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Autonomous corporation “The DAO” has become the biggest crowdfunded project | Hacker News

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Clipped on: 2016-05-16

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Autonomous corporation “The DAO” has become the biggest crowdfunded project (
79 points by sethbannon 2 hours ago | flag | past | web | 72 comments

An interesting concept, but I'm not buying the hype.

At the end of the day a bunch of people bought shares in a company (or did they? Legality is weird) with the special condition that in addition to owning a share of said company they also get to vote on what the company actually does, and even submit proposals for what it should do.

Oh, and they also bought said shares with cryptocurrency. Magic internet money guys!

Admittedly I think enabling this kind of democracy in a company is a bad idea. It might actually wind up being less nimble than an actual corporation because of the extra consensus required.

Meanwhile, even though one might assume that the shareholders might be more informed than "the common mob", they might still propose and vote on more misses than, say, a corporation where new products and services are proposed through an informed internal decision making process that ultimately ends in the CEO using the information at his or her disposable to make the final decision. In a good corporation, bad decisions are self-correcting, in some cases leading to such extremes as a leadership shuffle.

By contrast, who's to blame if the DAO votes on a proposal that wound up being a miss? How do they learn from their mistakes so it doesn't happen again?

And I'm sure there are many other issues, but those are at the top of my list. I'd rather a company be run by those most capable, rather than the crowd.

You shouldn't buy into the hype, especially from that hyperbolic story with silly blurbs like "The DAO is a paradigm shift in the very idea of economic organization."

However, I don't think we should be flippantly dismissing the idea with phrases like "magic internet money", because if it proves itself to be minimally viable, it would really speak to a young demographic of investors who don't trust financial institutions or their products.

Granted, this sort of tool is probably very ill suited for running a large corporation, but it might be ideal for Kickstarter-like organizations who want to fund a series of ideas or companies for equity. Some tasks are better suited for experienced professionals, while other tasks are better suited toward the wisdom of the crowds. (Tasks that great benefit from semi-informed polling)

My best guess is this might become a useful tool for a niche investment market.

I presume the community is to blame and they learn from the mistakes.

If you vote a proposal is because you agree with it and you can't blame someone else.

There's more flexibility than traditional structures with concepts like "splits" where if you don't agree with a proposal you can opt to not participate.

It's new ground , has new concepts and it's still evolving. Really interesting stuff.

> Admittedly I think enabling this kind of democracy in a company is a bad idea. It might actually wind up being less nimble than an actual corporation because of the extra consensus required.

This stuff is also known as a cooperative, and is a very common concept for democratic companies – almost all housing in europe is owned like this.

I'm a big ethereum fan but I agree 100% with your analysis.

This is really cool for all of us in the Ethereum space, and as mentioned before, I'm a part of the Augur team which is a dapp on Ethereum.

I did sort of see this coming eventually as Augur, Digix as well as Ethereum itself have been really successful using this method. It's a pretty cool way to fund open source projects and I think with something that incentivizes contributions like Code Valley there will be a boom in these projects.

A corporation, being a legal fiction, can only act through physical persons. So in that respect, no corporation can be truly autonomous. It sounds like what they have done is taken all the paperwork associated with corporate activity: by-laws, annual meeting minutes, resolutions, etc., and put them into a block chain. A more proper description would be a paperless corporation.

And in fact, in many countries, the DAO actually is a legal company/association, just not officially incorporated. But incorporating is not required everywhere for the normal laws to apply.

Just the fact that people put their money together and are acting as a group gives them various legal requirements. The fact that the DAO limits what they can do might interfere with their ability to follow the laws; that does not mean that the laws do not apply. You don't get to throw your hands in the air and say "we cannot pay taxes on our profits, it's physically impossible" when you made it impossible yourself by creating and/or associating with the DAO.

Right. In fact, an business entity that doesn't go through the formalities of becoming a legal corporation, LLC, etc., may expose its members to unexpected legal responsibilities. E.g., if the agreement were seen as forming a general partnership, each member would be jointly and severally liable for all legal liabilities of the partnership.

