The Myth of the DAO
My claim: There does not exist a single legitimate DAO in the market at the moment.
Define “DAO”: a true decentralised autonomous organisation. Conditions:
- No legal (read: centralised) entity involved
- No key-holder(s) that is able to unilaterally change code
- Is an actual organisation (has income or existing funds to manage with Treasury)
For DAO to even be a concept that makes any sense, it necessarily must eschew the legal system, otherwise we would consider anonymous shareholder corporations to be DAOs. Instead, DAO’s take the corporate structure with “limited liability” to the extreme, where where is no liability. The principle is to bring layer 1 consensus (like Bitcoin) to organisational form. Any one bitcoin miner or node-runner is not responsible for a transaction processed involving a crime.
Not wanting to get into what counts as a valid governance structure (Democracy, Republic, rotating dictatorship, whatever)
Instead, at best what are currently called DAO’s are nothing but often VC-funded startups masquerading as DAOs in an attempt to get cover against securities laws. Why don’t they just do it as a corporation and have limited liability protection under the law? Because it’s not enough, again the attempt is to go to the extreme and remove liability entirely, because it’s so decentralised that nobody can stop it as is, and hence nobody is responsibility for unlawful behaviour associated.
How the DAO “raises funds” is somewhat relevant too, SEC report on “The DAO” (applying more generally as well to decentralised autonomous organisations” https://www.sec.gov/news/press-release/2017-131
Hester Pierce proposed alternative approach “Safe Harbour” https://github.com/CommissionerPeirce/SafeHarbor2.0 (not SEC policy)
Bounds/questions:
- Should a DAO be able to kill itself? (and as such, can the state force it to kill itself?)
- If DAO chooses to elect a single person to run things (make whatever code changes, etc), and they do something illegal (use DAO treasury to take a hit out on somebody), is that leader responsible — morally, legally?
- In the end, on-chain orgs are about transferring value, managing value — — so, does DAO pay taxes? If so, where? (if operating “on chain” on a geographically fully dispersed, decentralised manner)
- What should DAO’s “vote” on — instead of writing “bills”, it would just be code that people use governance mechanisms to determine whether or not to merge, then there is no interpretation beyond the implications of the technical changes made (including config/parameter changes to a protocol, or major feature additions)
But what about:
- Maker (no, they have a foundation, legal entity, it’s even being sued for liquidation losses https://www.coindesk.com/28m-makerdao-class-action-lawsuit-arbitration )
- Sushi/Yearn/etc (no, they are just “tyranny of the multisig” where a handful of people, without even any other stake in the organisation necessary, can trivially collude to change/destroy the organisation)
