The Spring of the DAOs
Since the fall of The DAO in 2016, decentralized autonomous organizations have strayed from the spotlight. However, developments and experiments in this area never stopped. In 2019, support for DAOs has been gaining momentum, as illustrated by:
- Availability of the three main systems for creating DAOs on mainnet: Aragon, DAOstack, Colony
- New initiatives for governing crypto protocols with DAOs, following that of Maker: KyberDAO (Kyber Networks), PolkaDAO (Polkadot), dxDAO (Gnosis)
- The creation of jurisdictions for DAOs, either as decentralized jurisdictions (Kleros, Aragon Court) or as traditional territory based ones offering legal vehicles for DAOs (Vermont, Malta, United Kingdom, etc.).
But perhaps the strongest signal that the advent of DAOs is now, is the fact that we're seeing enter into the "non-crypto" world. UK-based Nexus Mutual, for instance, is the first decentralized mutual insurance incorporated as a cooperative and driven by a DAO. Admittedly, the policies they issue now only insure smart contracts, but the project aims to insure other types of risks which are normally covered by traditional insurance companies.
In France, La Suite du Monde also plans to use DAOs to manage its funds and initiatives. This project seems as distant from the urban and virtual character of the crypto universe as one can be. Its purpose is to provide land as well as financial and legal support to "Imagined Communes", local, resilient, independent, self-organized cooperatives in the context of a possible collapse of our industrial civilization.
From Prague to Curacao, Athens and New York, new DAOs pop up everywhere. All these projects share the same spirit of discovery and experimentation, the same hope of creating fairer systems, the same ethos of decentralization that is the foundation of Ethereum and permissionless public blockchains. Nevertheless, their goals and their modes of operation are very diverse. That is why it may prove useful to clarify what DAO actually means.
What is a DAO?
DAO stands for "Decentralized Autonomous Organization". Each of these words can be interpreted in many ways, spawning different definitions of DAOs with emphasis on one aspect or another. In order to clarify the concept, let’s analyze each term.
The essential feature of DAOs is that their operating rules are programmed, meaning that they are automatically applied and enforced when the conditions specified in the software are met. This differentiates them from traditional organizations, whose rules form guidelines that someone must interpret and apply.
For example, imagine the case of an organization whose members wish to allocate funds to various projects through a commission of experts. In the case of a traditional organization, once the experts have given their opinion, employees must carry out many steps in order to release the funding, from drafting the minutes of the commission to sending the money transfer instructions to the bank.
In the case of a DAO, funds are instantly transferred as a result of the commission’s approval. Nothing can stop it, neither internal stakeholders nor third parties such as banks or even a public authority.
For the automated and secure execution of operating rules to be effective, they must be running on a public, permissionless blockchain such as Ethereum. There are two main reasons for this:
- Traditional software cannot directly handle funds. It can only transmit orders to the financial intermediaries in charge of moving money around. Using a public blockchain makes it possible to place (crypto-) currency or other (crypto-) assets under the direct and unique control of the DAO, which acts a software representation of the organization and of its rules of operation.
- Traditional software relies on an infrastructure operated by a third-party. If the rules are programmed in an application running on a cloud like AWS or on one of the company’s servers, then their execution depends on the cloud operator or the IT department, which are vulnerable to outages, errors, and outside influence.
A DAO is autonomous in the sense that its rules are self-enforced. No one can stop it nor change it from the outside.
<to be continued>