DAOstack Coin Report

Nothing in this report should be taken as financial advice.

Background

If you already know what a DAO is, you can skip this part. If you don’t know, I would recommend using one of the linked resources below to learn a bit more before you proceed.

What is a DAO? — Coindesk

Decentralized autonomous organization — Universa

Decentralized Governance Matters — Matan Field

Decentralized Governance Reading List — Consensus Clubs

Or you could watch this video.

Summary

DAOstack is a protocol for building and managing decentralized autonomous organizations (DAOs). DAOstack places a heavy emphasis on effective governance using a system they’ve developed called holographic consensus. Holographic consensus is designed to allow large scale decentralized organizations to maintain the nimble and effective decision making capabilities of a startup.

Technology

Overview

DAOstack, as defined by its whitepaper, is, “An Operating System for Collective Intelligence”. It is an all-inclusive ecosystem, protocol, API, and interface for managing and upgrading DAOs. DAOs have many different applications, there is no “one size fits all” set of capabilities that will work for every DAO, therefore DAOstack has been built to be highly modular and upgradeable. The DAOstack protocol is composed of a stack of elements. Below is a brief overview of each layer of the stack from lowest to highest.

The DAOstack

Ethereum: The base layer blockchain which DAOstack is built upon.

ArcHives: The ArcHives is made up of three shared, curated registries.

1. Compendium: A digital marketplace for governance modules. Any DAO built on the DAOstack protocol may install governance modules from the ArcHives. Governance modules are upgrades that add additional functionality to organizations. Governance modules are listed on a public curated registry. This registry will allow for organizations to add functionalities that have been tried, tested, rated, and audited by the broader community.
2. Mosaic: A public registry of all organizations in the DAOstack ecosystem. Contains the metadata of each organization. It costs GEN to register or promote new organizations.
3. The Hive: A public forum which can be used by innovators, professionals, and stakeholders to connect and where work can be solicited. Offers and requests can be promoted by spending GEN.

Arc: The base OS of a decentralized organization. Arc is the code that makes up any given DAO.

Arc.js: A JavaScript library that allows for front-end web developers to build applications on top of Arc without needing to have any knowledge of Solidity. Any function contained within the Arc framework can be called using Arc.js.

Alchemy: Alchemy is a GUI frontend built to let users create, manage, and interact with DAOs in the DAOstack ecosystem. This includes allowing users to vote on proposals using a simple UI. Alchemy is also the first DAO to be released on DAOstack.

Token(s)

There are two tokens that are critical to DAOstack. The GEN token and the REP token.

GEN Token

• Used for governance of the DAOstack project (Genesis)
• Payment for registering DAOs in ArcHive
• Rewards for Token Curated Registries
• Staking tokens for or against proposals

The DAOstack ecosystem is supported by the GEN token. The main utility of the GEN token is to make stake-backed predictions on proposals. The GEN token represents the value of DAOstack’s prediction layer. Anyone who holds GEN can make a stake-backed prediction on any proposal, regardless of whether they are part of the DAO in which the proposal was created or not. If a token other than GEN were to be used for staking, it’s value would not represent the effectiveness of the prediction layer. This is similar to the value proposition of Augur’s REP token. Other drivers of value for GEN are the ArcHives. As the DAOstack project gets larger, the ArcHives will become more and more valuable. The ArcHives consists of a set of token curated registries in which the rewards are paid in GEN; more usage of the ArcHives means greater value for GEN. DAOs built on DAOstack do not need to use GEN, for example, Sapien, is using DAOstack’s reputation system but has no need for making proposals. It is reasonable to expect that governance modules built for DAOstack will be designed to be used with the GEN token, and DAOs that decide to use a different token for staking may not be compatible with modules listed in the Compendium, therefore losing access to the rich ecosystem the DAOstack is attempting to create.

