The concept of Blockchain's DAO might date back to the term "Decentralized Organized Company"[1] coined by Daniel Larimer on September 7, 2013. Soon after that this term was revised to "Decentralized Autonomous Corporation" abbreviated as "DAC". Thirteen days later Vitalik Buterin published an article[2] detailing his thoughts on DAC. On May 6, 2014, Vitalik published another article titled "DAOs, DACs, DAs and More: An Incomplete Terminology Guide" in which he was the first in the blockchain industry to point out that after DAO was initiated it would possibly be designed to run free from external control, and under predefined rules[3].

Six years have passed since the publication of Vitalik's article in 2014, we have gone through ICO bubbles, crash of crypto markets, and wild DeFi parties. Now it is time to re-examine DAO and survey its nature.

 

1. Blockchain implies being free from control from human beings.

I still remember that in Bitcoin's early years there was a popular saying "Bitcoin is anonymous". You could even see it on bitcoin.org.

Yes, when you got your first BTC or ETH address in your wallet, you should realize that you're anonymous.

However on one hand some people fear that the external centralized world would block blockchain's development and on the other hand still quite a few people in the blockchain world are reluctant to lose their power, "Anonymity" as one of the core features of blockchain gradually fades away in recent years.

Up till now still no one can prove he/she owns an amount of bitcoins even when he/she shows the private key for a wallet address which has that amount because it is possible for some reason someone else has that private key as well or it's a stolen one.

You may say: OK I can prove that I own the private key of this wallet address by sending you some bitcoins from this address as long as I can afford it - however we know magicians can do it as well!

Or how can we prove that we don't own bitcoins anonymously? Can anyone tell me who is the real owner of the private key of the famous address which has one million bitcoins and has been claimed to be owned by Satoshi Nakamoto?

The birth of Ethereum marks the upcoming of a new time for blockchain i.e. blockchain 2.0. It goes further than Bitcoin. It splits Bitcoin's account type into two: externally owned accounts and contract accounts.

To simply put, an externally owned account can be used by a human being and a contract account can only be used by smart contracts rather than human beings. The differences between these two types of accounts cannot be told by human beings with naked eyes.

If we go further and think big we can imagine that an externally owned account might be used by an AI controlled entity as well since no one can tell whether or not its private key is possessed by a human being or an AI controlled entity.

Ethereum's handling of accounts goes one step further in removing control of blockchain from human beings. We believe blockchain's anonymity means isolating blockchain from human control.

Recently Vitalik and others launched EIP-2938 "Account Abstraction" which will add more features to a contract account and enable it to pay gases and trigger transactions. This implies that without human initiations blockchain based dApps can initiate operations and interact with other smart contracts. This is like an autonomous transport vehicle automatically loads goods and transports to destinations on demand. This EIP will greatly enhance blockchain's potentials and capabilities without human beings' interaction. Eliminating control from human beings eliminates power from human beings in blockchain. Human beings cannot avoid abuse of power and blockchain provides ways to solve this problem.

I know many people are striving to defend their power to the death...

 

2. Cheating is a born bug of human beings

I am convinced that there is voting fraud in the past US election. My special life experience tells me that all popular elections held in the history there are nearly zero cases in which there was no voting fraud. However most of the election results were accepted just because the voting fraud was limited or could be tolerated or in some cases the election results were forced to be accepted, even ridiculously.

I noticed that both Facebook and Twitter have been questioned multiple times by the US government this year. Obviously without regulations these media giants cannot even survive a single day! However if they try to play the role of information screening, these media giants de facto play the roles in our society to block and screen useful and meaningful information, and misconduct. This is like law-enforcement personnel commit law-breaking activities. A recent case is that many of Donald Trump's twitter messages were marked as "This claim about election fraud is disputed" and he may not change this by commanding "You're fired", because this act of blocking and screening is protected by Section 230 of Communications Decency Act. For the US society, it hurts but there're still no perfect solutions to preventing cheating, by presidential candidates or social media platforms.

In human beings' society we have to tolerate this but in a blockchain-driven world we can resist falsification and censorship.

