How to DAO: Mastering the Future of Internet Coordination

by Kevin Owocki, Puncar, Don Tapscott Narrated by Brian Troxell

Overview

Welcome to the future of internet coordination.

By now you've heard the buzz about Decentralized Autonomous Organizations (DAOs), and how they are going to redefine how we work and earn.

But when you peel away the hype and tech jargon, what are they really? How do they operate, why do they matter, and how can we all thrive in this brave new world of work?

In How to DAO, industry veterans Kevin Owocki and Puncar take you on an illuminating journey into the world of groundbreaking change, exploring the principles of decentralized finance, and teaching the brass tacks of setting up and managing your own DAO, from smart contracts to governance and innovation.

With How to DAO, discover what DAOs are really about, and learn the tips and tricks you need to harness the limitless potential of this transformative new technology.

Editorial Reviews

From the Publisher

ADVANCE PRAISE FOR HOW TO DAO
 
“This book explores nothing less than the biggest challenge to the corporation in a century.”   
— Don Tapscott, co-author of Blockchain Revolution 

“For readers looking to understand how to organize, reach consensus, and create positive sum and forward-looking DAOs, this book is an excellent resource.”  
— Sandeep Nailwal, co-founder of Polygon 
  
“How to DAO takes the pain out of navigating this new ecosystem with clear explanations and a series of ‘quests’ that will leave you ready to engage with these news entities or start your own. If you want to get ahead of the curve, this book is for you.”  
— Paul Brody, Global Blockchain Leader at EY 
  
“Human coordination in an online world is one of the most important challenges facing us today. How to DAO provides deep insights into how DAOs are changing the way we organize our society.”  
— Kain Warwick, founder of Synthetix 
  
“A powerful vision on how crypto technology can help solve important societal coordination problems.” 
— Sreeram Kannan, founder of EigenLayer 
  
“Written by pioneers in this space, How to DAO will get you up to speed on the potential of DAOs, and how to get started.”  
— Yaniv Tal, co-founder of The Graph 

Product Details

BN ID:	2940191870311
Publisher:	Penguin Random House
Publication date:	01/21/2025
Edition description:	Unabridged

Read an Excerpt

1

What Is a DAO?

Let's start with the basics. DAO stands for "decentralized autonomous organization." You can think of DAOs as digitally native vehicles for organizing a network of humans toward a common goal. Compared with traditional organizations, they have an internal economic model already built in thanks to blockchain, allowing for smooth financial coordination. DAO membership is collective, with decisions made from the bottom up rather than the top down.

The rules of a DAO are embedded in the code itself on a blockchain-a decentralized, incorruptible digital ledger that securely encrypts data and can execute smart contracts-eliminating the need for a central governing body. A blockchain records transactions across many computers in a way that prevents any future alteration of the record without the consensus of the network. This technology is enabled by a peer-to-peer network, where participants can directly interact without needing trusted intermediaries (such as banks). It provides transparency, security, and immutability without a centralized authority, which is why it's the backbone of crypto assets like BTC and ETH, or DAO assets like GTC. It even has applications beyond financial transactions-for example, Web3 social networks allow users to manage their own identity, instead of being beholden to giant technology companies.

Just like how traditional organizations have a bank account, many DAOs have a shared treasury. And just like most traditional organizations are incorporated in a legal jurisdiction, DAOs are incorporated onchain. When a dispute arises among members of a traditional organization, it is settled in court. When a dispute arises among members of a DAO, it is settled onchain.

In their most simple form, DAOs can be thought of as a "group chat with a bank account." This is a phrase coined by investor Cooper Turley, and because of its simplicity, it has since gone viral.

Many DAOs have "one commandment": something they believe is wrong with the world that they aim to change by rallying people from around the globe. This is usually a meme or a phrase that can be concisely stated and shared by its members. For example, Gitcoin wants to "fund what matters," creating a space for people who believe in backing causes that enhance the world, even if there is no direct financial benefit to them. Similarly, MakerDAO is on a mission to construct the first unbiased currency, appealing to those who feel that the current financial system is unfair and wish to reform it.

Yet it's crucial to recognize that DAOs are not only about addressing what's wrong or deficient but are equally about pioneering something fresh and innovative. They leverage the borderless nature of digital coordination, assembling a diverse group of people across the world to not only facilitate change but also to give birth to new, vibrant initiatives and entities that reflect their collective ideas and skills. This union of alteration and creation is central to a DAO, enabling it to navigate uncharted territories and conceive radical possibilities in a decentralized, internet-native world. Not only can they be accessed from anywhere like traditional websites, they also can be governed from anywhere, meaning that someone across the world can be your partner in your DAO, putting everyone on the same footing.

Are DAOs companies? Sometimes, but not always. In its purest form, a DAO has no centralized governing body, and decisions flow bottom up through proposals on a public forum. Rules are enforced by code, and there are no executive roles. Don't be fooled by the word organization. As opposed to hierarchical organizations, DAOs can resemble networks of individuals more than traditional organizations.

