its investment decisions are made by collective direct voting, rather than entrusted to a dedicated investment and research manager. It was hacked on Ethereum in 2016, which led to a hard fork of Ethereum, and was later announced to be closed. Although The DAO is a failed project, its formal innovation is unprecedented, laying the foundation for the rise of various types of DAO in the future. Here we mainly use the Moloch project as the basis and various forks derived from it.
Moloch is an Ethereum fund plan designed to provide capital support (crowdfunding) for Ethereum’s infrastructure projects.
The operating mechanism of Moloch DAO is that interested parties can send (donate) a certain amount of ETH to the system. Existing members vote to decide whether to accept them as members. Members can submit funding suggestions to the platform, and vote on other funding suggestions of other members in the system (minorities obey the majority). After a vote, Moloch DAO will provide financial support to certain projects. It is worth mentioning that Moloch DAO members are anonymous; voting and donation of ETH are all completed on the chain, and the voting rights are determined according to the amount of donated ETH. If a member holds a large amount of voting rights and makes a “wrong” investment decision, other members can choose to “Ragequit” to exit; then the ETH funds in the fund pool will be allocated according to the proportion of voting rights. The novelty of Moloch is that unlike traditional organizations, equity in this organization does not mean that you can continue to control and manage the capital of the organization. On the contrary, there is only one way to obtain the right to use organizational capital, which is to destroy their own shares and the corresponding voting rights to issue additional shares, which can effectively disintegrate the traditional division of corporate companies to encourage collaboration.
3.2.2 Moloch v1 bifurcation (89 total forks)
Representative projects: Metacartel, Marketing DAO
Moloch v1 forks are generally non-profit and are characterized by:
Only a single asset is supported-ETH.
After the proposal is passed, the assignee will receive some “shares”-a certain percentage of ETH can be exchanged with the guild bank. Then, the assignee exchanged these shares into wETH through a “retreat” mechanism.
Only DAO members can initiate proposals.
After the proposal is applied, line up directly to enter the voting link.
It takes about two weeks to process the proposal from beginning to end, that is to say, the price of “share” will also change with the fluctuation of ETH.
Metacartel is a DAO forked in Moloch v1. It aims to provide financial assistance to the development team of Ethereum by exploring smart contracts and new community governance methods. The main difference from Moloch is that Metacartel is mainly funded by application-level development teams. , Mainly based on the results and completion status of the development team’s products.
Marketing DAO focuses on decentralized autonomous organizations for brand promotion. The organization forks with MolochDAO and aims to promote the Ethereum brand in an Ethereum-style brand growth. Subsidies have been issued to 10 proposals, each with 80 DAI. Are proposals that help promote the Ethereum brand
3.2.3 Moloch v2 fork (total forks are 24)
Representative project: Daosquare Metafactory
Generally profitable. Enhanced technical level collaboration.
Supports more than 200 different assets
After the proposal is passed, any assets obtained do not need to initiate a “retreat share operation” to avoid being affected by volatility.
Joining GuildKick can be initiated by any member to force a member to retreat.
Anyone can submit a proposal.
Can initiate transaction proposals to allow DAO to trade its underlying assets for collateral swaps.
The proposal requires a member to choose “funding” to enter the voting stage.
Moloch v2 aims to expand the operation of MolochDAO from a purely single public product donation to an unlimited portfolio of assets formed by capture and expenditure (or investment). Multi-token support enables the DAO project to hold a variety of different assets-directly optimizing its investment capabilities, and can also obtain different types of tokens as income.
DAOSquare is a commercial startup project run through DAO. DAOSquare issued a token called RICE to map the company’s equity. We aim to build a global network because 1) The establishment of the community can increase the enthusiasm of the participants. 2) Realize the interconnection of values with a map-based visualization. Members pledge RICE to obtain an equal share of DAO, and thus have DAO’s governance rights and dividend rights. Among them, governance is implemented by voting. Similarly, members can withdraw through Ragequit at any time, burn the DAO share, and redeem the mortgaged RICE.
Metafactory is a business-oriented DAO, focusing on the incubation platform of free fashion brands in the community. This type of organization is more like a company. The main purpose is to develop for a business, such as making a product and providing services. The auction participants on the platform actually bought a part of the voting rights of the brand (and reap profits in proportion). Users can also participate in brand management and vote on the future direction of the brand label.
3.2.4 Compliance Moloch V2 Forking
Representative projects: Metacartel Ventures, The LAO
Before the launch of this type of project, the DAO model was flawed. According to the current law, only DAOs bound by smart contracts are restricted in terms of member recruitment and profitability. If DAO is profitable, then it will be subject to securities law. Even if DAO is the purpose of public welfare, it will touch the gray area of the law. This type of DAO has achieved legal commercialization, and has built a bridge between the traditional business world and the blockchain world.
