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Should the DAO Hire Professional Consultants?

Last Updated March 4, 2021 4:49 PM
Andrew Quentson
Last Updated March 4, 2021 4:49 PM

Decentralized organizations have a tendency to require much input from very few people, with the vast majority relying on their free and voluntary work. However, as they provide their input due to simple interest, they may be unwilling to take a fully comprehensive and professional approach.

The volunteers eventually take a semi-leadership position, but lacking a paid incentive, seemingly simple things are not done, what is done may be sub-par with accountability nowhere to be found because they are, after all, just volunteers with no responsibility to anyone.

In responding to criticisms that the DAO attack vectors, which were published just a day before the crowdsale ended, should have been addressed before the crowdsale, rather than freezing activity while the smart contract holds some $170 million at current valuation, Vlad Zamfir, one of the 12 DAO curators and author of the DAO attack vectors report, stated that he did not expect the DAO to grow to such a huge project and, in a response, seemingly admitted that he had not quite looked at the code nor was aware of his role:

“After the DAO’s crowd funding event became unexpectedly large and I could no longer ignore it, I started doing due diligence. I found that the community expects the curators to defend the DAO against majority takeover attacks.”

The curators are coding volunteers with limited time. Most of them are working on many other projects, Zamfir included, who is focused on developing Casper to move Ethereum to Proof of Stake. If he provides any assistance, the DAO token holders should be thankful. If he doesn’t, that is his full right as he is under no obligation, but that of reputation.

The DAO Needs Professionals

A capitalistic, self-interested, project, the most well-funded in the blockchain space, should not have to rely on volunteers who, in any event, only have limited expertise, mostly in coding.

The DAO traverses many fields, including business, economics, contract law, as well as more administrative or organizational tasks, such as accountability of funded projects, financial analysis, vetting, due diligence.

As the best funded project in the blockchain space, the DAO certainly has the funds to seek professional advice on all matters and come up with a comprehensive plan on how to move forward. Addressing such simple questions as how the DAO can enter into a contractual relationship, albeit written in code, and what template contractual terms, including cancellation policy and funds distribution, such relationship should have. How equity can be replaced so as to make overall investments profitable, with one suggestion being perhaps by requiring, say, 20% of profits instead of 20% equity, as well as other, more complex questions, such as what strategy should be taken.

Such advice from professional consultants, of course, would not be binding, but would likely assist, especially with vetting, or contractual terms formulation which then coders can turn into code.

For-Profits Don’t Rely on Volunteers

In a traditional company, shareholders physically give their money to a managerial class which has to be held accountable through very costly and time consuming courts. In the case of the DAO, the token holders fully control all of the funds at all times, forcing full transparency. This makes the consulting class fully accountable and under the control and direction of the token holders.

A director, therefore, would not be able to raise his salary to millions. A number of laws to protect shareholders would not need apply. The token holders, collectively, alone, make the more important decisions, potentially leading to better judgment.

This may have many benefits for our economy, increasing productivity and putting resources to better use, therefore regulators may take a step back, see how it all develops, or perhaps decide that the DAO needs some sort of regulatory sandbox. The greater concern therefore, is not the response of regulators or legal liability, but that the DAO may choose to rely on amateur volunteers with little, if any, expertise in contractual formulation, negotiation, vetting, accountability of approved projects through, perhaps, weekly or monthly reporting and other specializations that make profitable ventures.

Doing so would likely place the DAO at the mercy of self-interested parties which may take full advantage of a disorganized collective. This space has seen far too many plausible scams that seemed sure bets because of some nice colorful and seemingly professional brochure. With no one directly incentives to look after all the necessary aspects and de-facto leadership having the excuse of “just a volunteer”, combined with legal complications on how to hold funded businesses accountable, the DAO is left fully vulnerable without professional assistance.

Tomorrow, Today

Imagine a platform where you log in and like the CEO catch up with today’s latest reports on how funded businesses are doing, whether they are up to target, a vetting of the latest proposal, some recommended points on the latest negotiations, a daily and weekly one paragraph summary of the entire ecosystem.

Most of the time, the thing runs itself, with no CEO and with anyone at risk of being fired, everyone is kept in check. Sometimes, everyone needs to decide. That’s when the DAO token holders, the decentralized CEOs and board of directors, exercise their wisdom of the crowed.

The above scenario is not one of a world where the code runs all aspects by itself, a world which is at beast 20 years away, but it is futuristic in its own way. It may set an example for other companies to follow, allowing systems of organization where shareholders or employees physically hold all the funds, potentially bringing in much more fairness and equity as well as increased production and well being.

Under the DAO Hood

If we look underneath all the buzzwords and future promises, we can see that the DAO, in its foundation,  does only one thing. It makes it possible for 20,000 individuals to collectively control $170 million in a way that cannot be hacked or stolen. It further allows for the distribution of these funds in a programmable way. The people, therefore, no longer need to give all of their money to a centralized company as they currently do through shareholding. The implications here can be profound.

But, the relatively simple code does not replace lawyers, consultants, administrators, or really any profession, save for perhaps CEOs and boards of directors. The DAO therefore will have to decide whether such specialized positions as, say, financial analysis, are to be exercised by volunteer amateurs, thus expecting the results to likewise be amateurish, or carried out by experienced professionals who are bound to the DAO, and thus the token holders, by direct pay.

The latter would be a much more interesting experiment to follow as known economic theory (of which the DAO has no say or invention) is put into practice with specialized consultants undertaking necessary tasks, reporting to token holders through a transparent internet platform, and in unison, propelling the DAO and perhaps the world forward to a future, today.

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