Compared to human beings, computer programs don't naturally have this bug of cheating. Nearly half of the population in the world are using smart phones. These billions of smart phones are doing complicated calculations day and night, but no smart phones are cheating. As for the handling of US election votes, the statistics is just simple addition actually!

If a calculation as simple as addition could be manipulated by human beings how can we trust a blockchain world relying on management of human beings?

This is irrational.

 

3. Lessons Learned from Governance of DeFi

Let's take MakerDAO as an example. Its governance has two main task: management of Vault and adjustment of stability fee.

It sounds cool to issue a governance token MKR to manage vault, doesn't it? However some hackers took advantage of it by using a Flash Loan to sway a governance vote.

It's a big blow to MakerDAO's governance strategy.

As for the management of the stability fee, in fact it is monopolized by a small group of rich guys. Quite often we see adjustments happen and we see voting happen but as a loyal customer I have never figured out why and for what those adjustments happened. What I can imagine is that if all these adjustments can be done by programs based on algorithms that small group will never be needed and the bureaucratic voting can be over.

In fact in DeFi so-called human collaboration falls to human collusion for interests. It is ridiculous to govern tokens with tokens. It is a "Money Talks" game which makes DeFi a tool used by the rich to be richer.

 

4. Inspiration of Bancor

Here is a quoted paragraph from Bancor's white paper:

In this white paper, we have proposed the Bancor Protocol for decentralized liquidity networks, based on a standard for a new class of tokens called Smart Tokens, which provide continuous liquidity by incorporating an autonomous and low-cost market making functionality directly into their smart contracts. Smart Tokens utilize connected token balances and an intelligent and open-source formula to perpetually offer to buy or sell themselves at calculated and predictable prices, in return for any other token to which they are connected[4].

Bancor implemented an intelligent and open-source formula with smart contracts and created an unprecedented decentralized exchange which surprised the whole blockchain world. Bancor's innovations include:

  • Bancor created an algorithm to implement a price discovery mechanism instead of using "matchmaking" process which have been adopted since the first stock exchange was established 247 years ago. The latter is an unfair mechanism which puts institutional investors in a much advantageous position than individual investors thus makes the former dominate the game.
  • Bancor's algorithm builds up the first exchange that can provide infinite liquidity for token trading.

Although I don't think Bancor is perfect, the above two points Bancor brought to the world changed the history.

Bancor's implementation shows that smart contract implemented intelligent algorithms created a revolutionary mechanism. Doesn't this give us huge inspirations?

 

5. Conclusion: Time to Redefine DAO

Hence we come to know:

  • DAO is not a sort of collaborative organization for human beings. Although in the early stages of a DAO's development it may have to rely on human beings' close and efficient collaboration and cooperation. At present, we may call DAO as "smart-contracting collaboration".
  • I am convinced that AI will ultimately surpass human beings. But now it is still a little bit early since AI is too immature to compete with human beings and play their roles in the blockchain world. And even in the blockchain world the most popular blockchain Ethereum is too immature to work with AI. Therefore for now we can only rely on intelligent algorithms like what Bancor has implemented. In fact Bancor has proved that its success is achieved by eliminating human beings' manipulation in its basic mechanism therefore it brought a revolution to price discovery mechanisms in trading.

When we re-examine the term "Decentralized Autonomous Organization", we find that the word "Organization" which we use to interpret some changes and innovations that are and will take place in blockchain is misleading. In the Cambridge Dictionary "Organization" is defined as "a group of people who work together in an organized way for a shared purpose". It implies the following two meanings:

  • An organization should be relying on human beings.
  • Human beings' power plays the key role in an organization.

However from Bitcoin to Ethereum and dApps, blockchain has always been evolving and sticking to eliminating reliance on human beings, and has found aforementioned ways of anonymity to accomplish this.

Another remarkable fact is that neither Bitcoin's PoW consensus nor Ethereum's upcoming PoS consensus relies on human beings to commit transactions to a ledger but both rely on software to do so instead. Furthermore, both PoW and PoS can detect and prevent incorrect transactions from being committed when someone tries to do so. It is the consensus mechanism that secures a blockchain's security. It tells a straightforward fact that in a blockchain world we no longer need human beings to secure a system but instead we need to eliminate human beings' interference to secure a system.

