DAO
DAO stands for Decentralized Autonomous Organization.
Thus, the DAO is a term to describe a new type of organization.
The DAO movement is intimately connected to the development of blockchain technology, more below. We can say that the DAO is a term to describe a new type of organization that is enabled by the blockchain technology, striving to exploit the full potential of this new technology. Our observations made until 2024 make us conclude that most organizations that brand themselves as a DAO fail to understand and to harness the full potential of p2p technologies. When we look under their hood, we see a mix bag of incoherent processes, most of them inherited from traditional firms, within an environment that strives to detach itself from traditional organizational patterns.
Thus, to understand the DAO it would not be wise to ask what is a DAO, but rather what is the potential of the blockchain technology in terms of new organizational models. The attitude should be oriented towards the future, what can become, not what it is. Imagine that back in the 80's you'd ask someone what is the Internet. Most people would say that it is a way to network computers to share resources. Today, the Internet is the backbone of the information society, it is at the core of the infrastructure for the global economy, it is also the medium of a new cultural revolution, and so on. But the Internet is still evolving and the question what is the Internet may have a different answer in the near future. Similarly, society hasn't fully grasped the potential of the blockchain technology and the question what is a DAO is less revealing than considering the DAO as a collective effort to explore the new space of possibilities in terms of organizational models, enabled by the constant development of the new p2p digital technology. This way of looking at it allows us to compare DAO to OVN, which is addressed at length on this wiki. In fact, we can see OVN and DAO as parallel and complementary efforts, and we can ask ourselves if these two collective endeavours will merge at some point in the near future.
Other groups have forked the DAO movement to explore the same space of possibilities under a different ethos. It is worth mentioning the DHO or Decentralized Human Organization, a term popularized by Hypha. We can also find the DAC or Decentralized Autonomous Corporation. All these variations have in common a reliance, do various degrees, on blockchain, while differing on their emphasis on social relations or compatibility with the traditional economy.
Blockchain and organizations
Currently, the DAO movement is blockchain-centric, i.e. it is composed by individuals who explore the space of new possibilities in terms of organizational models introduced by blockchain technology. In contrast, the OVN movement started by looking at the new space of possibilities introduced by web2 technology and was heavily influenced by the preexisting p2p movement, which emphasizes decentralized, distributed, and collaborative models of organization and interaction. p2p is a technology agnostic movement of disintermediation, trying to reduce reliance or to make obsolete centralized processes or hubs and move key processes to the edge of a network. Thus the OVN movement adopted the blockchain technology as yet another set of tools that can further the same agenda of developing an inclusive, decentralized global economy. The DAO movement started with the advent of the blockchain technology and seems to be in a process of discovering the preexisting and more generic p2p movement, i.e. in a process of generalizing its approaches beyond web3.
Permissionless decentralized blockchains provide an infrastructural foundation to facilitate coordination among strangers by reducing transaction costs. Moreover, smart contracts allow automation of certain type of processes as if-this-than-that patterns, in an immutable way, eliminating the need to trust the other parties (trust is displaced in the infrastructure and it is realized through: 1. transparency of the code, which is released under open source licenses, and 2. immutability. i.e. once set, no one can change it.
To understand this DAO movement we need to go to its origin, The DAO on Ethereum.
Remixed from Wikipedia
The DAO was a decentralized autonomous organization that relied on a set of contracts on the Ethereum blockchain, with no physical address or officials with formal authority, as on-chain organization. The theory underlying the DAO was that keeping operational power directly in the hands of owners, not delegated to managers, would ensure that invested funds would be used in the owners' best interests, thus solving the principal–agent problem.
As an on-chain organization, The DAO claimed to be completely transparent, since everything was done by the code which anyone could see and audit. However, the complexity of the code base and the rapid deployment of the DAO meant that neither the coders, the auditors, nor the owners could ensure the intended behaviour of the organization, with the eventual attacker finding an unexpected loophole.
