Commitment to Transparency: This is a sponsored post and we encourage our readers to conduct further research prior to taking any actions related to the content below. Please read our full sponsored post disclaimer statement here.
One of the biggest disruptions that blockchain technology delivers is the automation of processes and the potential automation of entire organizations. Decentralized autonomous organizations, or DAOs, are the companies of the future — with no central point of failure, no downtime, and no need for offices or regular employees.
According to a paper on William & Mary Law Review, a DAO can potentially “harness the wisdom of crowds, drive innovation, and grant developers access to capital without submitting to the constraints imposed by traditional Silicon Valley venture capital firms.”
DAOs were meant to be the complementary governance model for running decentralized applications (DApps), with protocols for collective decision-making to keep them heading in the right direction.
However, in 2016, the cryptocurrency world was rattled after the first heist—and biggest at the time—was instigated against an organization based on Ethereum called The DAO where an unknown attacker exploited a vulnerability in the smart contract. The bug allowed the attacker to empty funds from The DAO’s account into a child DAO that he or she had control of.
Ethereum’s DAO Hack
The most disturbing part about the infamous DAO kerfuffle was the fact that the founders of The DAO, which we’ll call the Original DAO in this article to avoid confusion, were made aware of the vulnerability early on in their crowdsale.
Yet they could not come together with a proper decision, much less a solution, in a timely manner and the token sale proceeded. Instead of freezing transactions temporarily, the programmers decided to work on the vulnerabilities and bugs in their smart contract simultaneously as the token sale transpired.
But before they could even fix the issues, the attacker was able to exploit the flaw in the code and drain the ether generated from the Original DAO’s crowdsale. At the time, The DAO held 15% of all ether (ETH) in existence and stored the funds in only one wallet address.
Only then did they realize that the issues should have been addressed before launching in the first place, a mistake most would later categorize as negligence. Despite the Ethereum community instigating a hard fork in an attempt to “bail out” the Original DAO, it ultimately collapsed in the end.
It’s these types of lapses in governance that DAOstack aims to eradicate by providing an operating system that can accommodate true decentralization and autonomy on a global scale. Recently, DAOstack architect Matan Field spoke about the progress of DAOs, addressing head on the problems faced by the Original DAO.
To Matan, there are two distinct levels in which a governance system on the blockchain can go fatally wrong, and the original DAO hit both of them.
“The Original DAO was flawed at the governance level; here it was attackable and vulnerable to a participant eager to exploit the rules. In fact, there were about eleven attack vectors that were ID’d almost immediately. [Additionally,] the [Original] DAO was also flawed at the code level in that bad contracts were easily exploitable. Adding further insult to injury, this earlier version of DAO did not have a self-fixing mechanism, so essentially, there was no protocol to change the protocol.”
On top of governance fatalities, DAO also had to make progress toward usability.
“The Original DAO was also missing an interface. It was actually quite amazing considering the level of traction it received when you take into consideration that it did not have an interface, so people had to directly interact with the blockchain; it was rigid and there was very little flexibility,” Matan continued.
However, these initial learnings proved to be integral to the progress of DAOstack. In part through an understanding of the Original DAO’s shortcomings, DAOstack’s architects were able to evolve a set of innovative solutions.
Putting DAOs back in the spotlight
Despite the Ethereum network itself not being directly affected by the vulnerabilities the Original DAO suffered, the whole incident dragged the price of ether down to almost half of its pre-hack price and its market value struggled to get back up for the rest of 2016. While this damage was temporary, the incident—and subsequent incidents similar to it – have given DAOs a precarious reputation.
DAO, a term being so close to “The DAO,” has been associated with risk, carrying with it the uncertainty that the tech is not quite there yet. As a result, DAOs have taken a back seat despite the potentials they entail, with several DApps being governed like traditional remote working companies.
DAOstack believes putting such a promising innovation on the back burner is not the solution, so instead, they’re targeting the gaps in the way DApps are governed and the way DAOs are organized.
This is where DAOstack comes into play—to reclaim the reputation that DAOs should be rightfully awarded. If done right, DAOs have the potential catalyze cooperation and innovation at an unprecedented scale.
DAOstack aims to do DAOs justice by providing a governance toolkit that would help ensure the governance aspect of blockchain companies does not fall behind.
To bridge the gaps in decentralized autonomous governance, DAOstack has developed an arsenal of tools that go beyond the basic operational processes like budget distribution. DAOstack also provides a voting system that would help organizations tap into bigger communities for a better chance at building airtight code.
