DAO Politics is a series of podcasts from Forklog in which we, together with invited experts, understand how decentralized autonomous organizations, and talk about their conceptual and technological foundations. In the second episode of the podcast, we discussed with Vlad Cohen, a trader and specialist in the macro market economy, when it is worth using DAO tools and what hinders their mass implementation.
1. DAO is a flexible management tool. Most governance problems can be solved with smart contracts. We are witnessing the process of transition to them right now. Technically, DAO allows you to get rid of unnecessary bureaucracy, acting as a fast, clear and transparent mechanism. At the moment, such organizations cannot serve as a universal master key for government institutions, but they can be implemented in various spheres of human life.
2. States will resist the implementation of the DAO. Governments are run by bureaucrats. As a rule, these are people who are not particularly eager for change. Existing states are not interested in the implementation of the DAO, since this structure sets its own laws. China, Russia, Brazil will absolutely not allow the DAO on their territories, since for them these are islands of destabilization in society.
In general, governments are not interested in people managing their money and withdrawing their financial, technological and human resources from the state circulation. States exist at the expense of taxpayers. Therefore, we see a trend towards the introduction of centralized digital currencies (CBDC), providing full control over the movement of funds.
3. Before building a DAO, there are several factors to consider. First, you need to decide whether the founder is ready to delegate control. Because even the initially laid down ideas can be rejected by the community in the future. The DAO evolves as new members join. Upon reaching a certain threshold, we get the effect of the crowd, which may not vote for the decisions that were proposed at the founding stage. Secondly, you need to be transparent and have the technical knowledge to build a complex structure and make it stable.
4. Neglecting legal aspects when building a DAO is a big mistake. All attempts to create local DAOs outside the legal framework lead to the risks of closing the project and freezing funds. For example, the TON community recently voted to limit the rights of early miners and freeze their assets, despite the fact that they were the ones who risked their capital and power for the sake of a project whose future was not known anything specific.
This is a prime example of how the DAO goes against its creators. If all participants in the BTC network were given the right to vote, then they would probably use it to freeze the tokens of all Bitcoin creators. Human nature and greed lead people to try to make decisions that are beneficial to themselves.
At the same time, for the implementation of the DAO, technical means must appear that would make it possible to prevent the usurpation of power by a minority. Perhaps the development of artificial intelligence will allow the creation of more complex and advanced smart contracts that will limit the risk of cyber attacks. However, there will always be a shield and sword problem: there will definitely be AI that will develop hacking systems.
5. The inert majority is the main problem of the DAO. Existing algorithms and smart contracts are written correctly and work effectively, but in six months or a year the situation may change. Accordingly, they need to be optimized. This was the case with BTC when the SegWit update was introduced. Since most bitcoin holders do not have sufficient technical competencies, several projects to upgrade the network have stalled. As a result, SegWit was implemented.
Smart contracts are written and understood by only a few DAO users, and global solutions already depend on them. Thus, the majority is forced to trust the minority. Many DAOs face the challenge of motivating people to vote. In addition, there are technological risks in the form of hacks, cyber attacks and backdoors from the project developers themselves.
6. New tools make building DAOs easier for everyone. Now there are enough frameworks that use mainly the Ethereum blockchain that anyone, if they have the right background, can configure their DAO within 10 minutes. The simplest and most famous of these platforms is Aragon.
It provides the user with the opportunity to independently choose smart contracts according to their functionality, connect a wallet, generate and distribute their own tokens.
If you delve into history, before the spread of the blockchain, there were already organizations that solved their problems in a similar way, but the mechanism of their work was set out on paper. Technological advances have made things easier. I hope that in the future such frameworks will become so accessible that even children can achieve their goals with their help.
What DAOs is Vlad Cohen watching?
- Ukraine DAO, which has united to raise funds to help victims of the war. There are very respected founders, everything is transparent, but there is still a bias in management.
- VitaDAO is a new project that brings together people who seek to extend human life. Pfizer has invested $4 million in them. Bill Gates and Elon Musk also have similar projects in which anti-aging systems are being developed.
- KlimaDAO – tokenizes carbon emissions. The struggle for the environment and the reduction of harmful emissions into the atmosphere at the state level has faced the phenomenon of corruption, speculation and non-compliance with regulations. Greenpeace also has a lot of unhealthy decisions. I support all environmental movements, but their methods lead to an increase in mistrust in the industry and a decrease in donations.
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