MetaCartel Ventures is a profitable investment DAO project combined with legal entities. MCV has all the functions of traditional venture capital funds, but lowers the entry barrier for those who wish to participate. From the perspective of legal documents, MetaCartel Ventures is a limited liability venture company established in the United States, composed of 33 (as of now) certified investors and builders, and maintains the relationship of decision-making partners. The essence is a decentralized organization, using the v2 version of MolochDAO to manage organizational funds, allocate shares, and manage voting among members of the organization.
The LAO, or “Legal Autonomous Organisation” (Legal Autonomous Organisation) is an investment carrier based on blockchain and smart contracts. It aims to redefine a joint-stock company. Its proposal is to build an original capital scale of 250 for investors. Ten thousand dollars of experimental risk funds. The OpenLaw tool it uses can be used to create binding legal agreements and bind them to the execution of one or more smart contracts (including smart contracts that create and manage tokens). In this way, any token running on Ethereum and any smart contract have legal effect. LAO will set up a legal entity (in this case, a limited liability company based in Delaware), but the main management will be done through online applications (DApps) and related smart contracts. The LAO will provide a legal structure so that members can not only provide grants, but also invest in blockchain-based projects in exchange for tokenized stocks or utility tokens (utility tokens). Whether it is a physical project or an Ethereum-based project, once submitted to LAO, you can get financing for its project within a few days.
3.3 Types of governance
The main voting decision of this type of DAO is not to incubate projects or donate, but to make decisions about the governance of the protocol or blockchain. Another difference is that, unlike the financing type DAO, which is mainly for contributing to the development of an ecosystem, the governance type DAO generally only focuses on itself.
3.3.1 Protocol specific DAO
Representative projects: MakerDAO, Kyber
Mainly for governance decisions on the transaction or mortgage agreement on the chain.
MakerDAO is an automated mortgage platform on Ethereum and a provider of stablecoin Dai. Maker also uses the DAO framework to make agreement governance decisions, enabling the entire decentralized pledge loan system to operate. MKR voters will participate in Governance Poll and Executive Vote, change the Maker protocol and governance mechanism. Governance poll: Mainly to investigate and evaluate whether the stability fee needs to be adjusted and whether the DSR needs to be adjusted. If the voting result is different from the existing interest rate difference, the governance system will initiate an Executive Vote (execution voting), and the MKR holder will vote again to decide whether to write the previous Governance Poll interest rate difference adjustment result into a new contract and incorporate it into the Maker agreement.
Kyber is a decentralized token trading protocol on the pure chain, which can be executed on any blockchain that supports smart contracts. KNC holders will vote on the network fee rate, the distribution method of fee income and the value creation plan. The pledgee can delegate its voting rights to a third party “pool” to vote on their behalf. After the end of each voting period, there is reserved ETH as a voting reward.
3.3.2 Layer 1 chain management DAO
Representative project: Dash
Token holders directly use the internal tokens of the network to vote on corresponding measures. The agreement will directly calculate the votes, and subsequent results will be automatically carried out.
Dash is a public chain. As the first distributed autonomous organization, its code allocates a part (10%) of block rewards (usually used to pay financial rewards for verification transaction work) into the fund pool and allocates it to the budget managed by network members , Used to reward technology development and promotion actions that are useful to the project. To date, hundreds of proposals have been adopted in DashDAO, covering areas including funding development efforts, marketing, and community awareness efforts.
3.3.3 Financial Asset Management DAO
Representative projects: StakerDAO, Stake DAO
StakerDAO is a community of investors, based on the Tezos blockchain, the purpose is to create a governance process with a new investor model to start a new decentralized financial application. Treat STR as a shared token and rely on the Tezos blockchain to manage the distribution and exchange of tokens. STKR token holders are responsible for electing the council, electing five Staker council members, and working with the operations team to submit monthly Staker proposals. Examples of proposals may include, for example, tokens that initiate synthetic tokens, index funds, or stable tokens. Five staff council members voted on the proposal. The project profits will eventually flow back to the STKR token holders. It is a bit similar to makerdao (ready to issue stablecoins) but not the same (decision range). StakerDAO released the first Blend token financial product, anchoring a basket of POS public chain tokens.
Stake DAO serves Staking Capital, a Staking service provider, and distributes the value generated by the DeFi package to representatives or participants of Stake Capital through Stake Capital token (SCT).
Users can put SCT into DAO and get regular staking rewards. SCT tokens can also be used for governance voting to make major decisions, including the types of staking services listed, modifying the revenue persistence period, and SCT expenditure rate (which will decrease after each period to reward early investors). At the same time, each collateral asset will generate Liquid Token (LToken) at a ratio of 1: 1, which can be traded in the secondary market as a derivative.
