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Not sure if there are any like me. Whenever I discuss "what is DAO" I always feel like jumping into the deep end. Because once I try to explain it, I need to keep introducing new arguments, and the range of new arguments introduced will grow exponentially with the depth of my explanation. So I start to dive deeper and deeper into a sea of arguments...

The root cause of this is that in our consciousness, DAO involves many grand topics, such as politics, society, organization, finance, production, etc., and each of these topics involves a large number of ideological discussions. The wide range of topics combined with the many ideologies that cannot have a single answer creates the complexity of explaining and understanding DAO.

So, is there an explanatory method that can strip away the skin of these topics, especially the ideology, and try to explore the skeleton of DAO? This article is an attempt.

What is DAO

DAO is the organization or network that protocolizes the relations of production.

The meaning of DAO is to help groups (human and/or non-human) who share the same purpose, vision, and culture to build protocolized relations of production through a method (like a technological method) so that participants can join the collaboration permissionless based on their own aspirations (financial and/or spiritual), and create the value of the organization or network while satisfying their own aspirations, and own and share the value created by the organization or network permissionless.

The above includes two parts: definition and expansion.

Definition

DAO is the organization or network that protocolizes the relations of production.

The definition includes three keywords: organization or network, relations of production, and protocolization.

Organization or network

An organization or network is born because of "production," whether the production is around material or spiritual, and whether it is longstanding or fleeting.

The obvious difference between organization and network is the relationship of roles in the production.

  • Organization: more complex role classification. Greater role dependency. More stable role relationships.
    • Network: Simpler role classification. Weaker role dependencies. More ad hoc role relationships.

      There are many typical examples of networks, such as Bitcoin. The choice of organization or network depends on the specific needs of each DAO, including business goals, culture, etc.

      Anyway, the DAO we are talking about must be the organization or network.

      Relations of production

      Relations of production include resources, collaboration, and distribution. That is, the attribution relationship of resources, collaboration relationship, and distribution mechanism.

      Attribution relationship of resources

      Resources include explicit assets such as materials, money, and people that can be used for production, as well as implicit assets such as information and social connections. The attribution of resources refers to who owns them and how they are owned in an organization or network. The DAO Treasury, as we know it, is a practice of the attribution of resources.

      Collaboration relationship

      Collaboration relationship define the status and relationship of collaborators in an organization or network. Community contributor is a practice of the status and relationship of collaborators in the production.

      Distribution mechanism

      Distribution includes the distribution of the products produced by the organization or network and the distribution of the value of the organization or network itself. The governance token airdrop is a form of value distribution to the organization or network itself. Some NFT mint combines the distribution of products with the distribution of the value of the organization or network itself.

      Wrap-up

      The answers to the three questions of resource attribution, collaboration, and distribution mechanisms form the ideology of an organization or network. The forming and maintaining of ideology is called consensus. Consensus determines the birth, rise, and fall of an organization or network.

      However, we can't define a DAO in terms of a single ideology. That is, we can't try to find a single answer to these three questions as a criterion for determining whether an organization or network is a DAO.

      Because DAO is not defined by ideology.

      Just as the state is not defined by ideology. We can't use ideological answers like capitalism or socialism to determine whether a country is a state or not. This is why I want to leave ideology aside and try to explain DAO. The answer to ideology is “Why”, the answer to DAO is “How”. The answer to the “How” is protocolization. That is, how to protocolize relations of production.

      Protocolization

      The protocol is the agreement on human and/or non-human behavior. The contract is a common type of protocol, as is HTTP.

      There are two types of protocols: executable protocols, and non-executable protocols.

      Executable protocol

      Executable protocol means that the protocol itself is executable. AAVE's lending protocol itself is executable. It not only agrees to lend rules but also executes the rules, such as lending transactions and receiving proceeds. Non-executable protocol means that the protocol itself is not executable. The financial contract we sign with the bank is itself non-executable. We need to trust and rely on the bank behind the contract to execute the lending transaction and receive proceeds.

      Executable protocols have the following characteristics.

      • The protocol is self-executing. No party is required to be an executor.
        • The protocol is certain to be executed. No party is required to urge execution. No party is required to handle disputes.
          • The protocol is not controlled by any single party. No party can unilaterally tamper with the protocol to the detriment of another party.
            • The protocol modifications are subject to consensus.

              The above characteristics can be summarized into two words: Decentralized and Autonomous.

              When we discuss Decentralized and Autonomous, we also need to cover two parts: "Why" and "How". "Why" is about the ideology and "How" is about the method of implementation. Let's again strip away the ideological skin and focus on how to make the protocol Decentralized and Autonomous through a method (like technical method).

              The answer is Smart Contract.

              We talk about so-called “smart contracts” that execute themselves without any need, or any opportunity, for human intervention or involvement, people forming Skynet-like “decentralized autonomous organizations” that live entirely on the cloud and yet control powerful financial resources and can incentivize people to do very real things in the physical world, decentralized “math-based law”, and a seemingly utopian quest to create some kind of fully trust-free society.
              In DAOS ARE NOT SCARY, PART 1: SELF-ENFORCING CONTRACTS AND FACTUM LAW (2014), Vitalik said.

