Public Opinion Split As The DAO Rakes in Ethereum Funding

A look at some of the notable support and criticism from community members about The DAO, the organization that has raised nearly $150m in funding.

AccessTimeIconMay 18, 2016 at 8:55 p.m. UTC
Updated Mar 6, 2023 at 3:13 p.m. UTC

The DAO has become the talk of the digital town since its launch less than a month ago. With nearly $150m worth of the cryptocurrency ether raised to date, the unusual organization has inspired both passionate supporters and skeptics.

In the past week, numerous headlines and op-eds have emerged on the subject of The DAO, (distributed autonomous organization) with everyone from bloggers to social media outlets to major media publications weighing in. Opinions ranged from unblemished support to critical takes on the big questions surrounding the project.

Overall, supporters of the project say The DAO ushers in a new mechanism for funding projects and individuals that might otherwise be ignored by the venture capital ecosystem. Further, they say it represents a radical method for reshaping the digital economy, while providing a powerful example of Ethereum's technology in action.

Critics aren’t as convinced. While acknowledging its novelty, some have taken issue with several aspects of The DAO, including lingering questions about intellectual property rights, economic incentives and how existing regulations on securities and investment will come into play.

This feature looks at a slice of opinions on The DAO that, while by no means represents the totality of voices weighing in today, offers a a range of perspectives on the project.

Positive points

Some observers struck a far more optimistic tone in their assessment of the project since its launch, including investor and TechCrunch contributor Seth Bannon.

In an article entitled "The Tao of 'The DAO' or: How the autonomous corporation is already here", Bannon reckoned that the concept could open the doors to more people to take part in what he called "the innovation economy".

"By allowing economic cooperatives to be spun up with a line of code, and by allowing anyone on the Internet to become owners of these organizations, DAOs may allow more people than ever before to fully participate in and benefit from the innovation economy."

In his piece, Bannon – who suggested the concept could one day evolve into a scenario in which Google-sized DAOs operate autonomously – echoed other observers, including critics of the concept, by highlighting its experimental and unpredictable future.

He wrote:

"This is [a] new frontier, and the list of unknowns goes on. What does this mean for the future of corporations? The future of VC? While it could certainly be a profitable and successful endeavor itself, The DAO is in many ways a grand experiment in a new form of economic cooperation. Many of the unpredicted benefits and unexpected kinks will be discovered by this first pioneer."

Bannon perhaps summed up the sentiments of what many are feeling about the project by saying, “It will sure be fun to watch.”

Swedish Pirate Party founder and cryptocurrency supporter Rick Falkvinge wrote that criticisms about The DAO's leaderless nature are wrong, stating that those who make such claims are missing the point.

"What the old world fails to see is that there is leadership, there is a business plan, and there’s a clear investment idea. It’s right in front of them. They just fail to recognize it as such: The source code," he wrote. "The source code makes the decisions for all to see. The business plan is right in the source code."

Falkvinge went on to write:

"The fact that Wall Street doesn’t recognize source code for perfectly valid, validatable, and transparent business logic is why Wall Street is being left behind."

He argued that "the exact same thing" happened with bitcoin, pointing to the digital currency's early days as an example of the kinds of criticism being levied against The DAO.

Negative notes

Other observers took a more negative stance toward the project. Perhaps some of the most-discussed comments came from an essay by Dan Larimer, founder of BitShares and one of the originators of the concept of DAOs.

In a widely circulated piece, he argued that his experience with that project should be borne in mind as those backing The DAO await the end of the creation phase and the first funding proposals.

Larimer argued that he believes problems will not surface in the immediate term, but that eventually The DAO participants will run up against issues of human nature itself.

He wrote:

"It might not happen at first, but over time the Ethereum community will learn the hard way what the BitShares community has already discovered. Creating social systems to jointly fund development of projects and investments is challenging. Ultimately, technology can only aid in communication, it cannot fix the fundamental incompatibilities between individual self interest and community decision making."

According to Larimer, attempts within the BitShares community to effectively accomplish The DAO's mission, including raising funds and allocating vote-tokens to organization participants, ran into headwinds that he argued could crop up in the future.

Low voting rates were one such issue.

"One of the first things we learned from BitShares is that the vast majority (90%+) of stakeholders did not participate in voting," wrote Larimer. "This is due to the fact that voting requires time, energy and skills that most investors lack. How many people have the economic, technical and entrepreneurial skills to vote responsibly?"

Larimer also argued that the project could run into trouble in regards to concerns over the value of ETH, and what disbursing tokens to Contractors – entities that effectively work for The DAO via smart contracts – could do to the price in the short term. This issue, he said, created problems for BitShares community members that, ultimately, colored the process of voting on proposals for the worst.

"Unable to bear the short-term paper loss and psychological impact of a lower market cap, people started electing proxies that would vote against all spending proposals," he wrote. "With The DAO, the same principles are at work."

Mixed feelings

Lastly, some commentators offered mixed criticism and praise, in at least one instance going on to propose suggestions in an attempt to help improve The DAO.

Speaking with Forbes contributor Laura Shin, Cornell University professor Emin Gün Sirer reckoned that the project "is not operating within our existing legal framework".

"Some protections that are give[n] to investors that take the shape of 600 pages of regulations do not exist for distributed autonomous organizations, but on the other hand, DAOs have the benefits of algorithmic control and algorithmic restriction," he told the publication. "For example, with the DAO, I can restrict how much the executive of a Kickstarter-like fund gets paid. I can simply say this is how much overhead they will get, and it is transparent and I can check it after the fact.”

Preston Byrne, chief operating officer of blockchain startup Eris, offered his own take on the project. In his piece, Byrne compared the legal structure of a typical company with that of The DAO. He drew issue with the legal structure of the organization itself – a fact he argued would prove to be "fatal" for the project.

"#THEDAO might look and feel like a company, but on cursory examination, too many gaps, too few formalities, not enough structure and legally incorrect methods reveal themselves as fatal to the exercise," he wrote.

Far from calling for the abandonment of the project, Byrne reckoned that the project needs "lawyering", as well as what he believes to be two steps needed to put The DAO on a sustainable path.

"Two things need to happen – quickly – to put this right (and these are just starting points)," he wrote. "The first is to get a formal structure involved. The second is to abandon the token sale and utilize legally compliant funding structures."

Byrne continued:

"Why address funding? Because the practice of selling blockchain tokens as an investment over the internet – as THEDAO is doing – while not new, is a big problem. Hundreds of cryptocurrencies (e.g. Bitshares, Swarm, and Omni/Mastercoin, to name a few) have come and gone since 2013 which have used "token sales," "software licenses," "crypto-equity," "cryptofuel," or other artifices to raise funds from unaccredited investors. Unfortunately, this practice is against the law."

Byrne reiterated his argument that The DAO would benefit from a more formal legal structure, effectively creating an "automatic backbone to a bona fide, properly structured, equity crowdfunding business".

"It’s perhaps more boring when we do it that way. It takes more work. It takes much more time. It means not cutting corners," he wrote. "But at the end of the day, not cutting corners is very much its own reward."

Image via Shutterstock


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