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As stakeholders in the world's largest decentralized autonomous organization (DAO) descend into forums to debate its future, concerns are emerging about what the success or failure of The DAO could mean for Ethereum, the blockchain platform that enabled its creation.

Front and center for those invested is the idea that the fate of one of the technology's most visible projects could create a lasting impression among potential users and the public, and the fears are not without precedent.

While bitcoin continues to face difficulty with regulators and banks, Ethereum has so far been able to build public bridges with the mainstream financial world. Tests were run by 11 banks on a private version of the network in January, and invitations for its creator to help inform the work ongoing at Hyperledger and R3CEV have so far followed suit.

In contrast, bitcoin's network has secured billions of dollars in funds for years, but its reputation was shaped early on by events like the shutdown of online black market Silk Road, the rapid price fluctuations of its token and the collapse of its once-largest exchange, Mt Gox.

Against this backdrop, those close to the project are beginning to see The DAO as Ethereum’s "flagship application", one that they believe could hold the key to ensuring a lasting, favorable impression for Ethereum's technology, or scar its reputation.

Stephan Tual founder of Ethereum startup Slock.it which created the code on which The DAO is built told CoinDesk:

"You don’t want a bad story about Ethereum. If [The DAO] were to crash, people would compare it to Mt Gox."

Reality check

But why is so much riding on The DAO?

A decentralized autonomous organization that lets its members vote on how to fund projects and direct operations, The DAO has so far amassed $160m in consumer funds in exchange for voting rights in the way it spends money, prompting mainstream media attention.

Currently, those funds amount to about 14.4% of all the ether in circulation and with a mandate to invest in Ethereum startups The DAO has the potential to exercise considerable influence on the ecosystem.

But shortly after the organization successfully raised the funds its design was challenged with the publication of a critical report authored by three computer scientists who specialize in blockchain. The report advocated for further development of The DAO to be halted until certain issues they claimed to have found in the governance model were fixed.

One possible mechanism to help solve those issues is built into the The DAO's voting mechanism. While the organization’s mission is to fund other Ethereum projects the method of selecting those projects can also be used to vote on internal changes, including to its own code.

At the moment, each of the top three proposals for funding from the DAO would redefine how it operates. The moratorium proposal is the most popular to date, followed by a proposal to change the deposit required to make a proposal and a method for returning DAO tokens accidentally sent to the project. Several others are specifically aimed at the governance model.

But, it's not just entrepreneurs who are concerned either. Six of the top 10 most discussed threads on The DAO forum pertain to changing The DAO itself, ranging from giving it a new name, to changing the requirements for submitting a proposal, and concerns about the way decisions are made.

Learning from the Mt Gox implosion

At its peak, Mt Gox accounted for an estimated 80% of all bitcoin trading volume in the world.

When the exchange collapsed in February 2014 losing an estimated $350m worth of bitcoin, many heralded it as one of the many so-called deaths of bitcoin. With a current market cap of over $9bn and a 20% price increase last month, bitcoin clearly hasn’t gone anywhere, but its reputation has visibly suffered.

At the time of the Mt Gox collapse, Tony Sakich was just getting started in the industry at his first job with a bitcoin company, BitPay. Now an Ethereum consultant with blockchain services firm Vanbex Group, Sakich told CoinDesk the reason bitcoin is thriving in spite of the collapse of its largest exchange is that so much activity existed in other areas of the bitcoin economy, a point he says the Ethereum community could learn from.

To help lead the development of the Ethereum ecosystem, investment firms which have traditionally focused on bitcoin startups — such as Blockchain Capital and Digital Currency Group — have recently begun evaluating Ethereum startups as potential portfolio members.

In April some of that research culminated in a $775,000 investment in Ethereum co-founder Gavin Wood’s operation Ethcore, led by Blockchain Capital and Fenbushi Capital. Other firms such as Trust Stamp have also begun to receive VC investment.

While The DAO is naturally attractive to Ethereum entrepreneurs looking for funding, Sakich said investments from outside the organization also need to increase.

"I’m hoping that developers don’t hear all this about The DAO and stop there and think that’s their only way to get an Ethereum project done," Sakich said, adding:

"To have a strong ecosystem in Ethereum you need projects outside of The DAO and there needs to be as many projects as possible."

Dangers of parallelism

While the Ethereum ecosystem appears to be growing into a resilient group of companies, there’s still danger of what blockchain consultant Taylor Gerring calls "parallelism" in the industry.

Gerring, who works closely with the non-profit Ethereum Foundation that helps support the network, told CoinDesk that the risks of another blockchain being tainted by a massive collapse early in its development remains a concern for the wider industry.

If The DAO were to collapse, he believes, the side-effects could go far beyond just having a negative impact on Ethereum, but might spill over into blockchain technology generally speaking.

Gerring told CoinDesk:

"We should try to draw the comparison and try to ensure we’re not making the same mistakes from the past. If we make the same mistakes we could end up in a situation where there’s negative implications to all blockchains."

That said, Tual noted that he sees differences in the architecture of The DAO and Mt Gox that could lead to different results, even in the case of a project failure.

Should The DAO invest solely in firms that go bankrupt, Tual argued the project will have made a positive impact on the blockchain ecosystem.

Unlike Mt Gox, which resulted in the loss of customer funds and years-long legal disputes, a total collapse of The DAO, he argued, would leave for its legacy the jobs it created and this industry-wide dialogue.

Breaking the Mt Gox precedent

Yet, to keep The DAO from capsizing, Tual said he thinks members need to accomplish three objectives – rounding out its list of curators, amending its governance model to see after the concerns of voting members and investing in sound business ideas.

"Obviously, choosing a winner is never easy. [But The DAO is] not a crowd of people, it’s a crowd of experts," said Tual. "These are smart guys, they aren’t sheep."

To help see to the governance issues Tual said the team at Slock.it has begun work on a proposal framework that would act as a "stopgap solution" to prevent an entirely new version of The DAO code from forming so early in its development.

Under the terms of the new proposal, voters would have a right to remove themselves from The DAO after a project is passed, but before it is formally implemented. In that situation members would hold onto dividends to be paid out from previous measures in which they were involved.

With the person or people who formally launched The DAO using Slock.it’s open-source software still unknown, Tual and his fellow co-founders have become the public faces standing in for who members of the forum call DAOtoshi Nakamoto.

For his part, Tual said critics of The DAO need to also recognize that with this much money on the line projects will move slowly. But he adds that the critics themselves are very welcome.

"If you look at the criticism it stems out of concern because they want it to work," said Tual, adding:

"We all want Ethereum to be a success and we all know a failed DAO would be bad."

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