              Also, Vitalik explains what a smart contract is.

              The first installment of the series will talk about so-called “smart contracts”. Smart contracts are an idea that has been around for several decades, but was given its current name and first substantially brought to the (cryptography-inclined) public’s attention by Nick Szabo in 2005. In essence, the definition of a smart contract is simple: a smart contract is a contract that enforces itself. That is to say, whereas a regular contract is a piece of paper (or more recently PDF document) containing text which implicitly asks for a judge to order a party to send money (or other property) to another party under certain conditions, a smart contract is a computer program that can be run on hardware which automatically executes those conditions.

              It should be noted that strictly, a smart contract does not automatically execute the terms of the protocol, but it provides a certainty that any transaction that meets the agreed-upon terms of the protocol must be able to execute that transaction by triggering the contract.

              One thing of interest: both Nick Szabo and Vitalik are exploring How not debating Why.

              However, Vitalik also mentions the imperfections of the smart contract.

              However, there are places where smart contracts are not so good. Consider, for example, the case of an employment contract: A agrees to do a certain task for B in exchange for payment of X units of currency C. The payment part is easy to smart-contract-ify. However, there is a part that is not so easy: verifying that the work actually took place. If the work is in the physical world, this is pretty much impossible, since blockchains don’t have any way of accessing the physical world. Even if it’s a website, there is still the question of assessing quality, and although computer programs can use machine learning algorithms to judge such characteristics quite effectively in certain cases, it is incredibly hard to do so in a public contract without opening the door for employees “gaming the system”. Sometimes, a society ruled by algorithms is just not quite good enough.

              Vitalik introduced the concept of arbitration to solve such problems. We know Kleros is a solution based on this direction. But we also need to consider the other side of the coin, namely, how to start DAO with a lower threshold. So perhaps we also need to introduce the non-executable protocol.

              Non-executable protocol

              A non-executable protocol is an agreement on paper. It presents the answers to the three questions of the relations of production in the form of an instrument and a consensus with the participants, as well as guiding the production.

              DAOs that use non-executable protocols require one or more execution units that enforce the terms of the protocol. Agents, delegates, and governance boards are common execution units.

              Executable protocols rely on the computational program to ensure protocol execution, and non-executable protocols rely on the reputation of the execution unit to ensure protocol execution.

              Wrap-up

              • The higher the executability of the protocol, the lower the proportion of human governance, the lower the cost of trust, and the narrower the scope of application.
                • The lower the executability of the protocol, the higher the proportion of human governance, the higher the cost of trust, and the wider the scope of application.

                  Most DAOs, at least for now, need to find a balance between executable and non-executable protocols, and cannot choose only one between the two. The balance is different for each DAO's ideology.

                  Expansion

                  The meaning of DAO is to help groups (human and/or non-human) who share the same purpose, vision, and culture to build protocolized relations of production through a method (like a technological method) so that participants can join the collaboration permissionless based on their own aspirations (financial and/or spiritual), and create the value of the organization or network while satisfying their own aspirations, and own and share the value created by the organization or network permissionless.

                  A few notes.

                  Collaboration

                  The essence of collaboration is transactions. That is, I give you something and you give me something. In a DAO, collaboration can be a transaction between people or a transaction between people and protocol. Transactions include assets, services, and power.

                  Consensus

                  The consensus in DAO is a recognition and co-construction around the relations of production.

                  • Consensus is a process but not an immutable norm. DAOs thrive and perish because of consensus.
                    • Consensus does not mean unity of all, and the coexistence of diversity is more beneficial to the DAO.
                      • Consensus mechanism is part of the protocol, which agrees on the ways to reach consensus.

                        Additions

                        DAO starts with a protocol

                        It is better to build an initial consensus through a protocol to screen like-minded people than to form a protocol through debate in a wide-ranging crowd.

                        Robustness of fluidity

                        DAO members are fluid, so DAOs need to be robust in their fluidity, as well as turn fluidity from a disadvantage to an advantage.

                        DAO is not bottom-up

                        Because DAO does not have the “top”.

                        Infinite game

                        DAO is an infinite game.

                        • The purpose of a finite game is to win; the purpose of an infinite game is to continue the game.
                          • The finite game requires permission; the infinite game is permissionless.
                            • The finite game does not allow one's past to become the past; the infinite game does not take the past as the past.
                              • The finite game controls everything through power; the infinite game influences everything through energy.
                                • The finite game consumes time; the infinite game produces time.
                                  • The finite game ends in death, and death is only one of the episodes of the infinite game.
                                    • The finite game can be copied, and copying brings competition; the infinite game cannot be copied because copying is part of the infinite game.
                                      • The finite game is a script, the infinite game is a legend.