Control - Issue #4

The DAO: A $130M Decentralized Venture Fund

The DAO, a decentralized venture capital fund that nobody controls and anyone can participate in, has raised over $130M in just 16 days. The decentralized autonomous organization concept has been widely talked about for months and on April 30th, a team of developers launched the first implementation of a DAO utilizing smart contracts on the Ethereum blockchain. The name “The DAO” is confusing because this is just the first of a new category of organizations called DAOs. The DAO will vote on a name change at the end of the funding period (see a discussion on the name change here).

There have been many hot takes this week about why a $130M decentralized venture fund is stupid, confusing, scary, a scam, a revolution, etc.. Without making any judgments about whether or not the DAO is a good investment opportunity, here’s a few reasons why the DAO is a major innovation in crypto finance:

• The DAO enables collaborative decision-making without any trusted third-parties

The promise of Ethereum is to allow developers to write programs on the Ethereum Virtual Machine, which has the potential to transform countless activities that previously required trusted third-parties into trustless activities. Prior to the DAO, collaborative decision-making required trusted third-parties. For the first time, it is possible for anyone to own a stake in an entity and make collective decisions regarding that entity's future without trusting anything but the code embedded in the smart contract. The DAO solves the "corrupt trustee" problem much like bitcoin solves the "corrupt banker" problem.

• The DAO will fund Ethereum apps that seek to make Ethereum useful
  

The blockchain ecosystem has received over $1.2B in venture capital, and that venture capital has resulted in surprisingly little true innovation to date. Most “blockchain” companies are doing something incremental and most early bitcoin people and companies are currently sitting on their BTC positions or brands and hoping that the macro environment turns. I believe it will turn, but this is an indeterminate and uninspiring approach. The DAO will fund much-needed innovation in the blockchain space and I believe the crowd will make bets that traditional investors may not be willing to take, which could lead to useful products that would not have existed otherwise.

• The DAO is the most interesting real world “wisdom of the crowd” experiment in history
  

The wisdom of the crowds has been a long-debated phenomenon in behavioral finance without many real world tests (see "The Wisdom of Crowds" and "Extraordinary Popular Delusions and the Madness of Crowds"). Conventional wisdom believes that exceptional individuals will outperform the crowd when it comes to making investment decisions. The DAO will put this to the test much like Bitcoin is putting the Keynesian vs. Austrian economic debate to the test.

Naysayers are having a field day with The DAO. Like all early stage projects, there’s a multitude of reasons why The DAO won’t work and it's easy to poke holes. But I believe it’s a project worth learning more about if you’re interested in the space and it’d be wise to educate yourself before completely dismissing it as stupid or crazy (see forum here and Slack channel here).

Articles worth checking out this week

Blockchain-Based Venture Capital Fund Raises $100 Million And Counting — fortune.com

Built using the blockchain platform Ethereum, The DAO is a new form of a decentralized financial organization.

The Ad-Blocking Hacker Making Your Browser More Paranoid — www.wired.com

We've lost control of our web browsers. Yan Zhu is trying to wrestle it back.

Here's Why 21 is the Most Exciting Bitcoin Company — ca.finance.yahoo.com

Balaji and team are quietly making it easy for anyone to earn bitcoin. Signup and start mining bitcoin and building micropayments apps from the command line today at 21.co.

BTC Relay is Live: Bitcoin Can Now Exist on the Ethereum Blockchain — themerkle.com

The ConsenSys team announced the official launch of BTC Relay, which connects the Ethereum’s network with the Bitcoin network in a secure, decentralized way. 

Blockchain open sources Thunder network, paving the way for instant bitcoin transactions — techcrunch.com

Enabling trustless off-chain transactions that settle on the blockchain is important for the future health of Bitcoin. Blockchain.info announced their own project that seeks to bring this to life (still early stage and in-progress).