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DAO does not have a first year

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When you type "DAO Year 1" in the search bar, you will find that every year since 2016 is called DAO Year 1.

Original author: "Is 2022 the first year of DAO?" "

Original author: Beam | H.Forest Ventures

In the summer of 2020, we used AMM to open up the decentralized world about The last hurdle in finance, after which the lending platform Compound launched Token, which was used to issue rewards to users in a process called liquidity mining, and then countless other protocols that imitated the concept of DeFi emerged one after another, and the price of Token soared, and DeFi Erupted. We call it DeFi Summer, or we call 2020 the first year of DeFi.

In March 2021, after 14 days of online bidding, the digital work "Every Day: The First 5000 Days" by an American artist was finally sold in RMB equivalent The price of about 450 million was traded. Subsequently, a large number of users and funds poured into the NFT field like a tide, and the PFP market was hard to find. Affected by this upsurge, the gas fee of Ethereum remained high. This year, we call it the first year of NFT.

In 2022, when we are used to the year, month, and day divided by the sudden wealth effect, when we are used to the influx of massive capital, when we are used to sleepless nights Mining, robbing, the next concept explosion, the next narrative upgrade, the next grand perspective, which track should it be born on?

Some people say that 2022 should be the first year of DAO.

In fact, when you type "DAO Year 1" in the search bar, you will find that every year from 2016 is called DAO Yuan Year.

The first year, the first year, which year is the real first year, the future, the future, when will the future of DAO come.

01 Another possibility for modern organization

1937, Ronald Coase , the creator of the Coase Theorem, proposed in his landmark articles "The Nature of the Firm" and "The Problem of Social Cost" (these two articles won him the 1991 Nobel Prize): When the cost of participating in market transactions Too high and people will naturally organize together into more or less formal institutions, such as associations, partnerships, corporations, chambers of commerce, or other types of organizations.

Traditional organizations are prone to encounter transaction cost problems during operation and production. There are mainly two types - information cost and implementation cost, which are divided according to the production process , should be: search cost, negotiation cost, contract signing cost, implementation cost, supervision cost, etc.

DAO is another possibility for modern organizations. Connect completely different individuals through a code-based system to reduce search costs and negotiation costs; Token specifies a new paradigm of decentralized ownership to form a new form of contract; smart contracts that are automatically executed according to an agreed set of rules abstractly regulate Governance process, thereby reducing enforcement costs and monitoring costs, that is, all costs related to ensuring that agreements are implemented and enforced when necessary.

To truly understand that "DAO" cannot be separated from the context of the blockchain, and cannot be separated from the discussion of "ownership" and the "governance issue" it guarantees, It cannot be separated from the discussion of "code" and its "primitive language". It is precisely because blockchain protocols have demonstrated their potential as effective new systems for rethinking traditional finance, supply operations, and other use cases that DAOs have been repeatedly mentioned in recent years.

To make DAO truly become the mainstream feature of financial and cooperative organizations, and to predict when the "DAO first year" will come, we might as well clarify a few questions first—— Until these much-discussed dilemmas and use cases are truly accepted by everyone without barriers, the real explosion of DAO will not come.

02 Legal Dilemma of DAO

1. DAO practice on the verge of failure

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The DAO is one of the early substantial experiments in using smart contracts to manage and coordinate economic activity. In early May 2016, some members of the Ethereum community announced the formation of The DAO, also known as Genosis DAO, with the aim of making it a venture capital fund for the crypto and decentralized space. It is built as a smart contract on the Ethereum blockchain. The code framework is open source developed by the Slock.It team, but deployed by members of the Ethereum community under the name "The DAO". The DAO has a creation period during which anyone can send Ethereum to a unique wallet address in exchange for a 1:100 ratio of DAOToken. An unexpected success during its creation, it raised 12.7 million ether (worth $150 million at the time), making it the largest crowdsale ever.

While The DAO has the potential to fund promising projects in the Ethereum ecosystem, it violates US securities laws due to its lack of legal structure. In its 21(a) report, the U.S. Securities and Exchange Commission (SEC) argued that the offering and sale of digital assets by “virtual” organizations is subject to the requirements of the federal securities laws.