REP Token

• Each DAO uses a REP (reputation) token which is unique to that DAO
• REP is non-transferable (must be earned, cannot be bought)
• REP determines the weight of an agents vote in a proposal
• REP is earned and lost through participating in decision making

DAO Native Token

• Each DAO may choose to create their own Token for whatever purpose that it may be needed
• A native DAO token could represent a share in the DAO, and this share can pay out dividends to holders

Holographic Consensus

When making decisions in large scale corporations, there is a reason that the big decisions are made by the executives and not the factory workers. The executives understand the long-term goals of the company, and they can see the organization at a high level which gives them a better sense of what’s best for the company as a whole. However, managers at lower levels often will have better information about what would benefit their specific function the best, information which might be beneficial to the entire company but often will not be acted upon if the decisions are not delegated well within the company. On the other hand, there are low level managers that will exploit other divisions within their own company, e.g. unfair transfer pricing, to make their own look better. This raises a dilemma, how do you structure the decision making process so that actors consider both their own gain, and the gain of the organization? Especially in a DAO, where there is less that unifies all the agents under once central vision, how do you stop agents from making the most selfish decision each time? A simple majority vote has many flaws, especially in a large-scale organization, it would be impossible to avoid the tyranny of the majority. We also can’t have everyone voting on every decision at a large organization, it’s simply not feasible.

Holographic consensus is a method of incentivizing non-majority groups to make decisions that benefit the majority. This is accomplished by allowing anyone to place a stake on the outcome of proposals. The stake serves two purposes, one, proposals with higher amounts of GEN staked on them will be more likely to get boosted, two, voters will want to stake in favor of the outcome they believe will be passed, which is whatever outcome they believe the majority will vote in favor of.

Proposals

I have a simple mind and I like pictures. I will attempt to explain how proposals work in DAOstack using simple words and a simple diagram.

Let’s say a University is being run as a DAO. In this DAO there are a pool of proposals. Anyone in the organization can submit a proposal by staking their REP. Anyone in the world who holds GEN (they do not need to be part of the University DAO), can bet whether any proposal will be passed or not, and their degree of conviction can be quantified by the amount of GEN they stake in favor of the direction they believe it will go. Once a proposal has enough GEN staked on its outcome, i.e. once it meets a threshold that will vary from dao to dao, it will get boosted. When a proposal is boosted it gets pushed into a pool with all the other boosted proposals. This pool is a smaller subset of proposals with large amounts of GEN staked on their outcomes, therefore these proposals will receive more attention from agents in the organization, and the general public. Boosted proposals need a relative majority in order to be passed. If a boosted proposal has 20% of the organization vote on it, and they vote in favor of the proposal, it will pass. This differs from proposals that are never boosted, which require an absolute majority (50%+) of the organization (or maybe just 50%+ of the organizations REP?) to participate in order for it to be considered.

The trickiest part of the proposals is understanding the token incentive structure. Don’t worry, it’s not too tricky. Anyone who votes on a proposal stakes 1% of their REP (reputation). When proposals pass, the “pass” voters’ REP is increased, and “fail” voters’ REP is decreased. When they fail, “no” voters’ REP is increased, and “yes” voters’ REP is decreased. This is only true if the voters voted before the proposal was boosted. Any voter who votes after a proposal is boosted, regardless of whether the vote is for pass or fail, will not receive any reward for proposals passing or failing. Post-boosted voters simply receive their 1% stake back. At any point from inception to the closing of voting, anyone can stake their GEN on the outcome of proposals, however, the earlier the GEN is staked, the greater (or lesser) the rewards once the proposal reaches a decision. This further increases the incentives for voters to vote in a way they truly believe will benefit the entire organization, and to always be on the lookout for beneficial proposals. The amount of GEN staked does not increase the weight of a vote. So Agent A who votes yes and stakes 0 GEN on the outcome will have the same effect on the vote as Agent B who votes no with a 1000 GEN stake, assuming their REP is the same. REP is the sole determinant in how much weight a vote carries. Remember, REP is non-transferable so it must be built up and earned for each DAO, it cannot be bought.

The illustration above is somewhat of a simplification, and it only covers the one case (a boosted proposal passing), but it is enough to understand what holographic consensus entails.

Scalability

Running a DAO itself is not very transactional, which means the core functionality of DAOstack should function relatively well within Ethereum’s current transactional throughput. However curated registries are very transactional, which is why the DAOstack team has decided to focus on the features that don’t implement curated registries before the ones that do. DAOstack may need to implement their own second layer scaling solution for those functionalities if Ethereum cannot scale itself quickly enough.

