DAO Distributed Autonomous Organization Explained

A DAO, or Distributed Autonomous Organization, is a decentralized system that operates on a blockchain network. It's essentially a group of people working together towards a common goal without the need for a central authority.

A DAO is built using smart contracts, which are self-executing contracts with the terms of the agreement written directly into lines of code. These contracts automate the decision-making process, allowing the organization to function without the need for intermediaries.

The first DAO was launched in 2016 and was a massive experiment in decentralized governance. It raised over $150 million in Ethereum and was designed to fund startups through a voting system.

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A Decentralized Autonomous Organization, or DAO, is a decentralized network of narrow-AI autonomous agents that perform an output-maximizing production function.

It's essentially a corporation run without any human involvement under the control of an incorruptible set of business rules, implemented as publicly auditable open-source software.

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A DAO is an algorithmically-governed programme that uses trustless decentralised computing to formalise multilateral relationships or transactions outside of traditional legal architecture.

The fact that a DAO operates itself in accordance with pre-defined rules and cryptographically secure architecture means that its users can reliably expect instructions to be consistently and securely executed.

A DAO is instantiated on a blockchain and is constituted of interacting Smart Contracts, which are computer programs that hold their own cryptocurrency wallets and can self-execute on the occurrence of a certain event or state.

What makes DAOs interesting is that they inherit the characteristics of blockchain technology that make it an attractive technological substrate to build upon, including transparency, decentralization, and autonomy.

DAOs control billions of dollars of assets and have already been the subject of litigation in the US, exposing participants to significant legal liabilities.

The concept of a DAO, or Distributed Autonomous Organization, has been around since the 1990s, but it wasn't until 2013 that it started gaining traction.

The term "DAO" was first proposed by Daniel Larimer in an article published on September 7, 2013, and later implemented in Bitshares in 2014 and EcoinOS in 2018.

The idea of a DAO is to use blockchain technology to create a secure digital ledger that tracks financial interactions across the internet, eliminating the need for a trusted third party in financial transactions.

Ethereum, launched in 2015, has been described as meeting the Turing threshold, enabling DAOs to run without human managerial interactivity, provided the smart contracts are supported by a Turing-complete platform.

The history of this topic is fascinating. The first recorded instance dates back to 1850, with a pioneering effort that laid the groundwork for future developments.

One of the earliest and most influential milestones was the creation of a foundational framework in 1923, which has since been built upon and refined.

The framework's creator was a visionary who recognized the need for a structured approach, and their work has had a lasting impact on the field.

By the 1950s, the groundwork laid by the 1923 framework had led to significant advancements, with the development of new technologies and techniques.

These innovations sparked a period of rapid growth and expansion, with many organizations and individuals contributing to the field's progress.

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The concept of decentralized autonomous organizations, or DAOs, has its roots in the 1990s, but it wasn't until 2013 that it gained widespread adoption.

The term DAO was first used to describe organizations deployed as smart contracts on top of an existing blockchain network, with Bitcoin being a notable example.

Decentralized technologies, such as blockchain, provide a secure digital ledger to track digital interactions across the internet, eliminating the need for a mutually acceptable trusted third party in any transaction.

This approach simplifies transactions and can substantially offset costs by eliminating the need for repetitive recording of contract exchanges.

The blockchain data could, in principle, replace public documents such as deeds and titles, if regulatory structures permit it.

Ethereum, launched in 2015, has been described as meeting the Turing threshold, enabling DAOs to run without human managerial interactivity.

Vitalik Buterin proposed that after a DAO is launched, it might be organized to run without human managerial interactivity, provided the smart contracts are supported by a Turing-complete platform.

Daniel Larimer first proposed the concept of a "Decentralized Organized Company" in an article published on September 7, 2013, and implemented in Bitshares in 2014, and EcoinOS in 2018.

Decentralized autonomous organizations aim to be open platforms where individuals control their identities and their personal data.

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The formation of DAOs is a complex process, and it's essential to understand the various options available. Currently, only three U.S. states—Vermont, Wyoming, and Tennessee—recognize DAOs as legal entities.

To register as a DAO, you can choose to register as a type of LLC in one of these states. However, if a DAO is not registered as a DAO-LLC, it may be "wrapped in" or "bridged to" another form of entity that is legally recognized.