That's like saying a car can't be autonomous because some programmers wrote the software that it uses.

No, a corporation is a legal entity that must have directors and officers, aka people. Without that, you don't have a corporation.

And after reading the article, they aren't a legally recognized corporation.

> No, a corporation is a legal entity that must have directors and officers, aka people.

OR, a corporation is a legal entity formed by a corporate charter that is treated as a person under the law. In any case, whatever these ethereum-based things are, they aren't corporations.

>In any case, whatever these ethereum-based things are, they aren't corporations.

They may end up creating and operating corporations, but DAOs are their own thing.

> They may end up creating and operating corporations

Sure, if people ever make the rather radical changes to law that would be required for them to create, operate, or even merely passively own shares in corporations, that might be the case.


The ownership chain also has to ultimately go back to people.

I don't see why a tree couldn't own it.

No, it's a bit more like saying a car can't be autonomous because it still has people telling it where to go.

This actually does a much better job explaining the project than the website does. I'm glad I have something to show friends/interested parties that is understandable!

TLDR; A computer program living on the ethereum blockchain is currently in control of 107+ million dollars, making it the second largest crowdfunded project in history. Shareholders vote on proposals to give money to other entities (probably also programs on the ethereum blockchain) that they hope will make money and send it to the parent contract.

All votes are managed by a program written in EVM code, which runs on a sort of "virtual computer" that is designed to be (in theory) 100% secure, 100% reliable, and 100% incontrovertible. No middlemen have any control over this program, it essentially completely outside of any human control (beyond the voting rules encoded within it.)

UPDATE: Apparently this morning it passed $120 million and is now the largest crowdfunded project in history.

Last time I checked, Apple Computers is worth $500+ Billion and is a public company.

Don't forget that the stock market is the original mass-crowdfunded project. Anyone can become an owner if you go to a brokerage account, and ownership rights entitles you to a vote for the board of directors and a share of the profits (ie: the dividend)

Agreed, "crowd funding" is an inexact term- I described it that way to help explain why some people think the project is novel. Certainly there is a lot of arbitrariness as to what belongs on a list of "top crowdfunded projects".

Yup. I just want to bring up the fact that this thing seems more akin to a classical public company, but in many regards is less transparent.

There's the fact that all the code and mechanisms is public, but that's the part that everybody trusts anyway. When you're a shareholder in Apple, the votes are tallied, all relevant information from the board of directors is published, etc. etc. And the SEC forces the company to publicly disclose financial information in the form of 10k, 8k, and publicly announce insider trades.

At the moment: I don't know who the "insiders" of this company are. Maybe one dude has $50 Million USD and effectively controls the entire damn "movement". Or maybe not. Knowing the identities of large shareholders is a BIG DEAL in public companies.

Still, the digital form probably has some advantages. Maybe future companies will find a compromise and manage to exist as digital contracts akin to this DAO? But I don't expect this first version to actually work. Its pretty much a learning experiment, to see what is and isn't possible with technology.

If any lessons are to be learned from Bitcoin: politics will affect this entity eventually. The technology currently serves as a mask to the politics. But politics always rears its ugly head eventually.

Charlie Stross is smiling somewhere.

Closer to Daniel Suarez, Daemon & Freedom.

This fiction starts the autonomous corporation from a vide game. The second book shows society's evolution to cope with the new corporation.

1 point by jaytaylor 0 minutes ago | edit | delete [-]

@CharlesMeeriam2 You beat me to it, I came here to post just this!!!

This article reads as though it were a page straight out of Suarez's Daemon series.


Probably around here as he has been seen on HN quite a bit.

Proof :

The DAO isn't actually worth 120 million. For one, it's based on the price of ETH, which would completely crash if you attempted to sell even a few million worth.

