A distributed organization with no single leader that could theoretically exist so long as there’s an Internet connection was launched last month, and has since then left many observers and Ethereum community members feeling optimistic – if not a bit confused – about what exactly was created.

‘The DAO’, as it’s called, takes its name from the description for a new type of entity: a distributed autonomous organization. Intended to act as a vehicle for supporting Ethereum-related projects, The DAO has garnered over $50m worth of ethers (ETH) – the digital token of the Ethereum network – from investors.

But what does The DAO do exactly? Think of it as a hub that disperses ETH to other startups and projects. Backers of The DAO receive voting rights by means of a digital token, which can be used to help determine the future direction of the organization and which projects will actually get funded following a voting period.

Participants stand to receive possible dividends, including ether, in return for supporting the project.

Yet, there are outstanding questions about the exact origins of The DAO as it exists in the wild today. Interviews with those involved in the creation of the code underlying The DAO’s smart contract paint a complex network of relationships.

Christoph Jentzsch, co-founder and CTO of Slock.it, which created the open-source DAO framework at the core of The DAO, told CoinDesk:

“We actually don’t know who started it. Of course we can see the address on the blockchain but we don’t know who owns the address. The only way to speak with the DAO is to make a proposal and vote.”

What is the DAO?

It’s likely best to think of The DAO — which is sometimes also referred to as The DAO Hub — as a tightly packed collection of smart contracts written on the Ethereum blockchain.

Taken collectively, the smart contracts amount to a series of by-laws and other founding documents that determine how its constituency — anyone around the world who has bought DAO tokens with ethers — votes on decisions, allocates resources and in theory, creates a wide-range of possible returns.

Unlike a traditional company that has a designated managerial structure, The DAO operates through collective voting, and is owned by everyone who’s purchased a DAO token. On top of that structure is a group of so-called Curators that can be elected or removed by DAO token holders. The current list of Curators include a number of well-connected Ethereum contributors including inventor Vitalik Buterin.

The DAO’s objective is to support sharing economy projects delivered by “contractors” by allocating ETH raised during its creation phase. The project has currently raised $51.1m worth of ETH by selling tokens — or voting rights — in exchange for ETH or other returns.

At the time of publication, two companies are listed on the DAO site as potential contractors. Slock.it, which in addition to creating the DAO framework aims to produce connected devices using the Etherem network, and Mobotiq, a French organization that plans to build a network of shared electric vehicles.

The terms of the potential projects are not yet public.

While the code created by Slock.it and published to Github has been implemented in the past, The DAO is unique, according to Jentzsch, who was previously the lead tester at Ethereum.

“There are a lot of DAOs that are deployed,” said Jentzsch. “But only one that’s taken off, which we said that is the one we will make a proposal to.”

Doing business with a DAO

Another aspect of how The DAO operates relates to how the organization connects with the traditional economy, particularly on the regulatory front.

A newly established company, DAO.Link, is intended to serve as a bridge between blockchain-based DAOs and the real world, where contractors need to pay taxes and adhere to regulatory requirements in their respective jurisdictions.

While companies working with the The DAO or any distributed autonomous organization might in the future prove perfectly comfortable doing business exclusively in digital currencies, any individual or business that wishes to send corporate invoices and purchase orders or pay taxes won’t likely be able to attribute those funds to “the Ethereum blockchain” any time soon.

Ultimately, DAO.Link provides a physical address through which outside companies can interact with DAOs, according to Stephen Tual, founder and chief operating officer of Slock.it.

Currently transitioning from being a German UG to a GMBH, Slock.it partnered with Neuchatel-based digital currency exchange Bity SA to co-found DAO.Link.

DAO.Link was incorporated as a SARL, the Swiss version of an LTD, also in Neuchatel, a region of Switzerland increasingly known for its digital currency-friendly policies.

Bity co-founder Alexis Roussel explained to CoinDesk:

“The main legal questions which DAO.Link can answer is that in Switzerland you don’t need to specify the person in front of you that you want to make a contract with. You only need to show it’s valid that the person on the other side is capable of making a decision.”

