decentralized autonomous organization
{{Short description|Type of organization run via blockchain}}
{{About|a type of organization|the former organization that followed this approach|The DAO (organization)}}
{{Distinguish|Autonomous decentralized system|Autonomous peripheral operation}}
{{Use Oxford spelling|date=March 2021}}
{{Use dmy dates|date=March 2021|cs1-dates=y}}
{{Government by algorithm}}
A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC),{{efn|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.}}{{Cite journal |author-last1=Hassan |author-first1=Samer |author-last2=De Filippi |author-first2=Primavera |date=2021 |title=Decentralized Autonomous Organization |url=https://policyreview.info/glossary/DAO |journal=Internet Policy Review |volume=10 |issue=2 |doi=10.14763/2021.2.1556 |s2cid=235559086 |issn=2197-6775 |doi-access=free}} is an organization managed in whole or in part by decentralized computer programs, with voting and finances handled through a decentralized ledger technology like a blockchain. In particular, processes run by the decentralized programs must be central, enduring, and distinctive to the identity of the organization for the organization to be a DAO. In general terms, DAOs are member-owned communities without centralized leadership.{{cite book |author-last=Prusty |author-first=Narayan |date=27 April 2017 |title=Building Blockchain Projects |url=https://books.google.com/books?id=80EwDwAAQBAJ |location=Birmingham, UK |publisher=Packt |page=9 |isbn=978-1-78712533-9}}[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3082055 The Decentralized Autonomous Organization and Governance Issues] Regulation of Financial Institutions Journal: Social Science Research Network (SSRN). 5 December 2017. The precise legal status of this type of business organization is unclear.{{Cite journal |author-last1=Barbereau |author-first1=Tom |author-last2=Bodó |author-first2=Balázs |date=2023-07-01 |title=Beyond financial regulation of crypto-asset wallet software: In search of secondary liability |journal=Computer Law & Security Review |language=en |volume=49 |pages=105829 |doi=10.1016/j.clsr.2023.105829 |s2cid=258733922 |issn=0267-3649|doi-access=free }}
A well-known example, intended for venture capital funding, was The DAO, which amassed 3.6 million ether (ETH)—Ethereum's native cryptocurrency—then worth more than US$70 million in May 2016, and was hacked and drained of {{USD|50 million}} in cryptocurrency weeks later.{{cite web |title=Digital currency Ethereum is cratering amid claims of a $50 million hack |url=https://www.businessinsider.com/dao-hacked-ethereum-crashing-in-value-tens-of-millions-allegedly-stolen-2016-6 |author-first=Rob |author-last=Price |date=17 June 2016 |access-date=17 June 2016 |work=Business Insider}} 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.
The governance of DAOs is subject to controversy. As these typically allocate and distribute tokens that grant voting rights, their accumulation may lead to concentration of power.{{Cite journal |author-last1=Barbereau |author-first1=Tom |author-last2=Smethurst |author-first2=Reilly |author-last3=Papageorgiou |author-first3=Orestis |author-last4=Sedlmeir |author-first4=Johannes |author-last5=Fridgen |author-first5=Gilbert |date=May 2023 |title=Decentralised Finance's timocratic governance: The distribution and exercise of tokenised voting rights |journal=Technology in Society |language=en |volume=73 |pages=102251 |doi=10.1016/j.techsoc.2023.102251 |s2cid=258245920|doi-access=free }}
Background
Although the term may be traced back to the 1990s, it was not until 2013 that it became more widely adopted. Although some argue that Bitcoin was the first DAO, the term is only understood today as organizations deployed as smart contracts on top of an existing blockchain network.
Decentralized autonomous organizations are typified by the use of decentralized technologies, such as 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.{{rp|42}} In theory, a blockchain approach allows multiple cloud computing users to enter a loosely coupled peer-to-peer smart contract collaboration.{{rp|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.
Governance
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,{{cite journal |author-last1=Zhao |author-first1=Xi |author-last2=Ai |author-first2=Peilin |author-last3=Lai |author-first3=Fujun |author-last4=Luo |author-first4=Xin (Robert) |author-last5=Benitez |author-first5=Jose |date=September 2022 |title=Task management in decentralized autonomous organization |url=https://onlinelibrary.wiley.com/doi/10.1002/joom.1179 |journal=Journal of Operations Management |language=en |volume=68 |issue=6–7 |pages=649–674 |doi=10.1002/joom.1179 |s2cid=248309790 |issn=0272-6963}} 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 allowing voting power to be delegated to other parties.
Issues
=Social=
Tokens that grant voting powers are often not used to vote. Inactive or non-voting shareholders in DAOs often disrupt the organization's possible functionality.
Another risk is the concentration of power in the case that individuals accumulate large amounts of tokens that grant voting power. Concentration of these tokens defeats the ambitions to distribute governance power. In a study of decentralized finance DAOs, the distribution of tokens was shown to be highly concentrated among a small population of holders.
= Legal status, liability, and regulation =
The precise legal status of this type of business organization is generally unclear, and may vary by jurisdiction. On 1 July 2021, Wyoming became the first US state to recognize DAOs as a legal entity.{{cite web |title=Decentralized Autonomous Organizations Find a Home in Wyoming |url=https://www.jdsupra.com/legalnews/decentralized-autonomous-organizations-5960480/ |access-date=2021-07-09 |website=JD Supra |language=en}} American CryptoFed DAO became the first business entity so recognized.{{cite web |title=Wyoming becomes first US state to legally recognise DAO |url=https://finance.yahoo.com/news/wyoming-becomes-first-us-state-143455445.html |access-date=2021-07-09 |website=finance.yahoo.com |date=7 July 2021 |language=en-US}} 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.