Secondly, everyone can withdraw their funds from the DAO before any funds are sent to projects. Many have invested because those who invested early make money from those investing later, since the number of "DAO tokens" you get per "ETH" has gone down over time. (cough pyramid cough)

> The DAO isn't actually worth 120 million.

I you tried to sell all Apple stock in a single day it would also sell at well below market rate- Does that mean Apple is worth less than its market cap?

That said, I personally have not invested/speculated in the DAO because I just don't see it as a good opportunity.

I just sold one of my hairs to myself for $10. Is my head now worth a million?

With Apple, there's intrinsic value to consider. And frankly, if you sold enough Apple stock for it to go down 50%, I'd personally start buying. I doubt that's the case for ETH, where there's only early adopters buying it hoping to strike it rich.

I think an analogy more in line with the parent comment would be - if you tried to sell 30% of Apple stock in a single day would the dollar collapse, wiping out all remaining shareholder value.

> Does that mean Apple is worth less than its market cap?


The concept of a decentralized organization is cool. The implementation in DAOhub is dangerous to all participants. Both curators and contractors of DAOhub projects risk violating US securities laws if they use the platform to "crowdfund" projects. Participants, as is obvious, risk losing all their contributions, paid into the pockets of "contractors" who may possess voting control over project funds.

the article doesn't actually explain the "autonomous" bit imo.

This looks rather more like a distributed decision making platform. Say, liquid democracy + ethereum, rather than Accelerando-style "sentient alien corporations".

Noticeably, the DAO does not seem to be able to make any decision, it does things through proposals suggested by people which are voted on.

Still cool anyway.

I suppose there are a couple of ways to view this:

- The DAO is a tool for people to make decisions collectively, by pooling their resources, voting on activities, and having Ethereum take care of trust issues. This is what you've described.

- Alternatively, The DAO could be described as similar to a computer virus: it tries to survive by spreading into as many systems as possible, using their computational resources to propagate itself further; but crucially its behaviour is completely determined by its code, rather than acting as an interpreter for centrally-issued commands (like, say, a botnet or Seti@Home).

While most computer viruses are parasitic, The DAO could be seen as symbiotic: in return for the resources it uses, it provides the services described above. It could be described as social engineering, like that of the ILOVEYOU virus, although it's not a trick (as far as we know).

In the case of The DAO in particular, the first description probably makes the most sense. However, I'd say Ethereum applications in general are better described by the latter. For example, a gambling application like etheroll could persist completely independently on the network for as long as people are willing to gamble with it, spending part of its commission on resources ("gas").

This is correct. When the Decentralized Autonomous Organization/Corporation is a term that has undergone quite a few changes, and Ethereum projects definitely use it very loosely. As you pointed out, not much is autonomous at all. The DAO in this case appoints one company per project who is responsible for the entire project and its management. They are free to be as competent or incompetent, until voted out.

Most decision making is in fact choosing between choices, it's not that different from a regular CEO.

> Currently only the privileged can found and fund new companies.

What? It's about $200 in Seattle to file to register a Limited Liability Company. It's a stretch to call that 'only the privileged'.

"Do the paperwork for creation" has only a passing resemblance to "found and fund."

"found" means to do the paperwork and setup a bank account. that's it. there's no deeper meaning.

"fund" just means putting some money into a bank account for it. you could fund a company with a dollar (and many people do, for symbolic reasons).

You have just enumerated the "passing resemblance" noted above.

Connotations matter.

"With reasonable hope of success" is an implied clause of the original sentence. You might have not considered this aspect.

Especially now Title III campaigns are live and anyone can raise from anyone. See for example.

I'm pretty convinced the vast majority of tech startups were started by individuals who relied on their family supporting them through the initial phases of their business.

pretty convinced from what data? source please? thanks!

I don't know if anyone has collected any formal data, I'm basing it on my personal experience. Certainly plenty of other people make the same observation.

Vast majority? Really?