In the case of The DAO, the SEC determined that The DAO was established as a venture capital fund, and The DAO Token was a security, a for-profit corporate organization, and therefore subject to the Federal Securities Regulatory Commission legal constraints. These tokens are provided by a core organization and promise to make a profit. Therefore, unless a valid securities law exemption applies, any tokens associated with an ownership interest in the for-profit The DAO must be traded on a registered exchange, protecting investors and ensuring they are subject to proper disclosure. The SEC reiterated that the law does not disappear just because an organization relies on blockchain technology.

2. Seeking a Legal Entity: LLC Operations Exploration

DAO and Almost All Types of Law Entities all have common features, including partnerships (general and limited liability), corporations, non-profit organizations, and cooperatives. For DAOs, the most fundamental question is "How is a DAO considered a legal entity?" or "What characteristics of a particular DAO lead to certain liabilities for individual members?" The new category paves the way for operating as an LLC.

In April 2020, Aaron Wright, co-founder of The LAO, drafted the now-passed "Wyoming DAO Act," making the DAO legal in Wyoming admit.

Under this type of legal structure created in Wyoming, individual members are shielded from personal liability for the actions of the DAO - similar to a limited partnership or LLC , but different from general partnerships. But unlike traditional hierarchical corporations or entities whose management has a fiduciary responsibility to the DAO, all members of a DAO have a responsibility for participation and equal access to information.

Currently, members of The LAO are limited to qualified investors under US law, and the total number of members is capped at 99.

Users join by purchasing "LAO Units" representing the ownership of The LAO. The price of each unit of "LAO Units" is 310ETH, and members will receive 0.9% The LAO voting rights, and the right to obtain 0.9% investment income, each member can only purchase up to 9 units of "LAO Units". Members need to pass the review of accredited investors, AML, KYC and Office of Foreign Assets Control (OFAC).

Following Wyoming's lead, other states could identify two types of DAOs: member-managed or algorithmically-managed. Member-managed DAOs are governed and managed through a blockchain-based voting mechanism (usually a governance token). In this case, the decision-making power belongs to the members and is controlled by a majority of members voting on behalf of the proposal. Algorithmically governed DAOs are fully controlled by the underlying smart contracts. Under these two types of DAOs, the governance of DAOs, including the relationship between members and DAOs, rights and voting rights, transferability of members’ interests, etc., are all programmed into the DAO’s articles of association or smart contracts. Significantly, under Wyoming law, a DAO's smart contract is now recognized as the legal equivalent of a business or organizational certification similar to articles of incorporation and other legal documents.

3. Council DAO: legal mapping of "real world"

Although DAO has Significant operational advantages (i.e. transparency, tamper resistance, ability to raise and deploy funds quickly), but other challenges must still be overcome. One of the pain points encountered by DAO is: how to sign contracts with service providers on behalf of DAO. In a council DAO, service providers can more easily interact, negotiate and contract with the DAO. On the other hand, companies organized under traditional legal structures need to think more acutely about how they will interact with DAOs.

At least in the short term, the most efficient and seamless option for DAOs to interact with traditional corporations is the Council DAO. Such a council DAO would implement a designated core group of individuals approved by members (possibly creating a "real world" corporation) to represent and execute the DAO's approved actions (such as entering into contracts or agreements with other corporations) and properly manage the organizational day on behalf of the DAO. daily business.

An example is FWB, which created four core teams - Governance, Board, Team Leaders and Contributors - to make it clearer who is responsible for what, and how new community members can contribute. This also removes the operational headache of having every project in day-to-day business vote for the DAO. The core team has the power to retain services, negotiate contracts, develop and publish platform terms, hire people, and manage the operational tasks of the DAO.

In fact, FWB’s board of directors setting, that is, adopts the projection method of “real company” in the traditional world, which is consistent with the internal vision drive and development direction of FWB organization fit. For example, FWB is one of the few DAO organizations with external financing, which makes it look more like a company or start-up organization. After financing in the first half of 2021, it was finally announced in October 2021, with a total of 10 million raised by a16z. Estimated at 100 million. According to the official disclosure of FWB’s financing use, its financing funds are mainly used for team building and expanding the influence of offline real-life activities through FWBcities, among which FWBCities aims to expand the footprint of DAO in real life and cooperate with specific spaces and communities in the city , bringing real-world benefits to FWB members.