Development (Roadmap)

A detailed roadmap is to be released within the next few weeks and this section will be updated accordingly. It Includes…

• Done: Launch of Alchemy
• Q3/Q4 2018: Several pilots (including Genesis DAO, Gnosis DAO, DutchX exchange, Plantoid Pilot, and a few others to be announced)
• Q4 2018: Integration of several DApps (to be announced)
• Q1 2019: Development of the native predictors interface
• Q2 2019: Identity management, reputation flow, improved modularity
• Q3 2019: Mobile version, external integrations (Github, Slack, Telegram)
• Q4 2019: Off-chain architecture, IPFS and Swarm integration, delegate voting

GitHub

For this section I will refer to the wonderful people over at Crypto Laboratory.

“The way DAOstack is documenting their repositories is actually amazing and we don’t really see this kind of documentation in most of the ICO MVPs. Their prototype has some bugs, but somewhat mitigated by the fact that they are in active development. We think DAOstack is on the right track from a tech perspective.”

The codebase has been actively worked upon for nearly two years according to Matan Field.

Ecosystem

Use Cases

With DAOs, the possibilities are endless. I’ll list a few of my favorites below, just remember that virtually any decentralized application could use some form of decentralized governance.

Decentralized Fund Management: A collection of people can send their funds to a shared pool and then vote on which assets to invest in. This could work for venture funds, real estate investment collectives, charitable funds, etc. There are many reasons why people would want to pool their investment, they can make a larger impact, get access to deals which have a high minimum investment requirement, or reduce the impact that fees have on the investment.

Token Curated Registries: Take a list of the top 20 universities in the US. In this example, colleges are the candidates for the list, prospective students are the consumers, and token holders are the curators of the list. The more accurate the list is, the greater value it holds, if the list is inaccurate, it will be worth little. Token holders of the curated list have an incentive to vote as honestly as possible for the universities in the list and to maintain the accuracy over time by continually voting because it will increase the value of their holdings. Universities theoretically could accrue a large number of tokens and vote themselves into the list, however, challenging existing entries to the list requires staking your tokens, and if the university clearly does not deserve a spot on the list, the challenger will lose that stake. Moreover, if the university’s only way of getting on the list is acquiring even more tokens, to guarantee they don’t lose the challenge, the admission to the list will likely look suspicious to consumers, therefore devaluing the reputation of the list, and the value of the tokens they spent so much money to acquire.

Token curated registries are a simple, yet great use for DAOs. People rely on lists and rankings to help make judgements when there simply isn’t enough time to individually review every item that needs to be compared. However, the quality of lists can often be compromised when one party has an economic incentive to misrepresent the data. Curated registries provide greater economic incentives for the curators to remain honest, in turn making lists more reliable.

DPOS: If you don’t know anything about EOS or DPOS, go check out my EOS coin report! Block producers on the EOS network are centralized organizations. Although they can easily be voted out by token holders if they act against the interest of the community, the decisions they make in the first place are not going to perfectly represent the wants and desires of the community. Having block producers become DAOs offers the possibility of making decisions that are more in line with the community than a centralized entity could ever come up with, and could even offer the chance for block producer DAO participants to receive some of the block producer rewards. In fact, one block producer, eosDAC, is already attempting to follow a DAO model.

Governance

DAOstack is currently governed by a centralized development team, but the intention is that future development will be community led using a DAO structure built on DAOstack.

Projects in Development

Genesis DAO will be the first organization to be run on DAOstack. This organization will eventually evolve to manage and allocate the 40M GEN that has yet to be minted. This fund is intended for funding projects that will contribute to the DAOstack ecosystem in some way or another.

Partnerships

• Sapien — Uses DAOstack’s REP system to help curate a fake news free social news platform.
• Talao DAO — Decentralized autonomous organization of freelancers.
• Gnosis — Decentralized governance by users of Gnosis’ DutchX exchange.
• DATAfund — Decentralized platform for data exchange.
• Endor — Details to be released
• Menlo — Details to be released
• Cultu.re — Details to be released

Network

Telegram: 23k

Twitter: 6K

Reddit: 374

Competitors

• Aragon — ICOd in Q2 2017. Not designed for large scale collaboration or maximum modularity.
• Colony — Aiming to launch later in 2018. Designed more for small to medium scale collaboration and task focused.
• Horizon State — A decentralized voting platform to be used mainly by existing centralized organizations (like governments).