There is also the Small-Business Administration, which can fast-track certain well-known types of companies. As an example: say you were a woman who had served time in the military and are trying to setup a hair salon. There are two incentive programs for your demographic specifically, and an additional set of resources for your business specifically. You'd basically get an "account manager" from the SBA who has setup several of these before, such that the experience is practically turnkey and requires very little of your own money.

Now, if you're trying to do something really risky like make a smartphone app, no, you're probably not going to get anywhere with the SBA. They aren't VCs making bets on long-shots. But they are more willing than a bank to work with you and help you get set up.

> The individual must have a net worth greater than $1 million, either individually or jointly with the individual’s spouse.


That's the requirement to be an accredited investor, not to register a small business.

Think about how many of the major and wonderful companies we have today wouldn't exist if this were true.

I think the idea is great, but only if the ETH can never be withdrawn without the board's consent, much like funding a a corporation where you'd need to be paid a distribution or something, etc. - you don't just withdraw your money after the next VC enters the scene and drives the price up. If the ETH can be withdrawn at any time, then this is no different than a publicly traded stock... which is currently undergoing a pump-and...

As such, I've flagged the post, to avoid contributing to what's turning out to be a free(?) viral marketing campaign.

Am I wrong about the "withdraw" part?

so, it's like twitch but for business?

This could be interesting. What does this mean for hostile take overs though?

I think you're asking "what happens when someone captures 51% of the voting shares?" - This is actually the #1 problem with these types of systems, since the majority could just vote to put 100% of the funds into their own bank account.

The slockit-authored DAO in the article addresses this through two failsafes:

1. Shareholders can vote to split the company in two at any point to extricate their funds from majority control.

2. There is an extra layer of "curators" (kind of a misnomer) who are trusted members in the community who make sure payments aren't being funneled through an intermediary to a majority shareholder.

Whether these safeguards will work remains to be seen.

Anyone can 'split' the DAO at any point of time, which renders the 51% attack moot. A 51% attack works only when the attacker can get more than what he puts in.

Consider this obvious attack vector: Let's say today is the last crowdfunding day, and the DAO has raised $150 million so far. A wealthy attacker can immediately put another $150 million, effectively controlling 50% of the voting for the DAO, and then vote to send all the money to his own Ethereum address. This is perfectly possible, since this is all written in Ethereum contracts anyway.

To avoid this, the rest of the people can 'fork' the DAO, effectively leaving the attacker with 100% control over his share of 50%. The attacker gains nothing. The other 'fork' can now continue on.

This forking described above is also going to be used (I think) when it comes to funding new projects. I am sure some people will disagree with some proposal, and they would fork the DAO away to not invest in that proposal even though the majority agreed they would. They are free to do so.

> which renders the 51% attack moot.

Well, I'm not sure I'd use such absolute language. For one thing, people can still perform a 51% attack and try to influence decisions covertly, without triggering a split.

Also, the spectre of a 51% attack required for some major compromises to be made in the DAO design- Having a company that can arbitrarily split at any moment is likely to have a major impact on the future operations of the DAO.

You're right, I shouldn't have used an absolute language. There is also the issue of voter apathy so yes, a 51% attack might be worthy of a try for a wealthy enough adversary.

In terms of the split, if the community broadly agrees that there is an attack, then I don't see it having a long-term detriment. However, as you said, if it is more 'stealthy' then it would be harder to detect and correct.

All that being said, I think there is a theoretical safety mechanism in place. Whether that will work in real life or not, we'll wait and see. I am sure some good lessons will come out of this in either case and the next generation of applications can improve upon some shortcomings.

I'm not 100% familiar with it yet, but there is some code where anyone on the losing side of a majority vote can opt to fork the DAO and retain their original tokens with all investments, instead of going along with the group (similar idea to a Bitcoin hard fork). This prevents someone with 51% ownership voting to send 100% of the assets to themselves.

Self driving company

Anyone know how to legally assign a corporation over to an autonomous system?

The company Articles could require its directors to obey the direction of the autonomous system. And if it doesn't the autonomous system could direct the creation of another corporation with a mandate to sue the non compliant one.

