The DAO (organization)

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The DAO
Decentralized Autonomous Organization
Industry Cryptocurrency software venture capital fund
Founded 2016
Area served
World (stateless)[1]
Key people
Simon Jentzsch, Christoph Jentzsch
Total assets +$100 million
Owners +18 000 stakeholders[2]
Number of employees
0 (automated)[3]
Website www.daohub.org

The DAO is a digital decentralized autonomous organization and a form of investor-directed venture capital fund.[4]

It has been instantiated on the Ethereum blockchain, and has no conventional management structure or board of directors.[5] The code of the DAO is open-source.[6]

The DAO has an objective to provide a new decentralized business model for organizing both commercial and non-profit enterprises.[5][7]

The DAO is stateless, and is not tied to any particular nation state. As a result, many questions of how government regulators will deal with a stateless fund have not yet been dealt with.[8]

The DAO was crowdfunded via a token sale in May 2016. It set the record for the largest crowdfunding campaign in history.[4]

History

The computer code behind the organization was written by Christoph Jentzsch, and released publicly on Github.[4] Simon Jentzsch, Christoph Jentzsch's brother is also involved in the venture.[4]

The DAO was launched on 30 April 2016, with a website and a 28-day crowdsale to fund the organization.[9][10] The token sale had raised more than US$34 million by 10 May 2016,[11] and more than US$50 million-worth of Ether (ETH)—the digital value token of the Ethereum network—by 12 May,[10] and over US$100 million by 15 May 2016.[9][12] The fund's Ether value as of 21 May 2016 was more than US$150 million,[13] from more than 11,000 investors.[14] The largest investor in DAO so far holds less than 4% stake.[15]

As of May 2016, the DAO had attracted nearly 14% of all ether coins ever issued.[1]

Since 28 May 2016 the DAO tokens are tradable on various cryptocurrency exchanges.[16]

Operation

The DAO is a decentralized autonomous organization[17] that exists as a set of contracts among people that resides on the Ethereum blockchain;[18] it does not have a physical address, nor people in formal management roles.[10] By removing delegated power from directors and placing it directly in the hands of owners the DAO removes the ability of directors and fund managers to misdirect and waste investor funds.[19]

As a blockchain-enabled organization, the DAO is completely transparent: everything is done by the code, which anyone can see and audit.[20]

The DAO is 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;[10][17] they vote on proposals that are submitted by "contractors" and a group of volunteers called "curators" check the identity of people submitting proposals and make sure the projects are legal before "whitelisting" them.[4] The profits from the investments will then flow back to its stakeholders.[2]

DAO does not hold the money of investors; instead, the investors own DAO tokens that give them rights to vote on potential projects.[21] Anyone can pull out their funds until the time they first vote.[2]

The DAO’s reliance on Ether has allowed people to send their money to it from anywhere in the world without providing any identifying information.[21]

In order to provide an interface with real world legal structures, the founders of the DAO established a Swiss-based company, DAO.Link, registered as a SARL (Société à Résponsabilté Limitée, "the Swiss version of an LTD") in Switzerland, apparently co-founded by Slock.it and Neuchatel-based digital currency exchange Bity SA.[10] According to Jentzsch, DAO.Link is in Switzerland because Swiss law allows it to "take money from an unknown source as long as you know where it's going."[4]

Marketing

In May 2016 the creators of the DAO described it as "a paradigm shift in the very idea of economic organization"[17] and claimed that "it offers complete transparency, total shareholder control, unprecedented flexibility, and autonomous governance."[17]

Risks

In May 2016 the plan called for the DAO to invest Ether in ventures it would back (contractors) and to receive in return "clear payment terms" from contractors. The organizers of the DAO promoted the DAO as providing investors in the DAO a return on their investment via those "clear payment terms" and they warned investors there is "significant risk" that the ventures funded by the DAO may fail.[22]

Risk exists from unknown attack vectors and from programming errors.[18] As of May 2016 additional risks of the DAO included the lack of precedence in regulatory and corporate law; how governments and their regulatory agencies would treat the DAO and contracts it makes was unknown. As of May 2016 there was a risk that there may be no corporate veil protecting investors from individual legal and financial liability for actions taken by the DAO and by contractors in which the DAO invests.[22] It was unclear if The DAO was selling securities, and if it was, what type of securities those might be.[14]

Additionally, to function in the real world, contractors would likely need to convert the invested Ether into real world currencies. Attorney Andrew Hinkes has said that those sales of Ether would be likely to depress the value of Ether and have a deflationary effect on the currency on which the DAO depends.[22]

The code behind the DAO has several safeguards that would make it hard for its creators or anyone else to game the voting of shareholders to win investments.[21]

Proposals

Slock.it (an IoT venture), and Mobotiq (a French electric vehicle start-up) were the only two ventures that were whitelisted for potential funding on the daohub.org webite during the May "creation period". Both Jentzsch brothers are involved in Slock.it as well.[4]

According to Tual, "DAO so far can do anything the investors want, but ideally it could finance start-ups and projects building applications on Ethereum".[15]

Social impact

According to Newsweek, the DAO could play a role in the democratization of capital:[23]

If you play that out, the movement will take power from the hands of Wall Street, hedge funds and venture capital companies and make it more likely that the middle class will share in the successes of the networked economy. That would be a lot better outcome than some of the predictions that say software and robots will punt 95 percent of the population out of meaningful work.