Vermont, Wyoming, and Tennessee have specific legislation that recognizes DAOs as legal entities. Vermont's legislation, enacted in 2018, permits any company that uses blockchain technology to register as a "blockchain-based LLC" (BBLLC). Wyoming's DAO legislation, enacted in July 2021 and amended in March 2022, and Tennessee's DAO legislation, enacted in April 2022, specifically recognize DAOs as legal entities, permitting them to register as a type of LLC.

Delaware, although not recognizing DAOs as legal entities, has a well-established LLC format that can be adapted to accommodate DAO principles and procedures. However, this structure may impinge on the autonomous and decentralized nature of DAOs to some extent.

To form a DAO, you'll need to create a smart contract, determine a way to receive funding, and decide on the governance structure. Most DAOs raise funds by selling tokens, which give holders voting rights. Once the DAO is deployed on the blockchain, stakeholders decide on its future, and the organization's creators no longer have control.

Here's a brief overview of the formation process:

Decentralization is a key advantage of DAOs, allowing members to decide the future of the organization. This characteristic encourages members to innovate and establish new standards for receiving compensation in exchange for participation.

A sense of ownership is another characteristic of decentralized autonomous organizations, which can encourage members to contribute to the organization's growth. This is evident in how members of a DAO can provide proposals for protocol updates and improvements.

DAOs don't limit decision-making to the C-level boardrooms, which is a crucial benefit of a DAO. This allows stakeholders and numerous participants from all over the world to provide innovative ideas to the organization.

A Grant DAO is a type of DAO that distributes funds in the form of grants to support various projects, ideas, or individuals within a decentralized ecosystem. Examples of Grant DAOs include Gitcoin DAO, The LAO, and DAOstack.

The benefits of Grant DAOs include the ability to fund open-source projects and blockchain initiatives. For instance, Gitcoin DAO allows contributors to vote on grant proposals, allocating funds to projects that advance the development of the Ethereum ecosystem.

However, DAOs also have their disadvantages. One of the main challenges is the lack of a central authority to make decisions, which can lead to confusion and delays in decision-making.

The Moloch DAO, for example, has modified its original code and now makes for-profit loans in addition to making grants. This has allowed the DAO to provide a sustainable and speedily obtainable source of capital to fund open-source development on the Ethereum system.

The decentralization of a DAO can also make it difficult to enforce rules and regulations, which can lead to conflicts between members.

Here are some examples of DAOs that have successfully implemented grant-making systems:

In conclusion, DAOs offer many advantages, including decentralization and a sense of ownership, but also have their disadvantages, such as the lack of a central authority and potential conflicts between members.

The legal status of a DAO is unclear and may vary by jurisdiction. Wyoming became the first US state to recognize DAOs as a legal entity in 2021.

The US Securities and Exchange Commission has previously regarded similar approaches as illegal offers of unregistered securities. This means that known participants may be targets for regulatory enforcement or civil actions if they're out of compliance with the law.

A DAO may functionally be a corporation without legal status as a corporation, which means potentially unlimited legal liability for participants.

The legal status of DAOs is unclear, and this uncertainty can be a major concern for participants. It's essential to understand that some approaches to blockchain-based companies have been deemed illegal by the U.S. Securities and Exchange Commission.

DAOs may functionally be a corporation without legal status, similar to a general partnership, which means potentially unlimited legal liability for participants. This is a significant risk, as known participants or those at the interface between a DAO and regulated financial systems may be targets for regulatory enforcement or civil actions.

In July 2021, Wyoming became the first US state to recognize DAOs as a legal entity, with American CryptoFed DAO becoming the first business entity so recognized. This development may provide a clearer path forward for DAOs, but it's still early days.

One approach to resolving the uncertainty surrounding DAOs is to seek legal recognition as a new type of entity, specifically designed for decentralized structures. This would require legislative action and could involve creating a regulatory sandbox where DAOs can operate under provisional rules until a more permanent legal framework is established.

As a DAO member, you'll need to consider tax implications. DAOs are likely to be treated as business entities for tax purposes, meaning they may be subject to profits tax.

This can get complicated, especially when it comes to determining reportable income. DAO members may have difficulty figuring out their taxable income.

Investment DAOs may see gains or losses in their portfolio, which can impact their tax situation. Collector DAOs may see the value of their art or NFT holdings appreciate, leading to potential tax obligations.

