Introduction to Decentralized Autonomous Organization (DAO)
With the invention of Blockchain, many industries have had a breakthrough in their technologies. The blockchain technology brings in a concept of secure digital ledger, where the transactions can be tracked by everyone on the blockchain network. Blockchain uses the technique of time stamping to eliminate incoming fake transactions. Also, to eradicate corruption and the need for a third party, the database is distributed to all users of the blockchain.
Later, some developers came up with an idea of implementing the above features into an organization which could run without any managerial supervision. Theoretically, this company could run entirely autonomously given it is equipped with sufficient rules and flexibility. And, this organization was called the DAO (decentralized autonomous organization). So, the DAO is a business or an organization where decisions are taken electronically by a computer written code or through a vote by the members of the company.
What exactly is the DAO?
The DAO was an organization created in 2016, which was designed to be automated and decentralized. It acted like a venture capital fund, based on open source code and without any sort of board of directors. To be completely decentralized, the DAO was not affiliated with any specific nation. However, it made use of the Ethereum network.
Why the concept of DAO?
The developers of the decentralized autonomous organization believed that they could remove human error and manipulation of investor funds by giving the decision-making power into the hands of an automated system. The DAO is associated with ether, which facilitates investors to send funds from anywhere in the world anonymously.
With the DAO, we would have companies without CEOs and other managers. If the regulatory structures permit, the blockchain data and the DAO could replace many public records like birth certificates, deeds, mortgages, and titles. Moreover, Healthcare clinics can operate autonomously, and cab drivers can implement driverless cab. Therefore, the list is pretty long, and a DAO based model can be applied to many businesses.
Who’s into the DAO space?
DAO is the most inexpensive and fair business model ever established. Unlike other organizations, DAO has only one interest to protect, which is the business itself. This is because it requires no employees or managers, no considerations of any salaries or such, intermediaries, or even profits for that matter.
There are many blockchain companies that are trying to bring the DAO revolution to real businesses. DAOStack is one of the platforms, whose goal is to replace each business function as a smart card. So, even if there is any friction between the stakeholders, the execution of governance can take place without any hitch. Moreover, DAOStack provides a full package to the developers to build DApps.
Jelurida is another DAO project which is due for a long time. The project began by providing the people with the innovative Nxt Blockchain platform which eventually evolved into the Ardor blockchain platform; where Ardor is a Java-based platform for creating a custom blockchain. Its primary aim was to address issues of blockchain bloat, scalability and versatility. It includes tokenization functionality, a marketplace which connects multiple blockchain services, a voting system and other utilities required by a sovereign ecosystem.
The downs of the DAO
The DAO launched during the second quarter of 2016. And, from a crowd sale of tokens, the funds raised more than $150 million. So, within a month of the launch, the DAO held a large number of ether tokens that had been issued. However, during the same time, a paper published which addressed the security vulnerability of the DAO, and cautioned the investors from investing in future projects until the issue had been solved.
In a matter of two months, i.e., in June 2016, the DAO was hacked based on these vulnerabilities. The hackers had gained access to 3.6 million ETH, which is now worth about $50 million. This led to massive controversy among the DAO investors, with some individuals looking for ways to address this hack and others calling for the permanent closure of the DAO.
The IEEE Spectrum claimed that DAO was vulnerable to programming errors and attacks. Also, the DAO was charting new territory in terms of regulations and corporate laws, but this made the process more complicated. Further, there were other old issues regarding the way that the DAO would operate in the real world. Therefore, it was essential for investors to convert their ETH into official currencies, as it could severely impact the value of ether.
Consequently, after the controversial argument over the DAO’s future and the massive hacking incident in the month of June; in September 2016, several well-known digital currency exchanges de-listed the DAO token, bringing an end for the DAO.
What did the Securities and Exchange Commission (SEC) have to say?
In July 2017, after the DAO had been ceased to function, the U.S SEC issued a report on initial coin offering and the DAO. The report disclosed that the DAO was selling securities in the form of a token on the Ethereum blockchain, that is, it had violated portions of U.S securities law.
The future of the DAO
As of the beginning of 2019, there were no clear signs that the DAO would come back to existence. Nevertheless, the interest in the DAO still continues to grow among the broader group.
Though there are many issues regarding the legality, structure, and security, some investors still have confidence that DAO-based organizations will eventually come to prominence, and probably replace the traditional-structured businesses. For example, the digital currency Dash is a decentralized autonomous organization because of the way it is managed and the way its budgeting system is structured. So, it is only a matter of time before many other DAOs enter this sector.