The DAO’s dream won’t be shattered so easily

Rage Review : This week, panelists at the New York Blockchain Conference fiercely debated the failure of The DAO project and the pros and cons of DAOs as a form of enterprise. The DAO is the first large-scale distributed autonomous organization based on the Ethereum platform, a digital economic entity without any central control. It achieved amazing success in a short period of time, and then collapsed in a short period of time. It caused people to be overjoyed and sad, and aroused many suspicions about this business model. However, people are still unable to make a final judgment on it, and at least it will continue to exist tenaciously as a business operation model.

Translation: Annie_Xu

At the Blockchain New York conference this week, the founders of the startup that executed the hard fork of the ethereum blockchain and the co-founder of the ethereum decentralized application network sat as far away from each other as they began to debate the now-infamous project.

The DAO project was launched in May and collapsed in June. It was the first large-scale decentralized autonomous organization based on Ethereum, a digital economic entity without any central control.

But in the wake of a hack that resulted in the loss of $60 million in digital currency, the very idea of ​​allowing this leaderless, code-governed business model to continue became the center of a fierce debate, with panelists expressing conflicting emotions.

Joe Lubin

Joe Lubin, co-founder of the Ethereum protocol, argued that the failure of The DAO was not proof that the idea was problematic, but rather that it created a sense of urgency around the security of smart contracts. He went on to call The DAO “a major event for our ecosystem.”

"It attracted millions of people and a lot of attention from security researchers."

Lubin’s company, Consensys, is also continuing to develop different versions of two core elements of The DAO — a leaderless governance mechanism and a crowdfunding tool.

Other panelists included Preston Byrne, whose startup Eris Industries is building on a fork of the ethereum blockchain; Matt Liston, founder of prediction market Gnosis; and digital currency portfolio manager Jake Dienelt. The panel was moderated by Chris Betz of the Enterprise Data Management Council.

The idea of ​​The DAO

The DAO project, launched earlier this year, used open source code written by Ethereum startup Slock.it. It is a venture capital firm whose members purchase voting rights with blockchain-based tokens.

The DAO’s coding flaws ultimately led to a series of potential security vulnerabilities, and it continues to simmer debate over why the system collapsed; people are also arguing over what is left of the project and what they can save.

Another person who, like Lubin, is developing blockchain governance models agrees that The DAO concept is not dead yet.

During the panel, Liston called the collapse of The DAO a “wake-up call” for the importance of “developing secure code for smart contracts.” Putting aside The DAO’s legal issues, Liston said the project’s future regulatory framework is “something we’re developing.”

Matt Liston

Matt Liston's prediction market Gnosis allows people to make collective decisions by voting, not to decide what they want to happen, but to decide what is likely to happen.

Liston described The DAO concept like this:

“This is an evolution of the business, not a slightly different business.”

The reality of The DAO

But during the debate, Dienelt showed disbelief more than once.

Dienelt, an early architect at blockchain capital markets startup itBit, mentioned that some people believe that the theft of Ethereum was not a hacker attack at all, and pointed out that he disagreed.

Jake Dienelt

Many hackers believe that "code is law," so Dienelt pointed out that the attacker "did nothing wrong."

"They followed the rules and took the money."

However, as to whether this incident could be characterized as an attack, he pointed out:

"It's an attack, but he's the only person in the world who has read the terms of service."

Perhaps the most skeptical of the decentralized autonomous organizations (DAOs) format is Byrne.

He said his company built a DAO in 2014, but it was different from The DAO in that it introduced a “manual override” feature, or backdoor, that could prevent The DAO from executing commands in the event of a malfunction.

The Dangers of The DAO

Byrne countered Liston’s view, pointing out that the legal framework that caused DAOs to fail is not symbiotic with distributed organizations.

In addition to serving as Eris Industries’ COO, Byrne serves as the company’s general counsel. He was previously a securities and derivatives attorney at international law firm Norton Rose Fulbright.

For Byrne, software like The DAO may be used to run businesses, but it is not a business in itself.

So in addition to setting up a backdoor in the first DAO development attempt, Byrne said he set up the entity to be modeled after an American company. Byrne further pointed out that the failure of The DAO may not be a bad thing because it made people aware of the potential threats.

Finally, automated governance does not entitle it to issue digital tokens representing voting rights.

“We believe that DAOs are a completely inelegant and unconvincing way to commit securities fraud.”