From the perspective of membership rights, you can unlock Fullmembership by holding 75 $FWB. In addition to having the right to manage members, you also have the Eventsapp with Token as the threshold , NFTgallery, Venture focusing on the Web3 field, virtual music studios, offline Meetups in reality, and party participation qualifications around the world.

It can be seen that what is digitized in FWB is only the identity, interest, education background, and life experience of the members, and what is abstracted is not the relationship between people Agreements and relationships, but only part of the characteristics of members' social life, it always focuses on interacting and connecting with the offline world - the council DAO has become the best and most convenient solution at present.

However, this solution, or a compromise, is not fully in line with the flat and decentralized vision of DAO governance. We have seen Some DAOs object to these structures in favor of more fully or fully decentralized decision-making. Despite these technical and legal challenges, the DAO's luster has not diminished.

4. Law-based code compliance principle

MetaCartel community in September 2018 It already exists. On June 5, 2019, the smart contract of MetaCartelDAO was officially deployed to the Ethereum mainnet. The initial supporters include MaticNetwork, NuCypher, SpankChain, Gnosis, AdEx, TheGraph, Abridged, Odyssey, and Giveth, as well as more than a dozen other individual investments In July 2019, MetaCartelDAO was officially launched.

In MetaCartelDAO, there are three main membership categories, the first category is "Mages", which contains members who are not accredited investors, the second The first category is "Goblins" which includes qualified investor members, and the third category is "Summoners", which are operation representatives in DAO, responsible for Mages' approval, guidance and legal supervision, finance, and providing coordination-related services. Operation representatives are not necessarily is a member.

MetaCartelVentures (MCV) is a for-profit investment and legal entity of MetaCartelDAO, a Delaware limited liability company that invests in early stage Dapps. Joining MetaCartel requires the support and evaluation of MCV internal members, and MCV members will submit proposals and vote on the chain. MCV also uses the MolochDAOv2 smart contract developed by OpenLaw and MolochDAO in on-chain governance. While MCV’s fundraising and asset management happens on-chain, many of its decisions are coordinated through off-chain community communication channels, such as group chats, video conferencing, and face-to-face meetings, allowing members to communicate with each other before on-chain proposals reached a certain consensus.

Different from many DAOs who believe that "code is law", MCV has not abandoned the legal framework. In order to better resolve disputes on issues such as member withdrawal, MCV is Two frameworks are adopted legally:

One is the Delaware Limited Liability Company Act, which provides relevant laws for the formation and existence of Delaware limited liability companies Framework;

The second is the Grimoire legal framework, which is a voluntary and legally binding agreement among DAO members.

Through the limited liability company entity, MCV will be able to conclude legal contracts and have the opportunity to participate in investment, and its members will only be liable to the company's creditors for the assets of the DAO Liability for debts; registered legal entities are also able to become members of the MCV and participate in the issuance of MCVDAO shares. Unlike general limited liability companies, Grimoire allows MCV's governance structure to be tightly integrated with MolochDAOv2 smart contracts. Therefore, when a person purchases his DAO shares from the MCV smart contract according to the standardized procedures on the chain, he will automatically and legally become a member of the MCV company, and his rights and obligations are regulated by Grimoire and the Delaware limited liability company .

MetaCartelVentures (MCV) provides a new attempt to regulate, under the framework of the law, maintains the nobility of the chain code, while signing through the Grimoire contract In this way, the traditional legal mechanism can be greatly optimized, streamlined, and even replaced by MolochDAO smart contracts and other blockchain technologies that minimize transaction costs and execution risks. It is more appropriate to amend and continue to use the legal framework, choosing to respect the operation of the code where appropriate.

03 Discussion on organizational structure

1. The boundary of DAO: Take YGG as an example< /h4>

DAO is the embodiment of global flat and fair connection. Specifies certain rights specific to this DAO. DAOs are an excellent way to gather individuals around general ideas, but they have yet to prove capable of executing at scale the micro-decisions necessary to make an organization successful.

Scale is a controversial point. In the field of management, the business scope of an enterprise, that is, the vertical boundary of the enterprise, determines the boundary between the enterprise and the market, and determines the Which business activities should be completed by the enterprise itself and which business activities should be completed through market means; the horizontal boundary of the enterprise refers to the scale of production and operation that the enterprise can carry out under the condition of the determined business scope. YGG provides a great example of organizational boundaries.

