The legal status of The DAO is subject to intense discussion. None of the contents of this wiki is intended to be, nor should it be construed as, legal advice.
Note | There is a common confusion floating around you shall be aware of and avoid. A DAO is the term to qualify a decentralized autonomous organization. The DAO is the chosen name given by its creators to the first created DAO on the Ethereum network.
The ideal of a decentralized autonomous organization is easy to describe: it 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.
A DAO is represented by smart contracts on the Ethereum Blockchain. Its contains functions which, as a whole, have analogies to a crowdfunding vehicle governed by participants' votes, to seek out and fund proposals. Because the DAO consists of computer code, it interacts with the physical world through Contractors.The creators of these proposals act similar to a contractor, with the DAO as its client. The DAO therefore does not "invest" in these proposals, because it does not acquire equity in the contractors. Instead, in return for receiving a funding by The DAO, contractors deliver services, infrastructures or products yielding a return to The DAO.
The DAO charges for the use of its the products or services. This revenue is then sent directly to the DAO in the form of ETH. The DAO then has the option to accumulate this ETH to support its growth, or redistribute it to the DAO Token Holders as a reward.
Central to the DAO system is the notion of decentralized autonomous entities.
DAO in a nutshell
The Decentralized Autonomous Organization (DAO) is a virtual entity that exists in cyberspace / the internet. It comes into existence when a group of people decide to form a DAO.
Once this initial decision to create is taken the participants may decide to extend participation to a wider community. It is possible that this process could well be entirely anonymous (subject to the technical skills of the participants).
A DAO may be established with a view to raising or investing / managing funds raised, for example to develop a specific idea or a range of ideas or within a particular sector. Alternatively the purpose of the DAO could well be civic - to remove the inherent weaknesses of outdated political structures. Participants / investors 'invest' their funds from their own cryptocurrency holdings or by converting fiat to Ether (the unit of the Ethereum platform). This transfer of ether appears on the Blockchain.
In exchange for ether, tokens are created which represent membership as well as ownership of a portion of the DAO; these tokens are assigned to the account that sent the ether. The amount of tokens created is proportional to the amount of ether transferred.
The ownership of these tokens can be transferred to other accounts using transactions on the Ethereum blockchain as soon as the funding period is over.
The DAO purely manages funds, it exists purely in the ether. In itself, it does not build a product, write code or develop hardware. It requires contractor(s) to accomplish these and other goals. Contractors are hired when their proposal to the DAO is approved.
Every member of the DAO is allowed to submit proposals to spend a portion of the total ether raised, denoted by transfer, on funding projects.
Members of the DAO cast votes weighted by the amount of tokens they control. Tokens are divisible, indistinguishable, fungible and can easily be transferred between accounts. Within the contracts, the individual actions of members, cannot be directly determined.
An important (r)evolutionary step
The DAO structure is a most important (r)evolutionary step:-
- it allows the DAO Token holders to control 100% of funds from day one
- it is immutable code-wise
- it removes the layers of intermediaries
- it negates Government, corporate & community paralysis due to corruption & ineptitude
The DAO is the first Ethereum blockchain DAO ever created. Its creation, a 28 day period, ended on 28 May 09:00 GMT and is, as of Jun 2016, the highest ever crowdfunded project in the world.
Its address on the Ethereum blockchain is 0xbb9bc244d798123fde783fcc1c72d3bb8c189413. Visiting the link will show you a balance of 11,727,782.774716786 Ether, roughly Million $162.
A standard DAO framework has been written by Slock it and can be found on its Github. This framework is written in Solidity to run on the Ethereum blockchain. It has been developed free and open source, so everyone can reuse it to create its own Decentralized Autonomous Organization.