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DAOs on Ethereum: The Future of Venture Finance


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An overview and explanation of current developments of DAOs on the Ethereum Blockchain. Specific focus on the DAO use case, governance, entity interactions and a financial categorization.

Published in: Economy & Finance
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DAOs on Ethereum: The Future of Venture Finance

  1. 1. Decentralized Autonomous Organizations on By Paul Kohlhaas
  2. 2. “[A DAO] is an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do” V. Buterin (2014) “It is a new breed of human organization never before attempted. The DAO is born from immutable, unstoppable, and irrefutable computer code, operated entirely by its members” The DAO (2016) Slide 2 / 15
  3. 3. What is a DAO? • Distributed across the internet without centralized authority • Allows human organization and intervention without third-party trust • Governance and rules enforced via incorruptible code and smart contracts • Risk/reward schemes with programmable incentives • No formal legal or physical representation • Ownership via cryptographic tokens fueled using Ether Slide 3 / 15
  4. 4. DAO Quadrant Source: V. Buterin (2014) Slide 4 / 15
  5. 5. Digix DAO Slide 5 / 15
  6. 6. The ( DAO Slide 6 / 15
  7. 7. Use case: Overview • Building the «Standard DAO Framework»? • Establishing industry standard, however, many models will emerge • Organized via, reddit and github • Open source code freely available Three entities: 1. Token Holders (Investors) 2. Contractors (Service Providers) 3. Curators (Auditors) Slide 7 / 15
  8. 8. 1. Token Holders • During Creation, anyone can send ETH toThe DAO and becomeToken Holder • Token Holders have the right to vote on proposals • They can receive rewards generated by output of the Contractors Slide 8 / 15
  9. 9. 2. Contractors • DAO is essentially software and cannot produce anything • Contractors submit proposals for the deveopment of products or services • Proposals are in plain English backed by a smart contract that defines the exact relationship (deliverables, responsibilites, parameters) • Contractor is bound to the immutable smart contract,Token Holders can ‘pull the plug’ anytime unless otherwise specified in the contract Slide 9 / 15
  10. 10. 3. Curators • Solve problem of completely anonymous transactions within DAO and 51% attack • Nominated byToken Holders • Curate the Contractor address list • Confirm that published contract matches source code of deployed contract • Confirm identity of entities Slide 10 / 15
  11. 11. DAO Token Holders Normal Economy Contractor A *No traditional jurisdiction *Governance by code *Transactions in cryptocurrency *National and international jurisdiction *Governance bound to laws *Transactions in fiat currency 1. Proposal Build X at cost of Y Contractor B Contractor C 3. Vote & Accept DAO accepts parameters of proposal A 2. Extends Proposal Crypto Economy Curators Slide 11 / 15 Curate ETH Address list, check proposals Users ETH/$ $/ETH 4. Contract Commencement 5. Product/Service Delivery ETH/$ $/ETH Source:Own illustration
  12. 12. SplittingThe DAO The DAO DAO 1 (55%) AcceptA DAO 2 (40%) RejectA DAO 3 (5%) Payout DAO 1.1 Slide 12 / 15 ProposalA DAO 1.2 Rewards? Proposal B
  13. 13. DAOs as Decentralized Fund Managers • DAOs present the emergence of an entire new class of participatory financial assets • A venture capital firm is not a venture capital fund.The firm manages the funds it is entrusted with. • The DAO in itself is not a fund. It is software that manages the funds it is entrusted with. • Instead of the Fund Managers getting significant share of profits, all profits go to theToken Holders  Distribution of wealth • The DAO produces and manages unique tokenized assets which represent investor holdings and their rewards. It allows people to come together, and vote on how resources will be allocated and benefits gathered. • Similar to aVC, the DAO continues to exist after the ETH is spent to manage the assets it now owns Slide 13 / 15
  14. 14. Future of DAOs • Governance Models • Governance Interfaces • Boardroom • Futarchy • Legality of a DAO • DAO Splitting/Sharding • DAO ICOs andTokenTrading • DAO, Blockchain and Artificial Intelligence Slide 14 / 15
  15. 15. Q&A • Resources • Reddit • r/ethereum • r/ethtrader • r/thedao • Github • • Medium Contact 074 078 6005 Skype: paul.l.kohlhaas Slide 15 / 15