According to Frontera, the DAO allows to fund millions of local projects globally, especially in emerging markets where entrepreneurs still struggle to set up companies and where finance is non-existent.[19]

See also

References

  1. 1.0 1.1 Staff, The Economist. May 21st 2016 The DAO of accrue. A new, automated investment fund has attracted stacks of digital money
  2. 2.0 2.1 2.2 Tom Simonite for MIT Technology Review. The “Autonomous Corporation” Called the DAO Is Not a Good Way to Spend $130 Million
  3. Brady Dale for The Oberver. May 20, 2016 The DAO: How the Employeeless Company Has Already Made a Boatload of Money
  4. 4.0 4.1 4.2 4.3 4.4 4.5 4.6 Waterss, Richard (2016-05-17). "Automated company raises equivalent of $120M in digital currency". Financial Times. Retrieved 2016-05-17. 
  5. 5.0 5.1 Rennie, Ellie (2016-05-12). "The radical DAO experiment". Swinburne News. Swinburne University of Technology. Retrieved 2016-05-12. When it reaches the end of the funding phase on May 28, it will begin contracting blockchain-based start-ups to create innovative technologies. The extraordinary thing about The DAO is that no single entity owns it, and it has no conventional management structure or board of directors. 
  6. "The DAO: How the Employeeless Company Has Already Made a Boatload of Money". 20 May 2016. Retrieved 31 May 2016. 
  7. Allison, Ian (2016-04-30). "Ethereum reinvents companies with launch of The DAO". International Business Times. Retrieved 2016-05-01. 
  8. "The DAO of accrue: A new, automated investment fund has attracted stacks of digital money". The Economist. 2016-05-21. Retrieved 2016-05-23. 
  9. 9.0 9.1 Vigna, Paul (2016-05-16). "Chiefless Company Rakes In More Than $100 Million". Wall Street Journal. Retrieved 2016-05-16. 
  10. 10.0 10.1 10.2 10.3 10.4 del Castillo, Michael (2016-05-12). "The DAO: Or How A Leaderless Ethereum-Based Organization Raised $50 Million (Even Though No One Quite Knows What It Is)". CoinDesk. Retrieved 2016-05-13. 
  11. "Ethereum DAO Crowdsale, the Most Successful Crowdfunding Campaign". NewsBTC. 2016-05-10. Retrieved 2016-05-12. 
  12. Morris, David Z. (2016-05-15). "Leaderless, Blockchain-Based Venture Capital Fund Raises $100 Million, And Counting". Fortune (magazine). Retrieved 2016-05-16. 
  13. Popper, Nathan (2016-05-21). "A Venture Fund With Plenty of Virtual Capital, but No Capitalist". New York Times. Retrieved 2016-05-22. 
  14. 14.0 14.1 Macheel, Tanaya (19 May 2016). "The DAO Might Be Groundbreaking, But Is It Legal?". American Banker (News). Retrieved 23 May 2016. 
  15. 15.0 15.1 "Virtual company may raise $200 million, largest in crowdfunding". 17 May 2016. Retrieved 31 May 2016 – via Reuters. 
  16. Merkle, The. "Recap of The First 24 Hours of Trading The DAO Token – The Merkle". Retrieved 31 May 2016. 
  17. 17.0 17.1 17.2 17.3 Bannon, Seth (2016-05-16). "The Tao of "The DAO" or: How the autonomous corporation is already here". TechCrunch. Retrieved 2016-05-16. 
  18. 18.0 18.1 Castillo, Andrea (2016-05-24). "Can a Bot Run a Company?". Reason. Retrieved 2016-05-25. 
  19. 19.0 19.1 "The DAO Will Soon Become The Greatest Threat Banks Have Ever Faced". 25 May 2016. Retrieved 31 May 2016. 
  20. "Ethereum’s $150-Million Blockchain-Powered Fund Opens Just as Researchers Call For a Halt". Retrieved 31 May 2016. 
  21. 21.0 21.1 21.2 "A Venture Fund With Plenty of Virtual Capital, but No Capitalist". The New York Times. 22 May 2016. Retrieved 31 May 2016. 
  22. 22.0 22.1 22.2 Andrew Hinkes for CoinDesk. May 19, 2016 The Law of The DAO
  23. "Democratized capital initiatives allow anyone to be an investor". Retrieved 31 May 2016.