DAO members engaging in taxable transactions like staking, lending, or mining may also be subject to tax. This includes the disposition of tokens, which can trigger tax liabilities.

It's essential to keep track of these transactions to ensure accurate tax reporting. DAO members may need to report their income and pay taxes on their gains.

A DAO's code is difficult to alter once the system is up and running, including bug fixes that would be otherwise trivial in centralized code.

Corrections to a DAO require writing new code and agreement to migrate all the funds, leaving known security holes open to exploitation unless a moratorium is called to enable bug fixing.

In 2016, a specific DAO, "The DAO", set a record for the largest crowdfunding campaign to date.

The DAO's operational procedure allowed investors to withdraw at will any money that had not yet been committed to a project, which could deplete funds quickly.

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The DAO's code had multiple security vulnerabilities, enabling an attempted large withdrawal of funds in mid-June 2016.

The Ethereum blockchain was forked to bail out the original contract on July 20, 2016.

A hacker exploited a bug in The DAO's smart contract code and was able to route about one-third of the funds held in The DAO's treasury to himself.

The blockchain code was immutable, making it impossible to return the stolen funds.

The DAO then closed down, and the Ethereum blockchain code was modified to include improved security and protocols for auditing the code.

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DAOs can be used to manage protocols and products, such as a decentralized exchange (DEX), where the DAO is responsible for managing the protocol and product development, as well as the treasury and allocating funds to developers.

A DAO can also be used to manage funds, like a decentralized hedge fund, where the DAO is responsible for managing the fund's investments and allocating funds to investors.

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DAOs can be used in a variety of ways, including managing organizations, communities, and charitable causes.

Here are some examples of DAO use cases:

DAOs can be used to manage decentralized exchanges (DEXs), where they're responsible for protocol and product development, as well as treasury management and developer funding.

One of the key benefits of DAOs is their ability to manage funds, such as in a decentralized hedge fund, where they oversee investments and allocate funds to investors.

DAOs can also be used to manage organizations, like a decentralized company, where they're responsible for operations and employee funding.

A DAO can be used to manage a decentralized social network, overseeing its operations and allocating funds to users.

DAOs can even be used to raise money for charitable causes, managing the charity's operations and allocating funds to good causes.

Here are some examples of DAO use cases:

Moloch is a DAO that provides grants and profit-making loans to support open-source development on the Ethereum system.

It was created in 2019 and has distributed about $1.4 million in grants to around 70 recipients.

Contributors deposit ether and receive voting power to vote on which projects the DAO should fund.

To become a member, the candidate must be endorsed by existing members, pass a member-driven evaluation, and be approved by the economic majority of members.

Moloch has modified its original code and now makes for-profit loans in addition to making grants.

Here are some key facts about Moloch:

NFT Philanthropy is a fascinating use case that combines art, technology, and giving back to the community. Pleasr, a DAO formed by 74 crypto artists, DeFi leaders, and entrepreneurs, is a great example of this.

Pleasr was created to bid on high-profile digital art pieces that represent important ideas and causes. Its members contribute funds to purchase the art, and then vote on what to do with it.

Pleasr has purchased several notable NFTs, including one for $4 million that depicts the image that inspired the cryptocurrency dogecoin.

Decentraland with Major Brands is a unique use case. Decentraland is a DAO that has created an online virtual world that functions as a combination of a game and a marketing channel.

The platform has become popular with celebrities and global brands as a way to reach digital audiences. Celebrities and brands like Morgan Stanley, Coca Cola, Adidas, Samsung, and Snoop Dog have all made Decentraland their "online home".

A plot of land in Decentraland costs at least $10,000, with the most expensive plots costing well over $1 million each.

The AssangeDAO purchased an NFT artwork by Pak to fund the legal defense of Julian Assange, the founder of WikiLeaks. This is a great example of a DAO using its funds for a specific cause.

MakerDAO is another notable DAO that maintains and regulates the Dai stablecoin, as well as providing lending services. It's been operational since December 2017.

The Internet Computer DAO has been operational since May 2021 and focuses on decentralized governance, protocol upgrades, and community control of software.

Here's a list of some notable DAOs:

The concept of DAOs (Decentralized Autonomous Organizations) is still in its early stages, but some projects are already making waves. One notable example is the Internet Computer, which launched in May 2021 and is operational to this day.

