Blockchain Goes Beyond Cryptoassets

In the past years, the potential use of blockchain technology has expanded way further than its initial scope as the technology underlying cryptoassets, initially conceived as having a strictly monetary function.

 

More than a decade after its inception, blockchain technology not only supports cryptoassets and their trading, but constitutes the core technology underlying a series of new advances, including NFTs, smart contracts and DeFi.

 

However, blockchain technology, especially through the use of smart contracts, can form the basis of a new form of organisation – a decentralised autonomous organisation (or DAO).

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What Defines a DAO?

Ever since the meteoric rise and tragic demise of the 2016 DAO, the very idea of a decentralised autonomous organisation, composed of a bundle of smart contracts and deployed on a given blockchain, has lingered in the background and then started steadily expanding. Nowadays, hundreds and even thousands of DAOs or similar blockchain-based decentralised arrangements going by other names are in full operation. The recent growth of DeFi has only made DAOs and similar arrangements difficult to ignore.

 

DAOs are – like many other similar phenomena – difficult to define with precision, but one could say DAOs are forms of human organisation based on the blockchain technology, in which various associates pool funds (usually, but not necessarily, cryptoassets) to undertake a given activity (not necessarily for-profit).

 

What makes DAOs different is that the governance of the organisation is largely automated and decentralised, which means that the traditional role of the management body is replaced by a mix of direct management by associates and automated management through smart contracts.

 

  • They are decentralised because there is no centralised management and many important decisions are taken directly by associates, attempting to mitigate the traditional agency problem between shareholders and management.
  • They are autonomous because many decision-making powers traditionally held by the management can be entrusted to a smart contract. The smart contract defines the rules of the organisation and usually holds the DAO’s treasury. Imagine a mix between a company’s bylaws and management bodies.

 

Evidently, if one stretches the definition of a DAO wide enough, every blockchain could theoretically be considered a DAO. In this Project we focus on a more restricted concept in which like-minded people get together, pool their assets, deploy a bundle of smart contracts in order to invest in other projects or to provide services.

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So, It’s a Kind of Cryptocompany?

Yes and no. It’s a bit more complicated than that.

 

On one hand, one could say that, just like a traditional company is a bundle of contracts, a DAO is a bundle of smart contracts, or a very big and complex one.

 

On the other hand, very few DAOs are alike – many have governance structures closer to a traditional company while others operate in completely novel ways. The very boundaries of what constitutes a DAO are porous.

 

While some – like the original 2016 DAO – may resemble a company without management structure and a relatively open membership structure, others have since experimented with different organisational forms.

 

The huge variety in DAO organisation can also be seen in their membership structure:

 

  • Some DAOs prefer a permissionless “token-based membership” through the acquisition of a governance token on an exchange or earning on in exchange for liquidity through proof-of-work; and
  • Other DAOs prefer a “share-based membership”, more permissioned, in which any prospective member can propose to join the DAO offering some value – either tokens or work – in return.
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So, What Are Those Legal Challenges You Are Talking About?

As collective forms of carrying out an economic activity, but not being incorporated as companies, many DAOs live in a kind of “legal limbo”. If they register as companies, they will be subject to a number of rules on corporate governance and membership requirements incompatible with the decentralised and automated nature of their governance. If they do not, they risk being classified as partnerships in most jurisdictions, which usually entails several and joint liability of members and lack of limited liability.

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Examples of DAOs
MakerDAO
MakerDAO enables the generation of Dai, the world's first unbiased currency and leading decentralized stablecoin.
MolochDAO
MolochDAO is a Decentralized Autonomous Organization, deployed on Ethereum mainnet. Members contribute capital with the sole intention of giving it all away to fund Ethereum infrastructure as an essential digital public good.
The 2016 DAO (historical)
"What Was The DAO?" @ Cryptopedia
Aragon
Govern Better, Together. Build your Decentralized Autonomous Organization on open-source infrastructure with governance plugins.