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Round 3

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Over time, humans have always tried to optimize the structure of organizations to achieve higher efficiency of the production process and to adapt to new technologies. The Internet allowed people to seamlessly communicate and produce something together regardless of their location and, therefore, significantly increased the efficiency of human collaboration. It led to widespread digital communities that pursue shared goals and often manage collectively owned resources. One of the most daunting problems these communities faced is governance. The management of a community distributed worldwide is not an easy task, especially taking into account the absence of legal frameworks and possible mutual mistrust between members who never meet in person and can hide behind nicknames. There is also a well known problem of irrational public usage of the common resources, known as the tragedy of commons.

Blockchain technology allowed the development of governance frameworks for digital communities which are based on the principle “the code is law” and can successfully operate in an entirely trustless environment. The “code as law” approach leads to the automatization of the management of digital communities and ensures that all decisions and actions will be done on the basis of the defined ruleset and in the interests of the majority. Currently, such blockchain-based organizations that are represented by computer code and not influenced by a central government are defined as Decentralized Autonomous Organizations (DAOs).

The main features of a Decentralized Autonomous Organization (DAO) are:

• A fully-digital organization, whose operation is based on blockchain technology and defined by a set of smart-contracts

• Non-hierarchical organization

• Decisions are made by a collective decision-making process based on the voting of members

• Shareholders are represented by an autonomous network of DAO token holders

• The value created within the DAO is distributed among all members

• High levels of transparency and privacy: individuals control their identity and personal data

A brief history of the concept

The DAO concept was first proposed by Daniel Larimer in 2013 in his article devoted to the idea of Decentralized Autonomous Corporations for use in Bitshares. The founder of Ethereum, Vitalik Buterin, discussed the DAO concept and its variations in 2014 before the Ethereum network was launched. The DASH network became the first live DAO in 2015 by implementing a shared finance pool for ecosystem development, with allocation managed by owners of master nodes. The first large-scale DAO experiment started in May 2016, called “The DAO” project. It collected $150 mln in ether during crowdfunding and set a new world crowdfunding record. However, an attack on the DAO on 17 June led to the theft of 3.6 mln of ether by an anonymous hacker. It prompted an Ethereum hardfork to return the stolen money to investors. Besides The DAO, in 2016 another DAO project was launched - DigixDAO, which is still successfully operating nowadays. During the explosive growth of the blockchain industry in 2017-2018, numerous DAO projects were developed, most notable are Aragon, DAOStack and MakerDAO.

Examples of successful DAO projects

DigixDAO - the DAO launched in 2016, which aims to provide an opportunity for Ethereum users to use a gold-backed stablecoin;

Aragon - a platform that provides a service for creating new DAOs for Ethereum users;

DAOStack - a platform that is positioned as an “operating system for collective intelligence” and allows to create digital organizations and funds;

DASH - a digital currency whose main features are fast transactions and a special coin mixing service that improves transaction anonymity. The DASH DAO is implemented for collective decision making regarding allocation of resources for ecosystem development;

MakerDAO - a decentralized system for issuing the DAI stablecoin. The DAO is implemented for collective decision making regarding the interest rate of DAI issuance;

Decred - a community-driven digital currency with its own governance model. The DAO concept is used for the management of the ecosystem development pool;

DAO and Akropolis

The concept of a DAO is the basis for the creation of Autonomous Financial Organizations (AFOs) operating in the Akropolis network. Any organizations, created for the management of shared resources or goods production such as cooperatives, savings groups, and mutuals (if they are built on top of the blockchain network) can be considered DAOs with specific rulesets (such as a constitution). Thus, Akropolis is deeply involved in research and development to help such groups function smoothly.