What it Means to Make a DAO

On Decentralization

If we were asked to give just a single keyword to explain the core concept of blockchains and the relevant space, it would definitely be Decentralization. The terminology still is used in different places for various contexts, and Vitalik addressed some essential aspects of decentralization that should be considered when decentralizing a system, namely Architectural, Political, and Logical decentralization.

In short, architectural decentralization means whether the system is run by numerous end points (physical devices), political decentralization how many individuals or organizations rules the system, and logical decentralization whether the system is monolithic or amorphous. Ethereum is believed to be architecturally and politically decentralized, but logically centralized since it (the Virtual Machine, and the global state) acts like a single body.

But still at this stage, saying something (Ethereum) is decentralized or not, doesn’t really make sense, and rather we would want to say HOW MUCH it is decentralized in WHICH ASPECT. A subsystem’s idea on such measure was suggested recently, which included measures on the distribution of Mining rewards, Client codebases, Commited developers, Traded exchanges, Geography of nodes, and the Currency owners, along with a minimum “Nakamoto” value referring to how much entities in the subsystems need to be compromised to attack the whole system.

This addressed that architectural decentralization isn’t just achieved by having as many end points in the system as possible. We should be also concerned with the diversity of clients running the system, developers contributing to the system(including their nationalities, organizations, etc.), hardwares that run those end points and their manufacturers, and so forth. Fully integrating these considerations is required to achieve a system that both hardly fails and resists malicious attacks.

Another property addressed by Vitalik that is achievable by a system decentralization is collusion resistance, which is though difficult to define in a common sense but is the most important problem of a centralized system at the same time. There he generalizes the concept by the word “coordination”. So making a system resistant to collusion is to make positive coordinations encouraged, while preventing negative coordinations from taking place. Still remains a question on which coordination should be considered positive and which negative.

For a simple example of such, Vitalik suggested that 90% hash powers of Bitcoin all showing up in a Bitcoin conference might imply a potential coordination, which actually made a strong coordination on the future decision on Bitcoin, and therefore uncoordinated system model may be unrealistic.

To cope with this problem, SlotNSlot utilizes a ceiling on the voting power that a single individual can have. They will still reap the economic benefits from the platform proportional to their token amounts, but the governance will be restricted to a certain level. This is still not a complete solution to political decentralization since anyone can make multiple wallets to get around the voting power limits. We believe this will be solved when actual use of ID projects such as civic, uPort, humaniq, or ID2020 is available.

On Autonomous

Running the platform autonomously is enabled with the Smart Contracts on blockchains. Plans and actions in projects are integrated into codes within contracts and executed automatically. While Decentralization, as mentioned above, is about governance of the system, Autonomy is more about executions and operations of the system by itself.

As Stephan Tual of slock.it describes, self-driving doesn’t simply mean autonomous. According to his explanation, every actions and aspects of the system should be autonomous, thus requiring micro transactions/payments to be processed solely by the system itself. This is enabled by the Smart Contracts integrated into DAOs on the blockchain. By implementing proper contract codes, most of system components can be automated, especially those on the digital. Remaining task is to integrate offline transactions into blockchains, and that’s what the ever increasing DAO projects recently are doing.

Specifically in SlotNSlot project, running autonomously is thought to mean “having no need for external triggers or third party interventions to operate the platform.” Here by “external” or “third party” we refer to any entity that is neither the token holders nor the users of the platform. Whereas actual creating and playing slot machine sessions on our platform was easy to implement with no external triggers because the creators and players were the “internal” actors to trigger the contracts, the operation of “common good” such as profit share was troublesome to make autonomous.

On a regular period, say a month, the accumulated profit in the platform need to be calculated to point to the token holders so that the contract knows how much of the profit should be assigned to which wallet. This is something that can’t be done without a trigger since smart contracts are nothing without transactions that empowers them to do something. The SlotNSlot developers, or the contractors, taking charge of this triggering role would be considered enough if this was just an usual platform business, but as the platform is aimed to be autonomous, this needed to be bypassed. That’s why we came up with the Dutch buyback model( for our platform profit share. We still believe there will be many more alternatives when an EIP for DApps(contracts) to pay for the gas fee is enabled.

On theDAO

TheDAO(it’s already been a year!), consisted of the Developers(including the slock.it members and Stephan Tual himself), the Proposals, the Voting, the DAO tokens, the Token holders, Contractors, and Curators. SlotNSlot platform will be structured in similar way, with some differences in that the developers (SlotNSlot team) are the contractors for the initial stage, and the token holders are curators. This difference arises because theDAO was an organization for projects, whereas SlotNSlot is a single project.

Several problems were addressed for theDAO at that moment. First of all, participation for the voting was poor. Even the lowest quorum for a proposal was 20% with lowest funds requested, there was not a single proposal that was approved with fulfillment for the quorum. Another problem was, arising from the former problem, that increasing the capital for additional funds was difficult. Even if theDAO had approved such proposal for capital increase, it would have been an increase from inside, and it would have been difficult to collect more funds from outside. This further would have suffered a decreased valuation for existing DAO projects.

Most of these problems from theDAO were mitigated since the projects are now separated into individual projects with separate ERC tokens. Still, the most serious issue remains from theDAO. The projects are unmanageable and far from responsibility. This mainly arises from the fact that most of the real life products and services are still not connected to the blockchain space, so there’s no way to assuredly know how much portion of the fund was used for which purpose. The cryptocurrencies fund raised by selling the tokens need to be exchanged to fiat currencies to purchase any products and services required to operate the businesses. Yes, there already are some where they get paid with cryptocurrencies, but are hard to track which is which. This was true one year ago for theDAO, and still is true for recent projects as well.

On SEC DAO Report

The Responsibility-free and Unmanageability issue came to be more seriously bothering investors, after U.S. SEC recently reported some warning messages about investing in DAOs. Key message was that theDAO tokens ARE considered as securities while recent ICO tokens MAY be, so investing in unregistered securities should be evaluated with own risks and responsibilities. The community had been talking about Howey Test since then, which essentially checked if purchasing DAO tokens were “investment of money from an expectation of profits arising from a common enterprise depending solely on the efforts of a promoter or third party.”

Whether cryptocurrencies are money isn’t really something we wanna bother talking(it’s up to the society and the users, or just the regional law makers). Expectation of profit is surely something we find we can’t negate, and we actually don’t want to because people buying the tokens isn’t kind of charity. The latter two aspects of the Howey Test seems to be important in pursuing a true DAO. We believe that DAO on the crypto space is surely different from common enterprises in traditional business scenes, not in that they are in the digital world and governance is distributed to numerous stakeholders, but in that the projects, DApps, and the platforms are run autonomously. This may not be true for all the ICOs in recent rush, but at least SlotNSlot ultimately will achieve this by making the platform run completely autonomous.

There follows the last thing, whether it depends on a promoter or third party. When SlotNSlot platform is finally launched on Ethereum Mainnet and every development and operation process is automated on smart contracts, there would be no single promoter or a third party that the platform depends on to generate profits. There might remain the efforts to improve the platform with bounty rewards proposed by token holders, but whether those bounty-developers would be considered promoters or third-parties that should be the sole dependency of the platform to be profitable is doubtful at the moment.

On the Future

The blockchain world is changing day by day, and the world is witnessing actual implementations in real world use cases. Society will definitely take the technology, and the legals will be intervening for sure. Surely there will be more complex and difficult questions to come up in upcoming years, and the best way to cope is to diligently and sincerely listen to what the community and society(including the users) say, and keep up with the recent technology improvements in the scene.