What the hell is the dao

Last update: May 24, 2016

So. Let’s get this over and done with.

DAO vs The DAO

There is a difference between DAO and The DAO: DAO is a general name for all these … things. It means Decentralized Autonomous Organization and it is supposed to be something like a commie startup that has no boss or CEO. There are just shareholders who can propose things. For each proposal there is a vote. There is also a limit - to keep the vote reasonable, some percentage of shareholders has to show up and vote.

The DAO is one particular “company” (for legal reasons called “Organization” instead of “Company”). There were already similar organizations dating back to 2013. This particular one was founded by Vitalik Buterin, the creator of Ethereum. It gained attention because it raised $100 million dollars worth of ETH in venture capital which, indeed, doesn’t say anything about the value or future of the project.

Voting in DAO

Because the organization is autonomous anyone can become a shareholder. In crypto space shareholders may be called token holders since the token is what you buy to be able to participate in the network of the organization.

Every organization has their own token. They have monetary value and might be tradable on some altcoin exchanges. That attracts speculators who might only want to trade the token and are not interested in the organization itself. On top of that, The DAO tokens (which can be bought for Ether) were on early-bird sale for some time. As people bought the tokens for The DAO they first had to buy Ether to do so which was probably behind the recent ETH price surge.

Voting and The DAO

This is a very good article writen by someone who took part in BitShares which operates pretty much on the DAO principle. (He calls DAO the DOA which is short for Dead On Arrival)

The author explains the biggest problem with BitShares were the people. It is ironical since the whole model of DAO is meant to remove human leadership and thus to remove the human factor from startup business. Yet it crops up anyway: BitShares token holders didn’t want to vote. Like, 90% of them didn’t want to. There wasn’t much difference for them either way and voting would take time, maybe reading something up etc. So nobody did that.

The DAO takes this problem even a step further: It is more convenient for token holders to NEVER vote. Once can buy the DAO tokens, watch for their price and then sell them (“reclaim” ETH, whatever value the token might have at the moment). However, one cannot do that once one have voted. If you vote in The DAO you cannot get Ether for your tokens.

Of course, anyone who is in only for the profit and not for the future glory of all mankind (which I hope is most people) will never vote. What happens if 80% of token holders will not vote? Not only proposals shall not pass but also, The DAO will earn a free profit on a fee that is collected for every proposal where 80% holders won’t place votes.

Seriously. The link once again. There is also some talk on the effects on the ETH price (pump during presale phases, dump at the profit taking).

Currently, the ETH dump is expected to start around 28 May. Let’s see.

The DAO and Slockit

There is a press release on The Merkle that explains how is related to The DAO. This relationship is the basis of what should bring The DAO revenue.

Problem is that is a bit out of the loop, as of yet at least. From my opinion it is absolutely idiotic - the world needs German blockchain startup so that people can stop thinking - but then that’s just me. See image above and make your own decisions. It’s related to the blog from the last link where he literally says that the solution to this situation is the whole world adopts electronic locks with blockchain access, not that he pulls his head out of his arse.

Unfortunately that is only to say it is far-fetched, not to say it has no future.

That means, this in my opinion idiotic idea definitely has the potential to actually happen one day. One day. Go figure yourself what’s the risk of this particular instance being a scam scheme designed to make the very few winners take it all and say “the world was not yet ready”.

How Reddit’s Bitcoin Traders See DAO

One example for all:

”…Where can I short it?”

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From Slockit Slack:

I’m thinking though the dynamics of DAO activities on the price of ETH. I don’t want to overthink it, but it seems to me the following forces would be at work regularly, presuming even a moderate level of success of proposals over time: 1. DAO funding of proposals leads to funded companies needing to convert ETH to fiat somewhere (DAO funds in ETH, co’s need fiat). This pressures ETH price down (without new ETH demand appearing). 2. If the DAO accepts a high number of proposals early, this force amplifies as numerous co’s must do the same thing. 3. Only later, as co’s return rewards to the DAO, they must convert that fiat back to ETH, resulting in upward pressure on ETH price. This could be dramatic, depending on ETH float available. 4. Over time, the rewards pressure that flows in grows and provides an increasing demand for ETH and therefore upward pricing pressure on ETH. In short: ETH price is under pressure for awhile, then recovers and grows meaningfully. Finally, one buffering effect (unknown) that could mitigate the price increases: That co’s funded currently own ETH and can pay rewards from that pool for some time. Thoughts on this (admittedly limited) analysis?

First posted:

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