16
votes
Are DAOs still a thing?
Early last year, there were some rather heady predictions within my company about the potential/future of decentralized autonomous organizations. (That a DAO would be running a real company, that a DAO would play an important role in an election somewhere, etc.) They have not come true. From my perspective, the same generally seems to be the case for nearly all Web3 components.
That led me to wonder, though - are DAOs still a thing? Is there quiet potential there and the hype machine has simply moved on to LLMs... or was hype all there ever was?
Have any of you seen any actual uses of a DAO? I would love to hear about it if so.
Eh, not really?
They're not all that structurally sound and generally boil down to "an organization with a computer".
(Pre-script note: The points are my own, but the examples are sourced from Molly White and her resource https://www.web3isgoinggreat.com, which is dedicated to recording the outcomes of cryptocurrency projects and showing where they haven't lived up to the hype.)
Every organization needs to figure out how decisions are made. Member-created proposals and member voting is a quite obvious structure, and one that has been battle-tested by many organizations. However, DAOs must contend with a new issue due to their decentralized structure: Who is a member? What counts as a "vote"? You can't just count up people (or wallets), because making a wallet is free, and someone could just make 1000 wallets to 1000x their representation. To solve this, DAOs usually associate votes with a cryptocurrency token, so that to get voting power, one must purchase said token. This fixes both problems at once: A member is a token holder, and a token is a vote. Who cares how many wallets are involved? The money spent on the tokens is the same.
An immediate side effect of this is that more token ownership confers more voting power for a single person. Putting aside (strong) ideological objections, this lends itself to power concentration and the constant threat of hostile takeover from any party with great financial resources.
This has recently happened to the "Compound" protocol, whose DAO was ordered to move 24 million USD to a new protocol that just happened to be under the proposers' control:
https://decrypt.co/242095/compound-finance-proposal-passes-concerns-over-governance-attack
That hostile party can also be the devs, who may decide that the DAO's money simply belongs to them, as is what happened to the DAO governing the Sushiswap cryptocurrency exchange:
https://decrypt.co/225431/sushiswap-community-cries-foul-over-vote
But this is still dealing with the idea of governance. There's another, much simpler technical issue for DAOs:
If code is law, bugs and malware are also law.
A core principle of Web3 is that decisions are made by code. Following this principle, DAOs are made of code, and their laws must be written as code. However, any developer will tell you that all code has bugs, and most will also suggest that running an untrusted stranger's code on your computer is a very bad idea.
In the real world we have courts (and general human logical fuzziness) to help decide what the deal is when the law says something funny, so adding a clause saying "oh and also give me all the money in this institution" wouldn't pass anyone's smell test and get struck down as soon as somebody notices. However, an equivalent clause in a DAO governance proposal (or in the DAO itself) can be obfuscated in any number of ways, and a computer isn't going to tell you whether that code is bad.
A malicious proposal can get passed, as has happened to the Tornado Cash cryptocurrency tumbler which surreptitiously added functions to leak or steal deposited cryptocurrency:
https://web.archive.org/web/20240226172323/https://www.coindesk.com/business/2024/02/26/tornado-cash-reportedly-suffers-backend-exploit-user-deposits-at-risk/
Or the DAO could have a flaw that lets a hacker drain its funds without needing to interact with governance at all, as was the case for one of the original DAOs, aptly named "The DAO":
https://en.wikipedia.org/wiki/The_DAO
As an aside, this hack was so catastrophic that it literally split the Ethereum blockchain in two, but that's a story for another time.
I could continue, but all of this is just jargon to deal with computers. And that is the biggest issue with DAOs:
Code on its own can only flip bits. As soon as you need to enact the will of a DAO in the real world, you encounter all the same issues that a regular organization would.
A DAO runs a cryptocurrency exchange. What happens when it gets sued by the CFTC?
https://decrypt.co/110407/cftc-ooki-dao-bzx-lawsuit-legal-questions-defi
A DAO tries to crowdfund for Julian Assange. What happens when the money gets mismanaged?
https://emma.best/2024/09/13/assangedao-launches-on-bitfinex-as-it-faces-rug-pull-accusations-from-organizer/
A DAO pools people's money to buy a Dune artifact and start their own Dune-inspired animated series. What happens when it wins the auction... and realizes copyright doesn't work that way?
https://www.theverge.com/2022/2/28/22950868/spice-dao-crypto-jodorowsky-dune-bible-collective-writing-contest
https://www.theverge.com/2022/7/27/23280490/spice-dao-jodorowsky-dune-bible-crypto-sale-planned-liquidation
A DAO can decide how to react and how to move forward, but then what distinguishes it from any other decision making body? At that point, it's basically just an organization with a computer.
Thanks, this is great. The specific examples are helping fill in some gaps for me.
I'd never heard of DAOs before, so decided to look it up on Wikipedia... which also has a list of notable DAOs. It's a pretty small list though, and the "issues" section seems rather serious, especially the security issues. So like most blockchain based ideas it seems like it was almost entirely hype with very little practical application, and lots of potential additional risks and drawbacks compared to the already established way of doing things.
And I came into the thread thinking: "well I guess Data Access Object is kind of a dated pattern, but I'm sure it's still fairly used... Oops"
I'm actually surprised DAOs are still a thing after the collapse of The DAO. I remember reading about it for months leading up to the opening. It had coverage on NPR, with everyone talking about how amazing it would be to have everything determined by the code. "Code is law", and "if any public statements disagree with the code, the code should be considered authoritative".
Then the moment the code had a flaw that caused certain people to lose money, it was suddenly "oh, no, that wasn't what was intended and we need everyone to let us change the code". I was never super excited about cryptocurrency, but that moment shattered any remaining illusions I had of it having any intrinsic value.
Best I can tell, DAOs were never a thing, at least for people who don't follow crypto. At least, not as much as Mastodon is a thing, and thats saying something.
They were just another part of the crypto hype cycle trying to signal boost NFTs to relevance, and will be forgotten just as easily.
Teia.art, a resurrection of Tezos art platform Hic Et Nunce, is testing its DAO tools in preparation for migration:
https://blog.teia.art/blog/dao-test-launch
Thanks for including an example of a Dao that's still going.