Therefore the core value of an organization is completely divergent from blockchain's decentralization and it does no good to blockchain's development and success.

A tiny virus tore apart the superficial prosperity and mightiness of our human society and showed how weak and fragile the existing centralized world actually is. We need blockchain to reconstruct our society and we need to re-examine our thinkings.

On November 28, Fred Ehrsam, co-founder of Coinbase and Paradigm, and Dan Robinson published Governance Minimization, there're some key points relating to the topic we're discussing here:

  • What is credible neutrality?
    Credible neutrality is dependability. It means a stakeholder (e.g a user or a developer) can use or build on a protocol with confidence it will not change against their interests. Protocols remain credibly neutral by avoiding "capture" by any particular group.
  • Credible neutrality is primary value proposition of crypto today.
    It creates safety of value locked in a platform — both concrete (funds) and abstract (development time, users) — from theft, shutdown, and restriction.
  • Governance minimization means reducing the power and reliance on governance wherever possible.
    Governance minimization is important because it supports the primary value proposition of protocols: credible neutrality. Minimizing governance tends to make protocols more credibly neutral.
  • Governance minimized protocols will see the most use. It is the core attribute which kicks off the positive feedback loop between trust and adoption as a standard. It also puts powerful, basic tools in the hands of all creators, generating more opportunity and faster progress for the entire crypto ecosystem.

Do we still remember a frequently discussed topic about Bitcoin's features in its early years---"Trustless"? Essentially only when a system or a dApp is credibly neutural can it be trustless!

Therefore, no matter how decentralized a project's governance seems if it lacks credible neuturality the project can hardly survive in the long term in a blockchain ecosystem.

The only way to credible neuturality is minimization of governance like what Bancor has accomplished by implementing a price-discovery mechanism with smart contracts and algorithms.

 

We propose to redefine DAO as Decentralized Autonomous Organism.

"Organism" means:

  1. DAO = Token + Smart Contract + Smart Algorithm (or Intelligent Algorithm)
    Every Decentralized Autonomous Organism needs to be intelligent. We need intelligent algorithms and need to eliminate human beings' manipulation.
  2. Governance Minimum and Credible Neutrality
    Bancor have proven that intelligent algorithm is a solution for both.
    Obviously, most of today's blockchain projects are inseparable from team decision-making. It is undoubtedly a challenge to solidify the team's decision-making results into smart contracts in the form of algorithms.
  3. No Decentralized Autonomous Organisms will be isolated. Every DAO will be able to interact with one another intelligently. Every DAO can send service requests to other DAOs, and can digest replied data (by absorbing nutrients and eliminating wastes) and enjoy replied services. Therefore a DAO's behavior(e.g. changes of the stability fee in MakerDAO) cannot be changed at will by human beings such that the DAO can maintain stable and user-friendly interface and behavior to its users and calling smart contracts.
  4. A DAO has its own life span. It may die abnormally (from being attacked by hackers or being hurt by malicious DAOs). After one DAO dies, a new DAO will continue its course.

Considering the rapid development of AI, DAO may keep evolving, growing and moving forward by adopting more and more AI in then future. Along with DAO's development it will always be alert to and prevent human beings' born "bug".

Today it is time to re-examine our outdated understanding of DAO, redefine its essentials and move forward with a completely new thinking.

 

Special thanks to Yuefei Tan for his translation and discussion.

Thanks to Zhao Li, Hong Cheng, Chenggan Guo for their discussion.

 

References

【1】Overpaying For Security, Daniel Larimer, https://letstalkbitcoin.com/is-bitcoin-overpaying-for-false-security

【2】Bootstrapping A Decentralized Autonomous Corporation: Part I,Vitalik Buterin, https://bitcoinmagazine.com/articles/bootstrapping-a-decentralized-autonomous-corporation-part-i-1379644274

【3】DAOs, DACs, DAs and More: An Incomplete Terminology Guide,Vitalik Buterin, https://blog.ethereum.org/2014/05/06/daos-dacs-das-and-more-an-incomplete-terminology-guide/

【4】P20, Bancor Protocol Whitepaper(May, 2018)

【5】Governance Minimization,Fred Ehrsam, DAN ROBINSON, https://www.fehrsam.xyz/