Informational Report On The DAO – Last Day Of The Software Sale

With the end of The DAO software sale approaching in less than an hour, its worth spending some time to look at the project in a level of detail that goes beyond, what is flying around in the media head lines. I’ve prepared an informational report on The DAO similar to the ones I have written for Ethereum and other projects in the past. Nothing below is financial advice or a recommendation for or against purchasing software tokens related to this project.

TL;DR:

The DAO software sale has attracted a great deal of attention, below I run through the facts about the project and the sale. Taking part in The DAO is an opportunity to participate in the largest decentralized software sale ever. Much will be learned by how the governance of this massive Decentralized Autonomous Organization works out the coming months and years. If taking part in this movement toward a decentralized world is a priory for you, then this is an interesting vehicle in which to achieve that objective.

The following technical components of DAO were assessed:

1. **Technology:**The DAO project is using the Ethereum platform to build the logic behind its functions and the smart contract frame work to deploy the funds its collecting to contractors interested in building projects for The DAO.
2. **Team:**The distributed team that has given birth to The DAO consists of many of the primary Ethereum contributors either as developers, advisors, or “curators” so certainly a group that knows the platform and its capabilities well.
3. Terms: The DAO website lists a detailed Explanation of Terms and Disclaimer that is worth reading through.
4. **Timing:**The one time DAO creation process began on April 30th 10:00 UTC and concludes on May 28th 9:00 a.m. GMT.
5. Pricing: 1.5 Ether buys 100 DAO tokens.
6. Funds Committed: 12M Ether as of the time of this writing.
7. **Legal and Organizational Structure:**The structure of The DAO as an open source project is modelled very much after the successful Ethereum structure. The software sale structure is also very similar in that it involves “DAO tokens” to drive participation in the system and does NOT offer traditional equity or stock as would be in the case if it were a corporate entity. Including this “Important Disclaimer: DAO tokens do not represent or constitute an equity ownership stake, share, or equivalent in ANY public or private company, corporation, or other entity in any jurisdiction; DAO tokens are only for use in connection with The DAO under the terms of The DAO’s smart contract code and do not entitle any holder of DAO tokens to any additional rights with respect to any other corporation, company, or entity in any jurisdiction.”

8. **Operational Considerations:**The DAO structure has the DAO proposals generating orders for products, that contractors then build the products and the members of The DAO gain access to them.

RISKS Listed On The DAO Website:

The Creation of DAO tokens carries with it significant risk. Prior to Creating DAO tokens, carefully consider the exemplary and non-exhaustive list of risks set forth below and, to the extent necessary, consult a lawyer, accountant, and/or tax professionals prior to Creating DAO tokens.

A. Risk of Security Weaknesses in The DAO’s Software

The DAO concept is both experimental in nature and unproven. There is a risk that, as an open source project, any contributor to The DAO’s software could introduce weaknesses or bugs into the DAO software, causing the loss of DAO tokens or ETH in one or more or even all of the DAO Token Holder’s accounts.

B. Risk of Weakness in the DAO underlying blockchain, and/or Ethereum Network

The DAO software is itself based on an unproven platform: the Ethereum blockchain. There is a risk that, as an open source project, any contributor to the Ethereum blockchain could introduce weaknesses or bugs into the Ethereum software, causing the loss of DAO tokens or ETH in one or more or even all of the DAO Token Holder’s accounts.

C. Risk of unforeseen attack vectors

The field of Digital Cryptography is very new and for this reason, there is a risk of unforeseen attack both in terms of the underlying cryptographic protocol that back the functioning of the DAO as well as ‘game theory’ related vectors which have not been documented to date. Both these vectors represent a risk that could lead the loss of DAO tokens or ETH in one or more or even all of the DAO Token Holder’s accounts.

D. Regulatory risks

Blockchain technology and Ethereum are allowing new forms of interactions between individuals and/or companies, some of them are still to be imagined and implemented. Like with the appearance of cryptocurrencies such as Bitcoin, it is very likely that specific regulations will be set in different jurisdictions targeting blockchain technology and more specifically DAOs. These regulations may or may not be DAO friendly and some might even forbid any relationships between an individual or company and a DAO.

The Platform Difficulty and Ether Price Challenge:

The model is very new and as a result the tools (wallets, exchanges, and smart contracts) are still relatively difficult to use. In the last few years we have seen others attempt to build a crowd backed funding vehicle for decentralized software, most well known of which is SWARM.

The SWARM project set a lot of firsts in blockchain based voting and attempting to give their community tools to participate in a decentralized manor. In the end the platforms they were attempting to build on, were not robust enough to provide the capabilities they needed and they ended up spending a great deal of their time on overcoming that friction instead of building value.

Of course blockchain tools generally and specifically the Ethereum platform in the past two years has developed substantially and the opportunity for The DAO is to capitalize on those new more powerful tools.

The Ether price decline risk, is the same type of risk that effected the SWARM project. They launched during a period when the price of bitcoins was declining, and thus this constrained the interest in funding projects on their platform. The DAO is launching during a period of increasing Ether prices and given the larger amount of funds provided for its function hopefully it can weather any periods of Ether price decline.

Conclusions:

The DAO is an ambitious project. The DAO will have challenges navigating these new tools, that said fortunately The DAO has enormous resources with which to tackle obstacles in its path. Even with a price decline in Ether the DAO would still have substantial resources to move forward with. This scale of a project represents an important growth stage in the development of decentralized applications.