Decentralized autonomous organization
Type of organization run via blockchain
From Wikipedia, the free encyclopedia
A decentralized autonomous organization (DAO), is a software system, typically implemented as smart contracts on a blockchain, that enforces organizational rules and processes through code. It coordinates transactions and state changes among addresses without centralized control, operating autonomously based on predefined logic. In its most fundamental form, it functions as an automated system for maintaining and updating distributed ledgers. For example, Bitcoin’s consensus mechanism has been described by some commentators as a proto-DAO[1], as it systematically organizes block data from decentralized participants without human intervention. The term DAO is often misunderstood, largely because 'organization' is interpreted as a collective of individuals rather than the systematic act of arranging and structuring components, the essential distinction that clarifies the true nature of decentralized autonomous organization. The precise legal status of this type of organization is unclear.[2][3]
DAOs are closely associated with cryptocurrency and Web3. The name and concept became popularized with the 2016 launch of The DAO, an Ethereum-based venture capital fund which amassed 3.6 million in ether cryptocurrency, then worth more than US$70 million, and was hacked and drained of US$50 million weeks later.[4] The hack was reversed in the following weeks, and the money restored, via a hard fork of the Ethereum blockchain. Most Ethereum miners and clients switched to the new fork while the original chain became Ethereum Classic.
Background
Although the term may be traced back to the 1990s, Bitcoin is widely accepted to be the first DAO[5] [6]. The term became more widely adopted in 2013 [7] and has evolved overtime to include smart contracts operating on top of existing blockchain networks.[7]
Decentralized autonomous organization is typified by the use of decentralized technologies, such as blockchain technology, to provide a secure digital ledger to track digital interactions across the internet, hardened against forgery by trusted timestamping and dissemination of a distributed database.[8][9][10] This approach eliminates the need to involve a mutually acceptable trusted third party in any decentralized digital interaction or cryptocurrency transaction.[9] The costs of a blockchain-enabled transaction and of the associated data reporting may be substantially offset by the elimination of both the trusted third party and of the need for repetitive recording of contract exchanges in different records. For example, the blockchain data could, in principle and if regulatory structures permit it, replace public documents such as deeds and titles.[8]: 42 [9] In theory, a blockchain approach allows multiple cloud computing users to enter a loosely coupled peer-to-peer smart contract collaboration.[8]: 42 [11]
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. Ethereum, built on a blockchain and launched in 2015, has been described as meeting that Turing threshold, thus enabling such DAOs.[8][12][13] Some decentralized autonomous organizations aim to be open platforms through which individuals control their identities and their personal data.[14]
Issues
Social
Tokens that enable signalling are often not used. Inactive tokens in DAOs can disrupt the possible functionality.[15]
Another risk is the concentration of power. In a study of decentralized finance DAOs, the distribution of tokens was shown to be highly concentrated among a small population of holders.[16]
Legal status, liability, and regulation
The precise legal implications of this type of organization system is generally unclear,[10] and may vary by jurisdiction. On 1 July 2021, Wyoming became the first US state to recognize legal entities governed by DAO.[17] American CryptoFed DAO group became the first business entity so recognized.[18] Some previous approaches to blockchain based business associations have been regarded by the U.S. Securities and Exchange Commission as illegal offers of unregistered securities.[2][19]
Security
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. Although the code is visible to all, it is hard to repair, thus leaving known security holes open to exploitation unless a moratorium is called to enable bug fixing.[20]
In 2016, a specific DAO, "The DAO", set a record for the largest crowdfunding campaign to date.[21][22] Researchers pointed out multiple problems with The DAO's code. The DAO's operational procedure allowed investors to withdraw at will any money that had not yet been committed to a project; the funds could thus deplete quickly.[15] Although safeguards aimed to prevent gaming shareholders' votes to win investments,[2] there were a "number of security vulnerabilities".[23] These enabled an attempted large withdrawal of funds from The DAO to be initiated in mid-June 2016.[24][25] On 20 July 2016, the Ethereum blockchain was forked to bail out the original contract.
DAOs can be subject to coups or hostile takeovers that upend its voting structures especially if the voting power is based upon the number of tokens one owns. An example of this occurred in 2022, when one individual collected enough tokens to give themselves voting control over Build Finance DAO, which they then used to drain the DAO of all its cryptocurrency.[26]
List of notable DAOs
| Name | Token | Use cases | Network | Launch | Status | |
|---|---|---|---|---|---|---|
| AssangeDAO | JUSTICE | Purchased Clock, an NFT artwork by Pak, to fund legal defense of WikiLeaks' founder Julian Assange | Ethereum | February 2022[27] | Operational | |
| ConstitutionDAO | PEOPLE | Purchasing an original copy of the Constitution of the United States | Ethereum | November 2021[28] | Defunct[29] | |
| Internet Computer | ICP | Decentralized Governance, Protocol Upgrades, Community control of software | Internet Computer | May 2021[30] | Operational | |
| FreeRossDAO[31] | FREE | Clemency for Ross Ulbricht, criminal justice reform advocacy organization | Ethereum | December 2021[32] | Defunct by May 2023[33] | |
| MakerDAO[34] | MKR | Dai (cryptocurrency) stablecoin maintainer and regulator, lender | Ethereum | December 2017 | Operational | |
| MoonDAO | MOONEY | Purchasing two seats on a Blue Origin flight to space and funding research to accelerate lunar settlement.[35] | Ethereum | December 2021[36] | Operational | |
| PleasrDAO | PEEPS | A group of art collectors who own the sole copy of the Wu Tang Clan album Once Upon a Time in Shaolin[37] | Ethereum | April 2021 | Operational | |
| The DAO | DAO | Venture capital | Ethereum | April 2016 | Defunct late 2016 due to hack[38] | |
| Uniswap | UNI | Decentralized exchange (DEX), Automated Market Making (AMM) | Ethereum & Celo | November 2018 | Operational | |
| HairDAO | HAIR | Organization behind Anagen, attempting to crowdsource online biohackers to solve hair loss.[39] | 2023 | Operational |
See also
- Aave — lending and borrowing of cryptocurrencies without the involvement of intermediary financial institutions
- Cooperative
- Decentralized Finance
- Decentralized application
- Decentralized computing
- Distributed computing
- Incentive-centered design
- List of highest-funded crowdfunding projects
- Smart contract
- The Social Contract
