EDIT: The term DAO has been destroyed by the TheDAO, so we will not use that anymore. I still leave that article in the original form. More descussion here: https://forum.bitsquare.io/t/bitsquare-as-decentralized-autonomous-organization/38/14
DAO stands for Decentralized Autonomous Organization [1] [2].
It is an organisation which is defined not by the rules or laws or regulations but by code and software. It uses a decentralized network and a blockchain for holding the data and executing the rules. It aims to be autonomous in the sense that it implements mechanisms for self regulation, voting and for creating incentives for human participation in the areas which cannot be meaningful fulfilled with software only.
Bitcoin itself can be sees as such a DAO. People who invested early by buying or mining bitcoin, those who helped to build the infrastructure or simply spreading the word, they got a reward in form of the value increase of the tokens they purchased in early days.
User, miners, developers all who participate have influence with their activities in which direction Bitcoin as a whole develops.
One important element is that the incentives represented by the token value can serve as alternative funding model. If the nature of a projects needs a huge user base it is very hard to achieve the network effects to get there. With incentives it might become easier to make this happen.
Why is a DAO considered for Bitsquare?
Bitsquare is not a startup but funded by personal savings and donations. But of course such a funding model has itâs limitations.
If Bitsquare should be widely and globally used it needs a model which is able to scale.
A distributed ownership model based on participation should not only create sufficient incentives but is also needed to achieve decentralisation and censorship resistance on the organisational layer.
Bitsquare has the lucky situation that money is already present as a part of the project itself and it is common for exchanges to take fees for the trades. Furthermore fees are required as protection against several possible abuses like spam, market manipulation or data harvesting.
So the trading fees are perfectly suited as revenue source for the DAO.
The fee will go directly from the trader to one of the shareholders. Depending on the stake, each shareholder receives a stream of micro payments from the users.
The code for executing that payment is included in every client software and the fee payment gets verified by the other trader.
The tokens representing the shares will be issued as kind of colored coins on the Bitcoin blockchain.
The tokens are tradeable over Bitsquare and are as pseudonymous as bitcoin.
Tokens represent also voting rights for any important decisions like the height of the trading fee or the amount of new issuance for the next month.
Each month the board issues new tokens. The board is the group of the top 3 stakeholders.
The new tokens are used for rewarding participants like developers, designers, community managers or anyone who contributed significant value. The judgement for the value of a contribution is done by the board and is not very different like in a normal work relationship.
The incentives align that good work will get rewarded sufficiently to establish a long term work relationship. Bad management performance of the board would devalue their own stake. So they are naturally very interested to make the best decisions and not lose their best contributors. If they fail to manage the project good it might lead to a fork.
So open source serves as insurance and a can be seen as the best âconsumer protectionâ.
The trust into the top stakeholders cannot be avoided as the task to hire and compensate developers cannot be done by machines or by voting in a meaningful way. But the incentives align to avoid abuse.
Communication and management of such an swarm-like organization is for sure a challenge but luckily there are successful real life examples like the pirate parties.
Rick Falkvingeâs book - Swarmwise [3] - is a great inspiration for that path.
Everybody who wants to contribute should have a look to that book.
The development of the DAO will be an iterative process.
We will start with the minimal basics needed but I expect that it might emerge into its own sub project, which might become a useful tool for organisation and communication for others as well.
I expect that the DAO will be implemented in about 3-4 months.
Before it is in place there are no possibilities to âinvestâ.
We also donât plan to do a ICO.
People who want to contribute to Bitsquare before the DAO is in place need to be aware of the risk that there is no guarantee that it will be ever deployed and should only invest so much time and effort as they are willing to donate to the project on a pure voluntarely basis without expecting any reward.
I hope that gave a basic idea about the DAO. Many details are not defined yet and the final version might be different from that draft.
A whitepaper with all details will be published hopefully soon.
I am sure there might be many questions, but please have patience until the paper gets published.
[1] https://bitcoinmagazine.com/articles/bootstrapping-a-decentralized-autonomous-corporation-part-i-1379644274
[2] http://p2pfoundation.net/Decentralized_Autonomous_Organization
[3] https://falkvinge.net/files/2013/04/Swarmwise-2013-by-Rick-Falkvinge-v1.1-2013Sep01.pdf
