Decentralized autonomous organization
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A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC),[a] is an organization constructed by rules encoded as a computer program that is often transparent, controlled by the organization's members and not influenced by a central government. In general terms, DAOs are member-owned communities without centralized leadership. A DAO's financial transaction records and program rules are maintained on a blockchain. The precise legal status of this type of business organization is unclear.
A well-known example, intended for venture capital funding, was The DAO, which amassed 3.6 million ether (ETH)—Ethereum's mining reward—then worth more than US$70 million in May 2016, and was hacked and drained of US$50 million in cryptocurrency weeks later. The hack was reversed in the following weeks, and the money restored, via a hard fork of the Ethereum blockchain. Most Ethereum miners and clients switched to the new fork while the original chain became Ethereum Classic.
Decentralized autonomous organizations are typified by the use of blockchain technology to provide a secure digital ledger to track digital interactions across the internet, hardened against forgery by trusted timestamping and dissemination of a distributed database. This approach eliminates the need to involve a mutually acceptable trusted third party in any decentralized digital interaction or cryptocurrency transaction. The costs of a blockchain-enabled transaction and of the associated data reporting may be substantially offset by the elimination of both the trusted third party and of the need for repetitive recording of contract exchanges in different records. For example, the blockchain data could, in principle and if regulatory structures permit it, replace public documents such as deeds and titles.: 42  In theory, a blockchain approach allows multiple cloud computing users to enter a loosely coupled peer-to-peer smart contract collaboration.: 42 
Vitalik Buterin proposed that after a DAO is launched, it might be organized to run without human managerial interactivity, provided the smart contracts are supported by a Turing-complete platform. Ethereum, built on a blockchain and launched in 2015, has been described as meeting that Turing threshold, thus enabling such DAOs. Decentralized autonomous organizations aim to be open platforms through which individuals control their identities and their personal data.
DAO governance is coordinated using tokens or NFTs that grant voting powers. Admission to a DAO is limited to people who have a confirmed ownership of these governance tokens in a cryptocurrency wallet, and membership may be exchanged. Governance is conducted through a series of proposals that members vote on through the blockchain, and the possession of more governance tokens often translates to greater voting power. Contributions from members towards the organizational goals of a DAO can sometimes be tracked and internally compensated. Inactive holders of governance tokens can be a major obstacle for DAO governance, which has led to implementations of allowing voting power to be delegated to other parties.
Inactive or non-voting shareholders in DAOs often disrupt the organization's possible functionality.
Legal status, liability, and regulation
The precise legal status of this type of business organization is generally unclear, and may vary by jurisdiction. On July 1, 2021, Wyoming became the first US state to recognize DAOs as a legal entity. American CryptoFed DAO became the first business entity so recognized. Some previous approaches to blockchain based companies have been regarded by the U.S. Securities and Exchange Commission as illegal offers of unregistered securities. Although often of uncertain legal standing, a DAO may functionally be a corporation without legal status as a corporation: a general partnership. Known participants, or those at the interface between a DAO and regulated financial systems, may be targets of regulatory enforcement or civil actions if they are out of compliance with the law.
In June 2022, the venture capital firm Andreessen Horowitz published an "Entity selection framework" describing organizational alternatives for DAOs with substantial presence in the United States .
A DAO's code is difficult to alter once the system is up and running, including bug fixes that would be otherwise trivial in centralized code. Corrections to a DAO require writing new code and agreement to migrate all the funds. Although the code is visible to all, it is hard to repair, thus leaving known security holes open to exploitation unless a moratorium is called to enable bug fixing.
In 2016, a specific DAO, "The DAO", set a record for the largest crowdfunding campaign to date. Researchers pointed out multiple problems with The DAO's code. The DAO's operational procedure allowed investors to withdraw at will any money that had not yet been committed to a project; the funds could thus deplete quickly. Although safeguards aimed to prevent gaming shareholders' votes to win investments, there were a "number of security vulnerabilities". These enabled an attempted large withdrawal of funds from The DAO to be initiated in mid-June 2016. On July 20, 2016, the Ethereum blockchain was forked to bail out the original contract.
DAOs can be subject to coups or hostile takeovers that upend its voting structures especially if the voting power is based upon the number of tokens one owns. An example of this occurred in 2022, when one individual collected enough tokens to give themselves voting control over Build Finance DAO, which they then used to drain the DAO of all its money.
List of notable DAOs
|Dash||DASH||Governance, fund allocation||Dash||May 2015||Operational|
|Steem||STEEM||Data distribution, Social media, Name services, Industrial||Steem||March 2016||Operational|
|The DAO||DAO||Venture capital||Ethereum||April 2016||Defunct late 2016 due to hack|
|Augur||REP||Prediction market, Sports betting, Option (finance), Insurance||Ethereum||July 2018||Operational|
|Uniswap||UNI||Exchange, Automated Market Making||Ethereum||November 2018||Operational|
|ConstitutionDAO||PEOPLE||Purchasing an original copy of the Constitution of the United States||Ethereum||November 2021||Defunct|
|FreeRossDAO||$FREE||Clemency for Ross Ulbricht, criminal justice reform advocacy organization||Ethereum||December 2021||Operational|
|AssangeDAO||$JUSTICE||Purchased Clock, an NFT artwork by Pak, to fund legal defense of WikiLeaks' founder Julian Assange||Ethereum||February 2022||Operational|
|MakerDAO||MKR||Lender, stablecoin creator||Ethereum||December 2017||Operational|
- Decentralized application
- Decentralized computing
- Distributed computing
- Incentive-centered design
- List of highest funded crowdfunding projects
- Smart contract
- The Social Contract
- Open value network
- Depending on English dialect, it may also be spelled decentralised autonomous organisation. The terms decentralized autonomous company, distributed autonomous organization, etc., have also been used.
- Prusty, Narayan (27 April 2017). Building Blockchain Projects. Birmingham, UK: Packt. p. 9. ISBN 9781787125339.
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creating an operational and autonomous Trust Framework [that can i]ntegrate with a secure discovery service in the form of a Decentralized Autonomous Organization ...
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- "SEC Charges Bitcoin Entrepreneur With Offering Unregistered Securities". US Securities and Exchange Commission. 3 June 2014.
- Levine, M. (17 May 2016). "Blockchain Company Wants to Reinvent Companies". Bloomberg View: Wall Street. Bloomberg News.
- "A Legal Framework for Decentralized Autonomous Organizations, Part II: Entity Selection Framework" (PDF). Retrieved 13 June 2022.
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- Popper, N. (27 May 2016). "Paper Points Up Flaws in Venture Fund Based on Virtual Money". The New York Times.
- Popper, N. (17 June 2016). "Hacker May Have Taken $50 Million From Cybercurrency Project". New York Times.
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- "Democratic DAO Suffers Coup, New Leader Steals Everything - VICE". www.vice.com. Retrieved 16 February 2022.
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- "OpenOrgs.info". openorgs.info. Retrieved 15 January 2022.
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- Fox, Matthew (19 January 2022). "Tokens of the defunct DAO that failed to buy a copy of the constitution are worth $300 million even after disbanding". news.yahoo.com. Retrieved 28 January 2022.
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- "Justice Token". AssangeDAO. Retrieved 14 April 2022.
- Reuters (9 February 2022). "'Cypherpunks have rallied to Assange': NFT auction raises $52m for WikiLeaks founder". The Guardian.
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- Learning materials related to Decentralized autonomous organization at Wikiversity