= Security =
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 20 July 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 cryptocurrency.{{cite web |title=Democratic DAO Suffers Coup, New Leader Steals Everything - VICE |url=https://www.vice.com/amp/en/article/xgd5wq/democratic-dao-suffers-coup-new-leader-steals-everything |access-date=2022-02-16 |website=www.vice.com |date=15 February 2022}}
List of notable DAOs
{{dynamic list|date=July 2021}}
See also
Notes
{{Notelist}}
References
{{Reflist|2|refs=
<--This reference list is organized alphanumerically by arbitrary ref name-->
{{cite news |title=Blockchain Company Wants to Reinvent Companies |author-first=M. |author-last=Levine |department=Bloomberg View: Wall Street |work=Bloomberg News |date=17 May 2016 |url=https://www.bloomberg.com/view/articles/2016-05-17/blockchain-company-wants-to-reinvent-companies}}
{{cite web |author-first=D. J. |author-last=Pangburn |date=19 June 2015 |url=http://www.fastcompany.com/3047462/the-humans-who-dream-of-companies-that-wont-need-them |title=The Humans Who Dream of Companies That Won't Need Us |work=FastCompany}}
{{cite web |url=https://spectrum.ieee.org/ethereums-150-million-dollar-dao-opens-for-business-just-as-researchers-call-for-a-moratorium |title=Ethereum's $150-million Blockchain-powered Fund Opens Just as Researchers Call For a Halt |author-first=M. |author-last=Peck |date=28 May 2016 |work=IEEE Spectrum |publisher=Institute of Electrical and Electronics Engineers}}
{{cite web |url=https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541972520 |title=SEC Charges Bitcoin Entrepreneur With Offering Unregistered Securities |publisher=US Securities and Exchange Commission |date=3 June 2014}}
}}
Further reading
- {{cite journal |last1=Wang |first1=Shuai |last2=Ding |first2=Wenwen |last3=Li |first3=Juanjuan |last4=Yuan |first4=Yong |last5=Ouyang |first5=Liwei |last6=Wang |first6=Fei-Yue |title=Decentralized Autonomous Organizations: Concept, Model, and Applications |journal=IEEE Transactions on Computational Social Systems |date=2019 |volume=6 |issue=5 |pages=870–878 |doi=10.1109/TCSS.2019.2938190}}
- {{cite journal |last1=Santana |first1=Carlos |last2=Albareda |first2=Laura |title=Blockchain and the emergence of Decentralized Autonomous Organizations (DAOs): An integrative model and research agenda |journal=Technological Forecasting and Social Change |date=2022 |volume=182 |pages=121806 |doi=10.1016/j.techfore.2022.121806 |doi-access=free}}
- {{cite journal |last1=Augustin |first1=Nils |last2=Eckhardt |first2=Andreas |last3=de Jong |first3=Alexander Willem |title=Understanding decentralized autonomous organizations from the inside |journal=Electronic Markets |date=2023 |volume=33 |pages=38 |doi=10.1007/s12525-023-00659-y |doi-access=free}}
- {{cite journal |last1=Rikken |first1=Olivier |last2=Janssen |first2=Marijn |last3=Kwee |first3=Zenlin |title=Governance impacts of blockchain-based decentralized autonomous organizations: an empirical analysis |journal=Policy Design and Practice |date=2023 |volume=6 |issue=4 |pages=465–487 |doi=10.1080/25741292.2023.2270220 |doi-access=free}}
- {{cite book |last1=Van Kerckhoven |first1=Sven |last2=Chohan |first2=Usman W. |title=Decentralized Autonomous Organizations: Innovation and Vulnerability in the Digital Economy |date=2024 |publisher=Routledge |location=London |isbn=9781032583228 |url=https://www.routledge.com/Decentralized-Autonomous-Organizations-Innovation-and-Vulnerability-in-the-Digital-Economy/VanKerckhoven-Chohan/p/book/9781032583228}}
- {{cite book |last1=Liebau |first1=Daniel |last2=Oh |first2=Sandy |title=Decentralized Autonomous Organizations: How Finance can Interact with Blockchain-based DAOs |date=2025 |publisher=World Scientific |location=Singapore |isbn=978-981-12-9578-2 |url=https://www.worldscientific.com/worldscibooks/10.1142/13918#t=aboutBook |doi=10.1142/13918}}
- {{cite book |last1=Bodellini |first1=Marco |last2=Zhang |first2=Kai |last3=Enyi |first3=Jin |editor1-last=Walker |editor1-first=George |title=Financial Technology and Digital Commercial Law |date=2025 |publisher=Oxford University Press |isbn=978-0-19-286876-3 |pages=293–310 |chapter=Decentralized Autonomous Organizations (DAOs) |doi=10.1093/law/9780192868763.003.0013}}
External links
- {{Wikiversity inline}}
{{Cryptocurrencies}}
Category:Application layer protocols
Category:Applications of cryptography
Category:Distributed computing
Category:Distributed data storage