In addition to VenturesDAO such as The LAO, Social DAO such as FWB, and Protocol DAO such as UniswapDAO, YGG looks more like a form of organizational production. The new game union based on web3 uses financing to invest in games and digital assets in the virtual world to improve the ecosystem and further expand the number of players in the community, so that players can participate in games without thresholds and make money or even make a living.

From a horizontal perspective, as of March 2022, according to Cointelegraph reports, the YGG game guild’s total gold-making members in Axie Infinity and other blockchain games The number has exceeded 20,000—this has reached a considerable scale in the field of enterprise management.

From a vertical perspective, YGG has formed an overall style of play rooted in gamefi. On the one hand, YGG will participate in the On the other hand, YGG will organize its corresponding game unions to participate in production activities including NFT investment, game gold, etc., forming its unique left-hand capital and right-hand flow Way.

YGG uses MembershipNFTs (such as YGG Founder's Coin, Guild Badge, and YGG token, etc.) to establish a governance mechanism. In addition, for security reasons, YGG has established a sub-DAO to host game-specific assets and activities. The assets in the sub-DAO are purchased, owned and controlled by the YGG treasury through multi-signature certified hardware wallets to ensure maximum security.

2. BanklessDAO : An exploration of a matrix architecture

The organizational structure is divided into two ideas.

One is to adapt to the characteristics of complex production technology and fine management within the organization, and divide departments according to functions, such as finance, production, design, supervision, human resources , the disadvantage is that there is a lack of communication and coordination mechanisms between departments horizontally;

Another way of thinking is a flatter, cross-functional project system. And build, disband after the task is completed.

If there is a vertical system divided by function and a horizontal relationship structure divided by product (project), it is called a matrix organizational structure, which can roughly describe The organizational structure of banklessDAO.

BanklessDAO originated from Bankless, which is a media founded in 2019. It was originally a Newsletter tracking the dynamics of the encryption industry. Its registered company is Bankless LLC. Bankless is a media with considerable influence in the encryption community. In May 2021, Bankless issued a proposal to the community to launch BanklessDAO. BanklessDAO does not have a legal entity in the traditional commercial society, and operates completely independently of Bankless media, and has no intersection with Bankless at the business and legal levels.

Anyone can join BanklessDAO's server through Discord and get permission to browse most of the information and historical work documents. To participate in collaborations and conferences, you need to become a member, and the condition is to hold 35,000 $BANK. There is also a special channel for applying for a special pass. In that channel, introduce yourself and the direction you are interested in, and you can easily apply for a Guest Pass (7 days, and you can re-apply later), unlocking various guest posts for speaking and participating in collaboration. class function.

BanklessDAO provides another exploration direction to solve horizontal architecture and vertical architecture. Inside BanklessDAO, there are two organizational methods, one is called Guild, and the other is called Project.

Guild (union):Like small departments in the company, design department, development department, legal department, each department Have their own members, different specialties and responsibilities. Each union tends to create some public goods or programs, rather than being satisfied as a functional department to serve other departments. At present, a total of 13 guilds have been formed, namely writing, finance, translation, research, operation, marketing, law, education, design, business development, development, video, and data analysis. Channels to join any trade union are completely open.

Project (Project): Members of BanklessDAO generated a lot of project ideas during the discussions in the trade union. Some of the projects have gained enough consensus and changed from Idea to Action. Some projects are to develop Discord robots; some projects want to launch a blockchain index fund; growth of the organization.

3. Primitive-based decision-making form: MolochDAO

The so-called primitive (Primitive) , refers to a program segment composed of several instructions used to realize a specific function, and cannot be interrupted during execution. Leveraging this "non-interruptibility" has the advantage of reducing all costs associated with enforcing and, if necessary, enforcing both internally and externally within the organization.

Over the past few years we have seen many projects seek to organize as decentralized autonomous organizations, developers are experimenting with new governance models and new A bottom-up approach to organizing social and economic activity. Moloch is such a governance model based on the blockchain. It chooses to solidify the game theory design at the code technology level to coordinate the Grant of the Ethereum project. Its core governance has a "Ragequit" mechanism that allows its members to choose to quit at any time. Vote-weighted multi-signature smart contracts earn a proportion of escrowed funds equal to their voting weight.

