Defining Real and Fake DAOs

The Problem: “DAO” Has Lost all Clear Meaning

A popular misunderstanding of smart contract technology is that smart contracts work “automatically” without human intervention. Smart contracts are just passive object code stored on the blockchain. This code is called by miners/validators when users request it to be called by offering to pay miners for making such calls. In other words, smart con... See more

The term “DAO” is applied to so many different organizations that it has become close to meaningless. Whatever DAOs are, they must fall under 3 clear and distinct concepts: 1) be decentralised, 2) be organisations and 3) be autonomous.

Thus, a misunderstanding of the word “autonomous” within the term “DAO” would interpret “autonomous organization” to mean “an organization that makes use of smart contracts”. This misunderstanding is a massive ‘cheat’ which lets many arrangements that are not “autonomous” in Webster’s sense nevertheless be deemed “DAOs” merely because they involve ... See more

For example, Twitter Inc. is centralized (it has a board of directors as its ultimate decision-making authority) and relatively non-autonomous (it exists to generate profits for the benefit of its stockholders). The Ethereum Foundation, like Twitter Inc., is centralized (it has a board of directors or similar governing body), but, unlike Twitter In... See more

However, “autonomous” does not mean “automatic” and, even if it did, smart contracts are not automatic. Smart contracts also obviously are not autonomous because they are unconscious and inert, not spontaneous and self-controlled.

Webster defines “decentralization” in relevant part as follows: "the delegation of power from a central authority to regional and local authorities". This means that decentralization occurs when power is widely dispersed or distributed.

“DAO” in its purest form refers to an unincorporated association of persons using censorship-resistant technologies to permissionlessly engage in non-hierarchical governance of shared resources and goals. Organizations that do not meet this definition must not be deemed DAOs.

Using blockchain or smart contracts in some superficial way is not enough for an organization to be considered a DAO. For organizations that use smart contracts but aren’t DAOs, Gabriel prefers the term Cybernetically enhanced organizations.

An organization is some sort of association of individuals for common ends or who interact with one another in a patterned way.  For those who have studied corporate law, we know associations are of two main types: unincorporated and incorporated.