MakerDAO, another notable project, was launched in December 2017 and is still operational. It serves as a maintainer and regulator of the Dai stablecoin and provides lending services.

The ConstitutionDAO, on the other hand, was a notable project that aimed to purchase an original copy of the US Constitution. It launched in November 2021 but is now defunct.

Here's a list of some notable DAOs:

These projects are just a few examples of the many organizations and initiatives working on DAOs. As the space continues to evolve, we can expect to see even more innovative applications of this technology.

ShapeShift, a cryptocurrency trading company, was established as a corporation in 2014.

The company aimed to make cryptocurrency exchanges as easy as buying a drink from a vending machine.

In July 2022, ShapeShift announced it would dismantle its corporate form and transform itself into an unincorporated DAO.

The CEO emphasized the advantages of decentralization and the fluid market, allowing anyone in the world to become a token holder.

He stated that he would reduce his one-third ownership to 5% and stay actively involved in the DAO's ventures.

A future investor could potentially purchase a majority of the tokens and re-centralize the company, a result the DAO's rules were not designed to prevent.

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A DAO's source code is deployed in a blockchain with smart contract capabilities, such as Ethereum, which is always a public blockchain.

The rules for interaction among people in a DAO are specified in its smart contract code, which are self-executed independently of the parties' will.

These rules are defined using smart contracts, which means they are self-executed and don't require central control.

A DAO's governance should remain independent from central control, with some definitions referring to self-governed, self-organizing, peer-to-peer, and democratic control.

Since DAOs rely on a blockchain, they inherit properties like transparency, cryptographic security, and decentralization.

Typology is a crucial part of understanding the complexities of human behavior and social structures. It's a way to categorize and analyze different types or patterns of behavior, helping us make sense of the world around us.

Theory and typology are closely linked, as typology is often used to support and illustrate theoretical concepts. For example, the theory of personality types, which categorizes individuals into different personality types based on their preferences and behaviors, is a well-known application of typology.

The concept of typology dates back to ancient Greece, where it was used to describe the characteristics of different people and cultures. Aristotle's work, "Historia Animalium", is an early example of typological thinking.

In social sciences, typology is used to study social structures and institutions, such as the typology of social systems, which categorizes societies into different types based on their economic, political, and social characteristics.

DAOs enable people to coordinate and self-govern themselves online, with a minimum size of the group being unclear, but generally understood to refer to an entity comprising multiple people acting towards a common goal.

These decentralized autonomous organizations rely on blockchain technology, specifically public blockchains like Ethereum, to deploy their smart contract code and ensure transparency, cryptographic security, and decentralization.

The DAO governance model should remain independent from central control, with some definitions specifically referring to self-governed, self-organizing, peer-to-peer, and democratic control.

Some DAOs, like Moloch, have a vote-weighted multi-signature smart contract with a "ragequit" mechanism that allows members to opt-out and receive a proportion of the custodied funds equal to their voting weight at any time.

This allows participating members to retain control over their contributions and resist attacks with additional protections, such as anti-dilution scripts.

DAOs are being used to organize social and economic activity, with projects like Aragon, Colony, DAOStack, MakerDAO, and MolochDAO experimenting with new governance models and bottom-up approaches.

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These organizations are bringing together engineers, economists, lawyers, and governance experts to rethink the fundamentals of what organization can be in a 2020 context.

The DAO model has two core features: anyone can contribute and be rewarded based on resource contribution, and anyone can vote and influence the resource allocation process.

This is in contrast to traditional limited liability companies, where only a few people can buy shares and get rewarded in the form of dividends, but have full control over the network.

The DAO is transparent and open, with users deciding on the allocation of resources, which is a significant departure from Big Tech's centralized control.

As Web3 emerges, DAOs will become the de facto organizational structure, digital and global with broad-based governance.

An organizational structure fit to support trusted peer-to-peer interactions, DAOs will have a significant impact in the short term as they become formalized as new productivity software.

Here are some examples of DAOs being used in different contexts:

These examples illustrate the diversity of DAOs and their potential applications in various fields.

Social DAOs aim to address social issues and foster community engagement, utilizing blockchain platforms and smart contracts to enable collective decision-making.

DAOs can exacerbate social inequality, particularly when those with technical expertise and resources accumulate large amounts of voting power, concentrating power in their hands.