Among the above-mentioned DAOs, the largest and most successful are DASH and MakerDAO, and I personally think that the most novel is the financial asset management type StakerDAO, which follows the Maker ’s dual currency model for governance, but it is not limited A stablecoin is a financial asset with unlimited possibilities. Compliance DAO is the most in line with future trends. We did not go deep into each DAO to understand and feel the community atmosphere inside, so there is no way to judge which DAO is the best. However, we believe that a successful decentralized autonomous organization must have the following four points: (1) a strong development team; (2) excellent code and token incentives (2) a high level of community consensus; (3) Diversity and high tolerance; (4) High activity.
But in the final analysis, the best way to understand an organization is to join it.
4. Advantages and problems of distributed autonomous organizations
It provides each investor with an equal opportunity to shape their organization’s future success and have a say in the decision-making process. Since the organizational structure is not restricted by traditional hierarchical management lines, every innovative idea and suggestion can be fully considered by the entire organization.
Bureaucracy has always been a challenge within hierarchical organizations, which has greatly slowed the process. In a completely decentralized organizational structure, transaction processing time is faster and more efficient. In addition, since submitting proposals and participating in voting requires a certain number of tokens for each stakeholder, this encourages them not to waste time on invalid solutions.
As a DAO built on the blockchain, every financial transaction, rule, rule and decision is recorded on a public ledger for everyone to view. The adoption of a consensus system also means that each stakeholder participates in helping decide how to use the organization ’s funds and track the amount spent.
4.2. Possible problems and shortcomings
Due to the immaturity of the technology itself and potential security risks, the immutability of smart contracts is both an advantage and disadvantage of DAO. Once the contract rules are coded, the system will be up and running and it will be difficult to change them. In addition, because the code is visible to everyone and difficult to repair, any known security issues may be exploited. Other known smart contract security issues include transaction ordering dependence (TOD), timestamp dependence, and mishandled exceptions.
Although some countries have legalized the use of cryptocurrency and blockchain technology, the exact legal status of using DAO as a common structure is still unclear. Startups that adopt the DAO business structure need a legal framework to conduct business legally in certain jurisdictions and interact with the traditional financial system and the intellectual property world. Otherwise, DAO participants may have to bear legal responsibility.
DAO’s decision-making power is very democratic, but its technical knowledge is very complicated and profound. Many voters do not have the relevant decision-making ability, and some even know nothing about the issues they voted for. It adopts the mechanism that the minority obey the majority, so the result of voting is not necessarily optimal, and it may be dominated by the chaebol / holding the majority voting right.
5. IOSG Ventures’ prospects for DAO
IOSG believes that DAO is the ultimate form of the crypto economy, but it is still in the early stages of development, and there are still many problems including: protocol technology security, compliance, and endogenous problems in governance decisions. At the beginning of its birth, it coexisted with hope and controversy. On the one hand, The DAO’s fall has made its safety questionable. On the other hand, the success of MakerDAO and DASH rekindled hope. With more and more technological breakthroughs and the emergence of DAO service providers, we can predict the future trends of decentralized autonomous organizations:
The emergence of more theoretical studies defines the characteristics of DAO and conducts in-depth research on the dimensions of economics, biology, historical anthropology, etc., to lay the foundation for future development and technological breakthroughs.
Richer types of innovations have emerged, reforming and upgrading all industries and industries in the physical world in an infiltrating manner. Imagine if the rescue in Wuhan is based on DAO decision, the goal is the same, all information is uploaded to the blockchain, all participants quickly raise materials through smart contracts, and vote on the distribution of materials according to the information on the chain. At the same time, the materials are quickly transported to the hospital point-to-point. In order to avoid information asymmetry, and put the process and personnel in the middle, will it be more emergency?
To be more compliant, local governments have issued various documents that restrict DAO’s legal responsibilities. More DAOs similar to The LAO corporate form appeared.
As Defi grows stronger after 2019, DAO will receive more attention as DeFi’s best governance tool.
Restrictions on relevant rules and the strengthening of token incentives find a balance between freedom and efficiency. Because excessive decentralization will reduce the low participation and lack of unity of goals, so the efficiency is low and the focus is vague. However, if it is too centralized, it will lack the listen to the opinions of the members and lose its original intention.
Finally, we believe that the concept of Crypto democracy not only protects the principles of a democratic society, but also improves the disadvantages of corruption and system breakdown through technological development, model innovation, and reasonable incentive mechanisms. With the emergence and upgrade of more and more different types of decentralized autonomous organizations in 2020, we have reason to believe that the application of DAO will definitely develop from the bottom up in the future, repeating the forms of governance and financing from the current chain Experiment and continue to improve until it is strong enough to be finally adopted by national-level or large-scale enterprises
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