It's a legal interop layer! Now we just need to create a code-generation utility that takes the conceptual source code for the contract and generates legal code that can adequately enforce it... oh, wait...

> Anyone know how to legally assign a corporation over to an autonomous system?

Step 1: Lobby for laws which allow legally assigning a corporations over to an autonomous system (or, more simply, laws which allow granting legal personhood to an autonomous system.)

Under current laws, I don't think there is any place in the world where this can be done. The creation of a corporation is an act of government (often, but not always, done at the request of a non-government person through a publicly-available application process, but some are directly created by the government on its own initiative.)

I don't think so, this is totally uncharted legal territory- Nobody will know until the first legal precedents are established (IANAL)

What a bunch of snake oil.

If you invested or are thinking of investing ask yourself a few simple questions. Who are the Shareholders/Directors/Officers of this corporation? Do you know what state it is incorporated in or going to be incorporated in?

Just a few buzz words. Decentralized? No shit, any corporation with more than one shareholder is decentralized. Smart contracts? Defined as a self enforcing contract, guess what they don't exist. Autonomous? I'd like to see how this code is independently filing annual reports and preparing taxes sending out K-1's to its shareholders autonomously, because that alone would be an enterprise solution every single corporation in the US would pay top dollar for, because DAO just singlehandedly replaced corporate compliance lawyers and CPAs with code.

Still not convinced and eager to get in on this? Then why not cut out the middle man? Create your own "DAO" as an Investment Club (Corp or LLC) the only issue is you will be capped at 100 members/voters/token holders and $25M in investment. But you will be able to tell people your created your own decentralized corporation every bit as autonomous as DAO, complete with 100 tokens people can buy to become a member/shareholder and use to vote on investment opportunities presented by the DAO or members/shareholders of the DAO.

> Defined as a self enforcing contract, guess what they don't exist

This changed in July 2015, when the ethereum network went live.

> I'd like to see how this code is independently filing annual reports and preparing taxes sending out K-1's to its shareholders autonomously

Just wait- It's pretty likely the DAO shareholders will vote to have a contractor produce this information on behalf of the DAO.

> ... for your own "DAO" as an Investment Club

Go for it! An ethereum smart contract would be a great way to implement the operational details for this.

>This changed in July 2015, when the ethereum network went live.

I know the term exists and I know people are operating as though it is a thing. But if you and I enter a contract whether it is a written agreement or a smart contract on Ethereum network, that has no more or less bearing on the legal enforcement in the event of a breach. In either case the non-breaching party must file suit for the breach and there must be a finding of fact, and the smart contract does not replace the fact finder in a court of law and more than a traditional contract.

I know you don't speak on their behalf but DAO has raised $100+M and the answer to a simple tax question is just wait? That is my point, investments are inherently risky, but when the most basic questions regarding operation and governance can't be answered that is a red flag.

I think there are many legitimate concerns about this project, but what you are saying address none of them. In fact your first questions mean you don't understand it.

I think as a lawyer who practices a great deal of corporate transactions, I have a much better idea than most on the legal structure and compliance issue with corporations on a state by state basis.

But instead of telling me my question shows I don't understand, please answer any of the following:

-Are the token holders shareholders?

-If shareholders do the token holders also get to vote for the board, or are their tokens/shares non-voting?

-How many members are on this board? Since it is all autonomous how do you know the DAO has the minimum amount of board members are required by law? If say DAO is a DE corp (min 3 board members) and DE amends the law, how is DAO's code going to keep up?

Viewing this as a corporate attorney is the wrong approach as it's not a "corporation" and there is not really any legal framework as the idea is too new (CFTC commissioner just mentioned to "do no harm" to blockchain tech).

1. no, but they have a vote and can transfer a token which also represents their vote

2. there is no board

3. there is no board

Actually, his first question indicates that the people calling this a "corporation" have no idea what that word means.

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