Continuous Organizations — v1.0
Following the publication of the Continuous Organizations whitepaper, there was lots of feedback that greatly helped me to improve and (hopefully) finalize the Continuous Organizations model. This article summarizes those changes.
The Continuous Organization whitepaper just got updated to version 1.0. Even though many improvements were minor, some were significant. These improvements address the shortcomings that were found in the previous version. If you have no idea what a Continuous Organization is, I suggest you read this introduction before reading further.
Removal of automatic dividends
In v0.9 of the whitepaper, a dividend function would trigger the minting of new tokens (called FAIRs in the Continuous Organization model) and their distribution to existing FAIRs holders. Likewise, when the pay() function was called, a fraction of the revenues were used to mint new FAIRs and distribute them to existing FAIRs holders. This dividend mechanism no longer exists in v1.0 and the dividend() function has been removed, advantageously replaced by the FAIR purchase capability offered to the beneficiary organization (see below for more details).
An important issue with this mechanism is that it was not easy to explain, making the Continuous Organization model more difficult to understand to laypeople. As “explainability” is key, especially for a new concept, so a change was needed: Funneling 100% of the value to the buyback reserve instead of minting and distributing new FAIRs has the same financial outcome for FAIRs holders and is much easier to understand.
On top of that, these automatic dividends were not trivial to implement and were quite gas intensive. And, to make things worse, automatic dividends represent a taxable event for FAIRs holder, which is not ideal.
Thus in v1.0, the dividend() function has been purely and simply removed. The pay() function remains but the fraction of the revenues derived to the DAT is now entirely funneled to the buyback reserve, without minting any new FAIRs.
Replacement of the self-investing capability by a FAIR purchase capability
In v0.9, the beneficiary organization of the DAT had the ability to invest in itself (“self-invest”) to buy FAIRs. This was a problem. Indeed, self-investing allowed the beneficiary organization to buy FAIRs at a fraction of the cost offered to others investors. This clear misalignment of interests could have led to serious abuse or market manipulation from unethical organizations and managers.
In v1.0, self-investing is no longer possible. The beneficiary organization can still buy FAIRs via the buy() function but, unlike other investors, the money sent by the beneficiary organization to buy FAIRs is funneled in its entirety tothe buyback reserve of the DAT. Thus, the beneficiary organization now buys FAIRs at the same price that an external investor does.
With this mechanism in place, purchasing FAIRs becomes the way to reward FAIRs holders. Indeed, given that 100% of the funds used by the beneficiary organization to buy FAIRs are funneled into the buyback reserve, every time FAIRs are purchased, the slope of the sell curve increases as illustrated below:
The beneficiary organization has the ability to increase the value of FAIRs by purchasing them (as seen in previous section) but, once purchased, the organization now has the ability to burn their FAIRs in order to increase the value of investors’ FAIRs even more.
Indeed, when FAIRs are burnt, their lowest possible value is then equally shared among all remaining FAIRs. For a detailed explanation and the calculus, please refer to this section of the whitepaper.
On top of the changes above, you will find in the v1.0 of the whitepaper detailed the calculus and proofs that were missing. If you are curious, you can find a detailed comparison with all the changes here.
With these improvements, and unless new serious issues are being found, I consider the Continuous Organization model to be theoretically finalized. The next step is now to provide the community with a reference implementation to give life to the first Continuous Organizations.
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