Thanks to the voting methodology built into The DAO’s infrastructure, “The DAO itself has the ability to make a decision,” Roussel added. As a result, the address on an invoice from Slock.it — which is also a customer of DAO.Link — will be DAO.Link’s address.

At that point in the transaction, it’s up to the contractor to declare or not declare the earnings or other transactions as he or she sees fit.

“It makes it a lot easier for a large company to cross the bridge, if you will, between the crazy world of blockchain that a lot of people don’t really understand yet and the brick and mortar world where they operate daily,” Tual said.

As part of the formation of DAO.Link, which is co-owned by Slock.it and Bity, Slock.it CEO Simon Jentzch – brother of Christoph Jentzch – joined DAO.Link as its president. Roussel joined as a board member, and both Tual and Gian Bochsler of Bity serve as member advisors.

Slock.it and Bity each invested 10,000 Swiss Francs in DAO.Link, according to Roussel.

Though Bity itself is audited by Dutch accounting giant KPMG, which has recently been conducting its own blockchain research, Roussel says he is uncertain if they will also audit DAO.Link since his firm only owns half a stake.

Raising capital

But Bity’s involvement with The DAO goes beyond partnering with Slock.it. Bity is also offering a simple smart contract whereby visitors to its site can purchase DAO tokens with ETH via a proxy address. The ETH is sent to The DAO from Bity’s Ethereum address, with the third-party’s address in the data field.

“You will see many transactions from The DAO account that come from us,” said Roussel, who previously worked at for German utility firm RWE. “But the address stuff in the data field will be different. If you want to see who owns the token you have to look in the data field.”

In addition to providing a proxy method to acquire tokens from The DAO, Bity, via the DAO.Link service, also hosts the main website for The DAO.

“We’re paying for the server and the domain name,” said Roussel. The domain itself however, is registered to a PO Box in Panama. In interview, both Tual and Jentzsch said they do not know the actual identity of the domain owner, other than the owner is “a member of the community”.

During the creation phase of The DAO, some have raised questions about whether those involved with prospective seekers of funding were purchasing tokens – a move that could create a conflict of interest if they end up voting for their own proposal.

In interview with CoinDesk, Jentzsch said he doesn’t own any tokens from The DAO. Roussel said he doesn’t own any either, but that he intends to purchase some before the price goes up later this week. He added that some members his team have invested.

As for Tual, he said that as a company Slock.it only holds “what’s necessary” to make a proposal, or 10^-16 tokens, far less than one US cent, but that employees are free to invest as they see fit.

Regulatory concerns

In a regulatory context, what is The DAO exactly?

From one angle, The DAO seems to resemble a venture capital firm and its token holders appear to be investors. And while returns could, in theory, include ETH, Jentzsch told CoinDesk that the tokens do not represent equity and, for legal reasons, they do not explicitly identify the organization as a venture capital firm or a traditional company.

“It’s an organization that is helping products by giving them ether and of course they want returns,” said Jentzsch. “It could be a return on ether, but it could be free services or many other business models.”

For the time being, Tual believes that, in the same way that Ethereum was able to pre-sell tokens in Switzerland’s Zug Canton, the network of companies utilizing DAO.Link will be able to do business from the Neuchatel Canton.

But he acknowledged in interview that regulators “don’t understand [The DAO], and I don’t think they will understand it for a while.”

Tual went on to say:

“Somebody asked me that the other day: do you think it’s more for small companies or big companies. Well, I would say it’s definitely for a startup because these are the guys with the balls to try something new.”

Those at Slock.it estimate that the decentralized “sharing economy” they envision will take 30 years or more to fully implement. Speaking to CoinDesk, Jentzsch said he’s hopeful for the future of The DAO.

“We have always said that we want to build the universal sharing network,” he said. “We hope that this DAO will become the core of the sharing network that will decentralize the sharing economy.”

Image via DAOHub.com