I want a DAO

We want to create an open, community owned, user empowering hiring platform for which a DAO seems to be a good idea. This is the first in a series of posts to document my journey from wishful thinking to deployment.

Distributed Autonomous Organisations (DAO) are all the rage these days. Many projects in the blockchain space want to create one. But I get the impression that many people don’t ask themselves the question:

Is a DAO the right form of incorporation for my project?

Many people don’t realise that any project needs a form of incorporation. If you do not decide what your structure is, someone might decide for you one day.

But a DAO can not be a corporation in itself. It can only be the extension of one. This comes from the fact that today’s laws are not made for a distributed world. The DAO can not sign contracts, only its members can.

Legally speaking you have to create a “real world” organisation and write its statutes in such a way that forces it to conform to the DAO’s rules and decisions.

What are the conditions for a DAO to deserve its name?

If you think all you need to create a DAO are a few lines of solidity code, you are mistaken. A smart contract does not a DAO make.

The most challenging part is the A for Autonomous. Indeed most organisations are distributed but very few are autonomous. But lets start with the distributed part:

An organisation can be considered distributed if the decision making process is not centralised with one body but shared by all its members.

Any publicly owned company fits this bill. The difference between a DAO and a publicly owned company is like the difference between a direct and representative democracy. A DAO must have a direct democracy model. Or at least a liquid or delegative democracy one. A publicly owned company has a representative model and most have a very limited scope when it comes to decision making by the owners.

An organisation can be considered autonomous when it executes on decisions based purely on rules.

Imagine an organisation with a deterministic outcome for every action. Given a set of inputs and a state, the outcome can be predicted with certainty.

The difficulty lies in taking decisions without the ability to negotiate, to ponder, to take circumstances into account. All the inputs have to be thought of in advance, at the time of creation of the rules.

Smart contracts are ideally suited for this task. And while it is fiendishly difficult to create the rules (because the decisions must be expressed in mathematical terms) it is relatively easy to enforce them.

What are the benefits?

Experience shows that most people will delegate their vote and an activist core of participants will take all the decisions. Is this so different from today’s corporation?

I believe that there is a big difference and the fact that owners have the option to participate if they choose to is the biggest. If an owners is not satisfied with the workings of the organisation, they can become activists themselves and they don’t need to overthrow a powerful board of directors because there is none.

The second benefit is trust. Owners know that the rules can not be bent because they will be executed by a heartless and soulless computer who has no greed and no ego.

Can a DAO do anything?

The short answer is no. But of course it can delegate to others. A DAO can hold value in the form of crypto-currency. This allows it to hire other organisations or individuals to do its bidding. As long as the service provider accepts payment in crypto-currency

A DAO can then get information about the work performed through oracles or its owners can tell it what happened. A smart contract can not interact with the outside world directly.

The hiring and firing of the service providers is done by the DAO’s owners. Once the hiring has been done, most interactions must be automated and be coded into a smart-contract.

Do I still want a DAO?

I need to be prepared to spend a lot of time thinking about governance, about decision making processes and how those decisions will be executed. If on top of that the ownership of my organisation will be widely distributed, it probably makes sense to consider a DAO.

On the other hand, if my main goal is to create a company with a concentrated ownership and decision making it probably makes little sense to invest time and energy in encoding the execution in computer programs.