The core of the Moloch protocol is the proposal (Proposal), which does not require a minimum number of voters. Once the proposal is voted through, the code of the smart contract will be automatically executed, and the process cannot Interrupted, the only countermeasure comes from "Ragequit" (Rage Quit Clause). If a member is dissatisfied with the content of a proposal and the proposal is passed, within the waiting period for the proposal to be implemented, he can exit the DAO through Ragequit (provided that the member did not vote in favor of the proposal). When Ragequit is executed, the contract will withdraw the member's share, and the corresponding Ethereum will be returned to the member, and the membership will also be lost.

The Moloch protocol has developed multiple versions, but when Moloch was released in early 2019, there was only one version, MolochV1, a protocol with only 400 lines of code. The simplicity of the executive architecture allows it to emerge smoothly through social consensus with natural processes and corollary outcomes.

MolochDAO is the first DAO initiated based on the MolochV1 protocol. The goal of the organization is to promote the development of ETH2.0 infrastructure through donations. The founder, Ameen, used to be an employee of Consensys. He founded it after leaving Consensys because no one appreciated Moloch's idea. In February 2019, 21 supporters served as founding members, and each donated 100 ETH (the price of ETH was $100 at the time), totaling more than $200,000. V God also decided to donate 1,000 ETH after more than two months. ConsenSys founder Joesph Lubin also donated 1000 ETH. It is said that most of the projects they donated have failed, but this does not affect the greatness of the Moloch protocol. About 30% of the various DAOs currently running around the world are built on Moloch.

4. Collective value discovery based on decision-making information

At present, the collective decision-making of DAO organizations is usually A voting-based method, range voting has each member rate one or more available options, choosing the option with the highest average. Most proposals require the support of more than 50% of the group members. However, in the actual operation of DAO governance, the victory of the majority implies some undetermined hidden dangers.

It is worth noting that decentralized ownership does not mean that anyone in the organization has equal voice, and the decision-making mechanism of one coin, one vote In fact, it is a compromise for the complex decision-making system. A more scientific and reasonable weighting mechanism should be introduced - decision-making based on information.

Nobel Prize winner Herbert Simon believes that in reality, the information, knowledge and abilities that people get are limited, and the solutions that can be considered It is also limited, and may not be able to make decisions that maximize utility. Therefore, the most important factor in the decision-making process is information connection, and information is the lifeline of rational decision-making. Based on the assumption that information determines the quality of decisions, it is often argued that when there is appropriate time for deliberation, discussion, and dialogue, decisions made collectively also tend to be more effective than those made by individuals due to the presence of shared information.

AladdinDAO is one such decentralized network that moves crypto investments from venture capitalists to the wisdom of crowds through collective value discovery. At AladdinDAO, a group of world-class DeFi experts known as AladdinDAOBoule identifies the most promising DeFi projects and enables AladdinDAO community members to enjoy the rewards of their liquidity mining program. The core of AladdinDAO is the "Boule Committee". The first batch of Boule members are recommended by the founding members and elected by the DAO. 80% of other Boule members are nominated by the first batch of headhunters, 20% of Boulemembers are nominated directly by the community, and the AladdinDAO community elects through a decentralized governance process. Boule members can get AladdinDAOTokenALD by participating in DAO.

AladdinDAO constantly screens and absorbs excellent talents. Boule members vote to identify, analyze and provide high-quality DeFi projects to community members. Boule members can also get Aladdin DAO Token ALD. At the same time, the decision-making of Boule members when voting is linked to rewards. This mechanism aims to encourage DeFi masters to vote responsibly.

Through the Boule committee mechanism, community members who have more effective information are given higher decision-making weight, and the incentive mechanism is used to continuously review strategies and promote better decision-making Iterate, and at the same time reduce the probability of rejecting the truth and accepting false mistakes through incentives - both votes for projects with excellent performance and negative votes for projects with poor performance can be rewarded - to establish a better decision-making system.

04 Token selection of ownership

The decentralized institutional system and decision-making system are based on DAO's decentralized ownership architecture. This represents how members access and vote on governance decisions. There are currently two main ways of assigning ownership in DAOs: replaceable tokens (ERC20) and non-fungible tokens (NFT).