The DAO was intended to operate as "a hub that disperses funds (currently in Ether, the Ethereum value token) to projects". Investors receive voting rights by means of a digital share token; they vote on proposals submitted by contractors, and a group of volunteer curators make sure that the projects are legal and the contractors are properly identified before whitelisting them. The profits from an investment will flow back to their stakeholders as specified in an on-chain smart contract.
The DAO did not hold the money of investors; instead, the investors owned DAO tokens that gave them rights to vote on potential projects. Anyone could pull out their funds by the time they first voted.
The DAO's reliance on Ether allowed people to send their money to it from anywhere in the world without providing any identifying information.
In order to provide an interface with real-world legal structures, the founders of The DAO established a Swiss-based company, "DAO.Link", registered in Switzerland as a limited liablity corporation (Société à responsabilité limitée, SARL), apparently co-founded by Slock.it and Neuchâtel-based digital currency exchange Bity SA. According to Jentzsch, DAO.Link was incorporated in Switzerland because the local law allowed it to "take money from an unknown source as long as you know where it's going."
Thus, the intent in the first DAO was a fixed and immutable mechanism to pull resources into a shared pool and use on-chain voting for their allocation, and a mechanism of redistribution of benefits.
New features enabled by Ethereum
- Internet native, no need of physical representation, address, head office (repository for papers and locus of activities)
- distribute power to members - no need of delegated managers
- complete transparency - open source code, smart contracts, public ledger of transactions
- permissionless - anonymity, radical inclusivity
These new features are still with the DAO movement, to various degrees. Other features were added, following the development of new DAO primitives.
Definition
DAO is an umbrella term for various attempts to explore the space of possibilities that web3 opens for organizational models. There are some attempts to define the DAO, which can be seen as working definitions, serving groups that share a specific ethos and vision of the world.
DAOs can be defined as computational organizations. DAOs are comprised of humans and technology, thus DAOs are also human-machine systems, where computational components aid coordination. According to institutional economists, DAOs are digital organizations.
Although the above description may seam interesting, it doesn't really add anything new to what already exists. All traditional organizations today rely on technology, computation to function, as many of their processes have been digitized.
Definition from RnDAO: DAOs are social collectives that exhibit organisationality. Organizationality depends on the degree to which social collectives fulfill the minimum criteria of what constitutes an organization (see also Ahrne and Brunsson, 2011).
RnDAO also sees DAOs as Communications (a metaphore), see reference
Although there are some insights in this definition, it does not address the specificity of DAOs that is inherited from Blockchain, on which they heavily rely. This definition was derived in a post that approaches DAOs under the assumption that they are something, instead of viewing them as a new phenomena, an endeavour to discover and enact a new potential introduced by the blockchain technology, viewing DAOs as becoming rather than being.
Enablers
Made possible by the affordances of decentralized, token-voting-based decision-making, smart, self-executing contracts, fully programmable information transparency, self-sustaining protocols, sovereign identities, cryptography and more.
History
The phrase “Decentralized Autonomous Organization” was first mentioned in the field of cybernetics by German Computer Scientist Werner Dilger. He understood the concept as a complex, multi-agent information processing system that is autonomous, i.e. self-sustaining and self-referential. In the the cybernetics approach DAPs are symbiotic human-machine ensembles (relation of co-evolution, co-dependence, and augmentation).
The recent history of DAOs is related to the history of decentralized technologies, encryption technology, and public blockchains. DAOs embody early cypherpunk ideologies of political decentralization. In this cultural context autonomy refers to self-governance or independence from external political direction or coercion, and it is pursued via technological means.
Vitalik Buterin, Ethereum co-founder made a post about “Decentralized Autonomous Corporation” (DAC) in Bitcoin Magazine (2013). The term appeared in the Ethereum whitepaper with other related terms like DAOs and DAs.
Started in the domain of finance, as decentralized finance – or defi – lending itself to fully leveraging the “programmable” nature of such a set of new technologies, given the fact that finance is a fully abstract and intangible market.