The investment-like structure of DACs can benefit those who establish and fund them, often reserving these opportunities for the already privileged.

DAOs have the potential to flatten inequalities between nations, as international backers can frictionlessly fund startups in developing countries.

In practice, this means that social DAOs like Giveth and Commons Stack can support charitable causes and open-source initiatives, promoting transparency and community engagement.

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Protocol DAOs are a type of decentralized autonomous organization that governs the development and maintenance of a specific protocol, like Uniswap, which oversees the governance of a decentralized exchange protocol built on Ethereum.

Uniswap DAO, MakerDAO, and Aave Governance are examples of Protocol DAOs, where token holders participate in governance to make decisions related to the protocol's development and upgrades.

These Protocol DAOs enable decentralized decision-making and coordination among community members involved in the development and use of the protocol.

Here are some examples of Protocol DAOs:

Organizational frameworks like DaoStack, Aragon, Colony, and the Economic Space Agency are pioneering further tooling and frameworks to eliminate problems encountered in the space.

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Protocol DAOs are a type of decentralized autonomous organization (DAO) that govern the development and maintenance of a specific decentralized protocol.

These protocols often underpin blockchain networks, defining the rules, consensus mechanisms, and functionalities of the network.

For example, Uniswap DAO oversees the governance of the Uniswap protocol, a decentralized exchange (DEX) built on Ethereum, allowing token holders to vote on proposals related to the protocol's development and upgrades.

MakerDAO governs the Maker Protocol, which issues the stablecoin DAI, with token holders participating in governance to make decisions related to collateral types, stability fees, and other parameters.

Aave Governance involves AAVE token holders voting on proposals to modify the protocol's parameters, introduce new features, or upgrade the underlying smart contracts.

The purpose of a Protocol DAO is to enable decentralized decision-making and coordination among community members involved in the development and use of the protocol.

Here are some examples of Protocol DAOs:

Organizational Frameworks play a crucial role in the development and operation of Decentralized Autonomous Organizations (DAOs). Several projects are pioneering further tooling and frameworks in this space to eliminate problems encountered thus far.

DaoStack, Aragon, Colony, and the Economic Space Agency are among the projects that are pushing the boundaries of DAO organizational frameworks. These projects are working to create more efficient and effective ways of governing and managing DAOs.

Aragon, for example, is a platform that allows users to create and manage their own DAOs. It provides a range of tools and features that make it easier to govern and manage a DAO, including voting systems and smart contract management.

Colony is another project that is working to create a more decentralized and autonomous organizational framework. It uses a combination of blockchain technology and smart contracts to enable more efficient and transparent decision-making processes.

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The Economic Space Agency is also working on developing new organizational frameworks for DAOs. It is exploring the use of blockchain technology and smart contracts to create more decentralized and autonomous systems for managing resources and making decisions.

Here are some key features of these organizational frameworks:

These organizational frameworks are an important step towards creating more decentralized and autonomous systems for managing resources and making decisions. They have the potential to enable more efficient and transparent decision-making processes, and to create new opportunities for collaboration and innovation.

A DAO, or Distributed Autonomous Organization, is an organization represented by rules encoded as a computer program that's transparent and controlled by token holders.

Decentralized Autonomous Organizations are not influenced by a central government, and their financial transaction record and program rules are maintained on a blockchain.

The precise legal status of a DAO is unclear, and it's a topic of ongoing debate and exploration.

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One well-known example of a DAO is The DAO, which launched with $150 million in crowdfunding in June 2016 and was immediately hacked and drained of $50 million in cryptocurrency.

A DAO's rules are encoded as a computer program, making them transparent and easily accessible to its members.

The DAO hack was reversed in the following weeks, and the money was restored, via a hard fork of the Ethereum blockchain.

This was made possible by the Ethereum miners and clients switching to the new fork, demonstrating the flexibility and adaptability of blockchain technology.

A DAO's financial transactions and program rules are maintained on a blockchain, providing a secure and transparent record of all activities.

Moloch is another example of an emerging blockchain-based governance model that uses a vote-weighted multi-signature smart contract to coordinate charity grants for Ethereum projects.

The Moloch DAO has a "ragequit" mechanism that allows its membership to opt-out and receive a proportion of the custodied funds equal to their voting weight at any time.

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