Some projects use their community's NFT (such as Loot's Lootbags) as governance weight to vote for Snapshot, while most communities such as FWB and AlladinDAO mentioned above etc. utilize their native ERC20 Token, which is more common in the crypto world. Both have their pros and cons. The main advantage of using ERC20 is that it can better guide the internal economic mechanism. The fungibility of ERC20 Tokens makes it easier to incentivize contributors than NFTs. Furthermore, by allocating a large portion of supply to the treasury, it creates a higher leverage mechanism to channel capital in the long run.

However, due to the characteristics of homogeneous Token, there is no difference between Token and Token due to the substitutability. DAO governance tends to stipulate one token one vote , it is easy to cause the hidden worries of money power politics or plutocracy (Plutocracy), people who control a large amount of social wealth and a large number of Token concentration often actually kidnap, control or rule the ecology, so people try to introduce a method called "quadratic "voting" mechanism to dilute the influence of individual individuals on collective decision-making.

Simply speaking, the rule of quadratic voting is that if the face value of the first vote is 1, then the face value of the second vote is 2, and the Nth vote The face value of is N, and the cost of casting N votes is 1+2+…+N. It is more rational to have more people vote for the project than to have more votes from one person. In fact, quadratic voting is just an attempt to delay "gold power politics", and we see more "tyranny of the majority" in practice. Discussing elitism here seems to deviate from our main purpose, but this point is especially worthy of vigilance. Not long ago, Junonetwork deprived giant whales of their assets through a voting method that seemed to be procedurally effective. Abuse and populist carnival. In addition, for ERC20, especially in some regions such as the United States, the sale and transfer may become more complicated.

The benefit of using NFT ownership is that it is easier to sell membership rights via NFT airdrops, making it easier to channel funds in community vaults. The non-homogeneous nature of NFT does not fully follow the ERC20 market price determination system for the valuation of NFT. At the same time, due to the lack of oracle machine price feeding mechanism, many bribery (Bribe) arbitrage behaviors become impossible.

In addition, since the exploration of the connotation and outer edge of NFT is still in its infancy, we expect that a credit (Reputation) system may be established based on NFT in the future , Behavior records on the chain and form a social graph, combined with the promotion and popularization of DID (decentralized identity), can avoid the defects of one token one vote to establish a better governance mechanism.

For example, POAP is an application that uses NFT to record on-chain and off-chain behaviors. Rabbithole can record your interaction history on the chain to generate incentives. Showme is an application based on NFT's social platform uses NFT to record social graphs and circles. We can imagine that, for example, a wallet address was once defined as an early contributor by a certain project, another wallet address has interacted with related protocols thousands of times, and another wallet address proves that it belongs to the early community of BAYC through the NFT it holds Members, for these addresses, to a certain extent, NFT portrays their off-chain user portraits through on-chain behavior records. For these data recorded using NFT, the community can give different historical behaviors and off-chain addresses during the governance process. Identity or interaction behavior with different voting weights.

With all of this in mind, DAOs could certainly utilize both NFTs and ERC20Tokens in their ownership structures and governance frameworks; There is a long way to go, and the establishment of the credit system on the chain is still in the initial stage, so how the organic combination of ERC20 and ERC721 is still unknown, and it is too early to talk about these.

05 Conclusion

Similar beliefs, interests, hobbies, When we take off everything that the real world gives us, such as identity, status, honor, race, and gender, we only participate in the observation or transformation of the world in the form of "soul" or "idea". We tried social circles such as FWB; we invented another production organization such as YGG; we established open companies such as banklessDAO; we even went to the moon, bought the constitution, and built golf courses. My ten thousand guesses about the world.

What really separates DAO from traditional organizations, such as companies, guilds, associations, etc., is not the vision or goals of these subdivided organizations, not the We have such imaginative or unrealistic wishes about the world, but how to form an effective interaction with the traditional world under a reasonable legal framework, how to design a reasonable decision-making system for Everyone matters, and how to regulate its ownership and governance rights New Paradigm - We are in a phase of eternal explorers.

Shakespeare has a very beautiful sentence in the comedy "The Merry Wives of Windsor", called The world is my oyste, which probably means: Do whatever you want, the world is mine stage.

It is hard to say when the first year of DAO will come, because it is different from the explosion of DeFi and the frenzy of NFT. It must be a long-term and interesting process for us to explore and transform people, cooperation and confrontation, and the world.