Funding

Token Distribution

• 7061 unique Ethereum addresses
• $30M (5073 ETH) Hardcap reached within 82 seconds
• Circulating Supply: 35.3M
• Total Supply: 60M

Allocation

• 10% — Team, advisors, and service providers with a two year lock up
• 10% — Future contributors (new team members, advisors, etc.)
• 40% — Sold in initial token sale
• 40% — Mintable in the future, managed by the Genesis DAO (used to fund projects)

Team

~20 people. Mainly based in Israel.

Matan Field — CEO and Chief Architect

• Co-founder and CEO of Backfeed
• Co Founder of La’Zooz
• Postdoctoral Research Fellow at Israeli Institute of Technology
• PhD in Theoretical and Mathematical Physics (String Theory, Quantum Field Theory, High-Energy Theoretical Physics, Particle Physics)

The rest of the team includes multiple PhDs in Mathematics, Physics, and Philosophy. There are a healthy number of developers with experience in distributed systems and successful startup exits.

Advisors

• Yoni Assia: CEO of eToro
• Martin Köppelmann: CEO of Gnosis
• Jordan Greenhall: Co-Founder of DivX and Mp3.com

Legal

DAOstack is working with three law firms in three continents. They aren’t taking any risk according to Matan.

“As far as I can tell, in its nature, GEN is a utility token, but on the other hand this is not an official statement in any jurisdiction, and more so, we operate under the (more restrictive) assumption that the GEN would be treated as security in the US (which is the default unless appoved otherwise), and thus fully comply with the RegD US procedure (meaning, selling tokens in the TGE and earlier sales only to accredited investors in the US. Selling to everyone in all other jurisdictions).”

but…

“The most exciting news is… that we finally got our legal doc today that we can hand exchanges supporting that our token is likely not a security… there are now a pipeline of exchanges we can start [to] move forward with.”

This tells me that the team is taking extreme care in regard to how the GEN token will be viewed legally. This is always a good sign.

Investment Thesis

DAOstack’s platform is extremely modular. Building a DAO is like building with legos, governance modules are designed to compatible and interchangeable. This interoperability incentivizes organizations to use the DAOstack protocol because they know there is a strong ecosystem around the software (just like Ethereum).

Many projects in the blockchain space use some form of decentralized governance. Nearly all ICOs are open source and they often involve international teams. DAOstack has the potential to become the platform for governance for these projects in the same way that Ethereum is the platform for fundraising.

Aside from the ecosystem, DAOstack’s key advantage is holographic consensus. The ability to build scalable DAOs and to have scalable decision-making capability is necessary if DAOs are to become mainstream.

The actual “stack” component of the DAOstack allows users to get involved with DAOs at any level they feel comfortable. Whether that means simply using Alchemy to vote on proposals, or coding new governance modules in Solidity, there is a place for anyone who wants to contribute or participate.

As of publishing this article, DAOstack’s market cap is below $7 million. Although this is quite unfortunate for ICO buyers, it does not reflect the quality of the project. Its nearest competitor is Aragon, which has a $55 million market cap. As with any investment, DAOstack is a gamble, but relative to projects with similar teams, partnerships, and quality of code, DAOstack seems undervalued. DAOstack is currently only listed on IDEX and Hotbit. The team is reportedly working with exchanges to get GEN listed on a larger number of platforms, but the lack of liquidity and exposure to the mainstream crypto investor crowd is what a lot of investors have blamed for the sharp decline in price post-ICO.

In conclusion, DAOstack is a project backed by a passionate and qualified team, with a compelling use case, and unique technology. I cannot tell you whether to invest in this project or not, but I do encourage you to DYOR and learn more about a project which I believe stands out as unique among the vast sea of ICOs.

Special thanks to Patrick Rawson, Aleph, and Matan Field.

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ETH: 0xF1B7aC7383588CBB4d3Ea7E166A5a0D57e161Ba7

EOS: ge4danrwg4ge