Comparisons
DAOs are not OVNs - See Sensorica's work in progress about DAOs
In this paper, Vinicious has reclaimed the term as Decentralized Autopoietic Organism.
Design Elements
DAOs can be designed for a great number of organizational functions to serve different objectives. They use various blockchains and blockchain technology and services.
DAO ontology affects DAO design
Composability in and between Organizations
About modularity, the role of teams, crossing organizational borders and more.
Individuals and teams (units, squads, …). Growing importance of the team-based unit of value creation and more modularity in the market
DAO composability is enabled from the composability of smart contracts.
- Composability must be a process design concern
- Teams need to grow the capacity to transcend the need for an overarching organization. Teams must be unbundled from the organizational constraints as much as possible.
Composability at the organizational level leads to composability at the deliverable level. "The need to recognize more continuity between DAOs (and extreme composability between the products that they create) is very strong in the DAO ecosystem ethos"
Trends in the corporate world
"Teams had to change the paradigm, starting to behave like small, self-contained organizations, with clear “actionable” boundaries that could be externalized". New corporate paradigm, units and teams powered by shared services.
- empowering small units with purpose autonomy and giving them full accountability;
- providing scale optimized platform-enabling services so that teams can focus on their core product/service/business model;
- seeing organizations as strategic venture incubators, investing capital, and aiming at churning out self-sustainable positive units;
- encouraging cross-divisional and, even more generally, an inside-outside partnership between units belonging to the organization, and outside players, for the formation of alliances aimed at creating new products and services.
open article source by Simone Cicero
Primitives
Launch
Various token-based schemes to drive liquidity into a new venture. See some info about DAOs in Genesis.
Proposal inverter
Represents funding primitive that “enables multiple groups or individuals to collaborate on common proposals, inverting the typical Proposal/DAO relationship to facilitate cross-DAO initiatives, such as co-funding shared research.”
In a few words, the proposal inverter provides a way for multiple DAOs to fund a team/squad that commits to certain outcomes. Allowing instead of one DAO to fund many proposals, multiple DAOs to fund a shared one.
“holds the potential to unlock economies of scale by allowing groups of contractors who operate between multiple DAOs to specialize and then cross-support each other as needed […] In other words, these collaborations could support not only shared research foundations, but also shared community processes, infrastructure and contributor base.”
Prime Pools
Example: https://www.prime.xyz/pools
Deals
Essential ways to pool and share ownership of entities across DAOs. Example: https://www.prime.xyz/deals
Governance
Technology is used to help with decision making and enforce collective decisions. Thus, DAOs provide an institutional infrastructure, to enact “a governance model sanctioned by software”. Usually meritocratic, formalized by its tokenomics.
See also more about onchain quadratic voting.
Legal structures
Legal scholars have defined DAOs as “a blockchain-based system that enables people to coordinate and govern themselves mediated by a set of self-executing rules deployed on a public blockchain, and whose governance is decentralized (i.e., independent from central control)”.
Aaron Wright states that DAOs “aim to be governed by democratic or highly participatory processes or algorithms”. This view focuses role that computation, algorithms play in DAOs to automate procedural elements of organizing, to allow humans to focus on the more substantive elements.
COALA researchers outlined 11 points for DAOs to meet the requirements for legal recognition as an entity, which constitute a legal basis for conceptualizing DAOs
- Deployed on a blockchain,
- Provide a unique public address for others to review its operations,
- Open source software code,
- Get code audited,
- Have at least one interface for laypeople to read critical information on DAO smart contracts and tokens,
- Have by-laws that are comprehensible to laypeople,
- Have governance that is technically decentralized (i.e. not controlled by a single party),
- Have at least one member at any given time,
- Have a specific way for people to contact the DAO,
- Have a binding internal dispute resolution mechanism for participants,
- Have an external dispute resolution mechanism to resolve disputes with third parties(e.g. service providers).
- Informal - no legal representation, only exists on the blockchain (Ex. Bitcoin, Ethereum, Uniswap)
- Associations
- Wyoming DAO LLC