With the creation of The DAO days away, it is time to move past the unprecedented success of its crowd sale and begin to consider the risks, obstacles, and potential rewards this decentralized autonomous organization is likely to face moving forward.
Without the administrative bloat of a traditional corporate structure, The DAO is potentially positioned to manufacture products and provide services at higher profit margins, utilizing "Contractors" to facilitate the execution of proposals on behalf of The DAO and its token holders.
Once a project proposal is submitted to The DAO, token holders have a preset timeframe to debate and vote on funding the proposal. During this time DAO token holders will have the option of pledging their DAO tokens to the proposal, effectively voting to release ether to fund the venture. Initially, if twenty percent of tokens are pledged to a proposal during the voting time frame, the project will be funded. "Curators" serve as The DAO's internal audit function by validating the identity of Proposers and defending token holders from malicious proposals and various majority attack vectors. It is important to note, these "Curators" are not leaders of The DAO, in the sense a Board of Directors leads a traditional public company. The responsibility for proposing ventures and making funding decisions lies solely with DAO token holders.
If a token holder is unsatisfied with the direction of The DAO, or if a malicious proposal seems likely to pass (such as an attempt to transfer DAO funds with no return on investment), the token holder will have the ability to "split" The DAO. At this point, an identical DAO is created, funded by an amount of ether equal to the token holder's proportional ownership of DAO tokens. This ether is transferred from The DAO funds. This newly formed DAO would be independent of The DAO, with its own Curator(s), proposals, and rewards.
The ability to "split" The DAO opens an endless realm of possibilities. With over one billion DAO tokens created to date, it is conceivable that The DAO may give rise to numerous decentralized autonomous organizations, each with their own Curators, investment objectives, and funded proposals. To date, multiple planned proposals have been made public, such as Slock.it's Universal Sharing Network (centered around the Ethereum Computer) and Mobotiq's modular electric vehicle rental network.
Consider a situation where Slock.it's project is the first proposed to The DAO. If a token holder wanted no part in this venture, they could immediately "split" from The DAO, potentially convincing other token holders to join their new DAO. However, since this DAO would be independent of The DAO, the token holder would miss out on future proposals made to The DAO, such as Mobotiq's p2p rental network.
Clearly this disruptive form of venture capitalism / crowd funding will face obstacles as this concept is actualized. For instance, who is legally responsible for The DAO's actions? Individual token holders? Contractors? Proposers? Is a DAO token a "security" by conventional definition? What government / regulatory agency has authority over this decentralized autonomous entity (if any)? Clearly The DAO's interaction with traditional business and legal structures will have to be considered in depth. Any new laws or regulations will directly affect the reach and scope of this revolutionary venture. Whether in a positive or negative light, only time will tell.
After raising north of $150 million USD in the largest crowd funding effort in history, the international crypto-community is hopeful The DAO will spawn a new age in international finance, free from unnecessary trust, middle men, and corrupt business practices. At the same time, the future of this ground-breaking corporate governance structure is wrought with uncertainty and risk. For a detailed analysis of The DAO concept and its governance contracts, download The DAO white paper.
Tyler Logsdon is a CPA and Registered Securities Representative located in Newport Beach, California. He is actively employed in the blockchain industry.
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