DAOs, or how to Replace Obsolete Governance Models

With interest around blockchain at an all-time high, many are considering building decentralized applications, specifically on Ethereum.

However, these developers are also hitting a brick wall when it comes to the correct way of ‘structuring’ their blockchain-based organizations. They often end up in the paradoxical situation of having to startup and govern manage their business in a traditional, centralized way, using either:

• Kickstarter, where participants get a reward in the form of a t-shirt or an early release item in exchange of cold hard cash … and not much else.
• The ‘presale’ or ‘ICO’ model, where the organization receiving the funds could disappoint or even defraud participants with no possibility for them to correct the project’s course or get their funds back.

This not only leads to rightful distrust from the public but also gives the impression that the technology just ‘isn’t quite there yet’.

We’re going to change all this by offering a 100% open source, decentralized DAO framework.

Important note: Slock.it is not a law firm and we are not in the business of offering legal advice. If you create a DAO using open source code it will be your DAO, and you will be responsible for its operation.

Challenges

When we started writing the DAO framework, we were immediately faced with a challenge: the formation and ongoing autonomous operation of fully-fledged organizations — potentially at the helm of millions of ether — simply had never been seriously considered before.

The Wikipedia page for DAOs is devoid of any practical information on how a DAO would go about its daily operations or efficiently manage its ether. This meant we’d have to start from scratch and write the rulebook on DAOs, in the form of a formal White Paper, due out next week.

For example, a problem we identified early on was the so called “tyranny of the majority” where an attacker could purchase 51% of the DAO’s tokens then forward 100% of its funds to their own Ethereum account. Currently proposed solutions such as quadratic voting only partially addressed this issue and induced stringent limitations onto the DAO’s governance and voting processes, making them considerably less attractive.

Furthermore, the term ‘DAO’ has been misused heavily in the recent months, with some groups going as far as adopting the “DAO” moniker when they in fact keep the vast majority of control over the organizations created.

The Way Forward

Reaching out to academics, experts in the field of decentralization and of course our own community, it became evident that while we weren’t the first project facing the challenge of creating a decentralized governance model, the prototypes engineered by our team were by far the most promising. In fact, the #DAO channel in our Slack is by far the most popular!

We have been working on designing a generic DAO framework for several months now — we also made it open source and generic, so that anyone can leverage it for their own benefit or educational interest.

Under the standard model, a DAO contracts out a series of Contractors in the physical realm to ‘execute’ its plans, keeping the majority of its ether safe and under DAO Token control.

To guarantee the Contractors will not act against the interest of the DAO, a group of signatories collectively called the “Contractor” validates Contractors’ Proposals then add them to the list of addresses authorized to receive ether (ETH) from the DAO.

There is no ‘premine’ of any kind: it’s the DAO that holds 100% of its token and ether, not the Contractor nor the Contractors.

All the code can be found on our Github has been reviewed by hundreds of pairs of eyes from our community as well as by one of the most respected auditing company in the world, Deja Vu. As it stands, it’s already considerably more appealing than any other governance models, as participants can elect to ‘pull the plug’ on the Contractors and Contractor at anytime, for any reason.

The DAO participants will peruse Contractor and Contractor proposals written in plain english, but the DAO itself will sign immutable and smart contracts defining deliverables, responsibilities and operating parameters.

We believe this is the first time a working DAO framework was attempted, and will concretely demonstrate the practical implications of the blockchain.

Our Goals

We want to provide the public with a tested, user friendly, generic DAO framework on top of the Ethereum blockchain, and for it to become the ‘Gold Standard” of DAO Token Sale and transparent governance. All the code will be released under the MIT open source license, as it’s one of the most permissive.

• To make it possible for anyone, anywhere in the world to set up a Decentralized Autonomous Organization — the notion of an entrepreneur in the developing world being able to set up a DAO, its governance, its incentive structure, should no longer be a promise of decentralized technology but a practical reality,
• To standardize how the creation of these entities is approached — which in turn would enable inter-DAO communications and interaction. A DAO could for example become a Contractor for another DAO. A good use case would be an Escrow DAO, an Auction House DAO, and a Delivery DAO working together to form a decentralized Ebay,
• To make it trivial to build a DAO — as easy as copy and pasting code into the Mist browser — and taking the mathematical complexity out of creating such an organization. By trivializing the underlying framework, we would expect to see a considerable increase the number of DAOs in existence, giving birth to a new, thriving ecosystem of decentralized organizations.
• To promote decentralized and blockchain technologies to the general public and mainstream media, shifting the conversation from the purchase of products and the use of crypto-assets as money to a healthier discussion around the merits of simplified and entrepreneurship without borders.

Next Steps

Updated April 2016.

Code: The standard DAO framework has shipped and is located at https://github.com/slockit/DAO, a code repository which technically-minded readers are encouraged to review. It recently was audited by of the most respected auditing company in the world, Deja Vu.

White Paper: Now ready for download, this Whitepaper by Christoph Jentzsch formalizes the specifications of a standard DAO framework smart contracts and describing their functionality in detail.

Proposal: Finally, we are exploring the idea of submitting a Proposal for the development of the Ethereum Computer to a suitable DAO.

As usual, feel free to join our Slack chat room.

About the Author

Stephan Tual is the Founder and COO of Slock.it.

Previously CCO for the Ethereum project, Stephan has three startups under his belt and brings 20 years of enterprise IT experience to the Slock.it project. Before discovering the Blockchain, Stephan held CTO positions at leading data analytics companies in London with clients including VISA Europe and BP.

His current focus is on the intersection of blockchain technology and embedded hardware, where autonomous agents can transact as part of an optimal “Economy of Things”.

Twitter: @stephantual
Contact: stephan@slock.it

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