With this governance platform, community members and experts from all over the globe can easily communicate and collaborate, quickly addressing the most pressing issues facing a decentralized organization and their dApp.
Development and troubleshooting remain unimpeded: bugs can be caught, and solutions identified, voted on by the global community, and deployed before ill-intentioned parties get to them first.
DAOstack uses a more sophisticated distributed governance protocol than the Original DAO.
“Another criticism of the [Original] DAO,” Matan observed, “was that even if it was not exploitable, who said that the token holders would make good decisions? And I completely agree with that. Although our Arc framework can do anything, we’re basing our system, or at least our initial system, on the basis of reputation rather than a token-based voting system.”
Expertise matters in burgeoning technology fields, so this reputation-based system will ensure that people who can demonstrate high utility within an ecosystem will have stronger governance positions than newcomers.
While DAOstack has improved security measures over the DAO on multiple levels, perhaps their most significant difference is that, for its own DAO (known as the Genesis DAO), they won’t store funds directly on the platform.
The heist of the Original DAO was as severe as it was because all of its Ether was stored on one blockchain address. The Genesis DAO will hold its funds in a secure nonprofit, and only move them onto the DAOstack contract during actual use.Matan says:
The bulletproof one is just simply not putting the funds on the contract from day one.”
DAOstack: Disrupting Decentralized Governance
Ethereum has opened up a wide array of possibilities, but along with these possibilities came a larger room for human error, particularly in building smart contracts. Being a relatively new industry, there is a lot to learn, and the trial-and-error phase can be quite deadly.
As recent hacks have demonstrated, such errors are severely expensive, with losses that can amount to millions of dollars of investor funds at a time. Despite the automation blockchains deliver, the human aspect of governance remains a crucial part of it that could spell the difference between a project’s survival and collapse.
While blockchain technology is enabling new possibilities for DApps, governance of DAOs still currently depends on a mixture of traditional communication systems.
DAO founders and members use services like Slack, Telegram, blogs, Github repositories, and online voice conference rooms to present proposals, as well as discuss and vote on them.
Bug detection from outsiders also goes through traditional online communication channels—a well-intentioned observer would have to email or message founders through social media or other digital messaging platforms to privately inform them of any vectors of attack in their code.
Although this has worked for many over the years, it has not been sufficient in streamlining the process, hence, the delayed response to otherwise time-critical problems.
As the world transitions into decentralized business models, collaboration across different time zones presents different challenges. What the case of the Original DAO demonstrated was some very significant loopholes in the otherwise impressive decentralized organization system:
- Decentralized organizations could benefit from a single, compact yet widespread and far-reaching platform where members of the community from all over the world can quickly come together to identify potential problems, and
- There are issues that need immediate solutions, time-sensitive and crucial problems that demand far more than what scattered traditional communication platforms can offer—a system that could have prevented a massive collapse like that of the Original DAO.
DAOstack restructures the current topology of governance which is scattered across different platforms. Smart companies or “agencies” that make up a DAO can easily curate data, vote on proposals and protocol, build up members’ reputation and reward them, set deadlines, as well as monetize projects proposed to the larger DAO—all in one place.
Ultimately, DAOstack is disrupting DAO governance in a way reminiscent of yet another disruptive system that continuously powers a substantial percentage of the Internet today: WordPress.
“DAOstack provides the foundational tools for the creation, operation, and governance of DAOs, internally and externally within a broader ecosystem. In a nutshell, it can be regarded as an analog of WordPress for DAOs —it does for blockchains what WordPress has done for the web,” their white paper reads.
Like WordPress, DAOstack provides comprehensive, accessible tools that can be used even by newcomers to DAOs.
DAO governance is an urgent area for improvement, and DAOstack has therefore developed this interoperable stack that will usher in a new Internet of Work — one capable of addressing the extraordinary demands of the blockchain industry, and one that could easily become everybody’s work set-up in the near future.
Cover Peng LIU from Pexels
This post was sponsored by Verma Media for $500 USD.
Disclaimer: Our writers' opinions are solely their own and do not reflect the opinion of CryptoSlate. None of the information you read on CryptoSlate should be taken as investment advice, nor does CryptoSlate endorse any project that may be mentioned or linked to in this article. Buying and trading cryptocurrencies should be considered a high-risk activity. Please do your own due diligence before taking any action related to content within this article. Finally, CryptoSlate takes no responsibility should you lose money trading cryptocurrencies.