The aperture of the DAO world is very wide, which can present challenges in reasoning about them in the abstract. To ground our discussion in the tangible, we will get into examples later in the book. To begin, just know that DAOs encompass a range of utilities. Some DAOs exist to distribute money; others are designed to make investments. Some exist to facilitate social connections among members, others to collect digital artifacts like NFTs.

DAOs are really good at:

Providing equal access for everybody, from anywhere.

Providing a way to earn from anywhere.

Providing tools for making better democratic decisions.

Providing tools to evade censorship or attacks from powerful entities.

Providing tools to create credible fairness, where traits like predictability, adaptability, and neutrality are valued above efficiency.

Providing tools to establish internal economic (tokenomic) systems that incentivize and coordinate members toward a common mission.

Providing tools to coordinate without relying on an intermediary between you and your transactions.

Providing audit trails.

Confusing your older relatives about what it is that you do for work.

DAOs are a new frontier in human coordination. At a time in which our Industrial Age institutions are lumbering, creaking, and failing to capture the support of the populations they serve, DAOs offer a new way to create Information Age institutions that can be democratically governed by the very populations they serve.

The DAO ecosystem is in a constant state of evolution. Every new experiment leads to new lessons that can accelerate the next experiment. There will be giant successes in the future and giant failures. In many ways we are just at the beginning of the journey.

Chapter Summary:

What Is a DAO?

Decentralized collaboration: DAOs break down geographical and hierarchical boundaries, enabling global, seamless collaboration without central control.

Autonomy and self-execution: Through smart contracts, DAOs autonomously execute decisions, manage resources, and uphold rules, diminishing the need for intermediaries.

Nurturing innovation: DAOs are a hub for global transformative initiatives, leveraging collective ideas and talents to drive creative innovation.

2

Why Crypto?

In order to understand DAOs, you must understand the environment in which they've sprouted: the crypto ecosystem.

The beginning of the modern crypto movement began with Satoshi Nakamoto, the pseudonymous person or group of people who created Bitcoin, the first and most well-known cryptocurrency. The true identity of Satoshi Nakamoto is unknown, and it remains one of the greatest mysteries in the tech world. In 2008, Nakamoto published a paper outlining his ideas for a new digital currency and, in 2009, he released the first Bitcoin software, which launched the network and the first units of this new cryptocurrency, which Nakamoto called Bitcoins.

The primary invention behind crypto is Satoshi's solution to what's known as the Byzantine Generals' Problem. This is a term originating from a thought experiment in computer science, particularly in the field of distributed computing (connecting several computers to solve one problem in tandem) and decentralized systems. It highlights the difficulties that several parties can encounter when trying to agree on a single course of action in an unreliable communication substrate (like the internet), symbolized by the challenge faced by a group of generals who are trying to coordinate an attack while situated in different locations.

Satoshi solved this problem within the context of digital currency by implementing blockchain technology in Bitcoin. Transactions are verified and agreed upon on a public ledger without requiring trust in a central authority. Through a process called mining, the people functioning as network participants (also called miners) solve complex mathematical puzzles to "seal" each block of transactions and link them in a chain. This system makes it extremely difficult for a bad actor to change the historical record or introduce fraudulent transactions, for they would need to command a majority of the system's computational power (a situation commonly referred to as a "51 percent attack").

This innovation was extended in 2013 with the Ethereum white paper. Vitalik Buterin, the cofounder of Ethereum, did not directly extend Bitcoin's functionality; instead, he created a completely new platform, Ethereum, which has some similarities to Bitcoin but is fundamentally different in terms of capabilities and purpose. Ethereum enables "smart contracts," self-executing contracts where the terms are directly written into code and automatically enacted. These contracts run on the Ethereum blockchain, making them tamperproof and independent of any central authority, and they can handle a broad range of applications beyond simple monetary transactions. For the first time, anyone could create and program their values into money. This created a massive new design space, and it had profound implications for what types of economies could be built in the coming decades.

One of the things smart contracts enabled was the creation of DAOs. Now you could incorporate an organization onchain using a smart contract and facilitate the creation of a new internet-native coordination mechanism.

A significant early figure associated with the formalization and promotion of DAOs as we understand them today is Daniel Larimer. He is known for creating the concept of a decentralized autonomous corporation (DAC), which can be considered an early form of a DAO. He discussed these ideas in 2013 and 2014 in the context of the BitShares project, a decentralized platform that he cofounded. These concepts were part of broader discussions within the community about decentralized governance.

Buterin played a crucial role in popularizing the concept of DAOs. He believed that decentralized governance could enhance the capital-allocation process and optimize the investment and use of a company's resources. In this model, organizations decentralize themselves to build trust among the participants, thereby excluding groups that fail to do this from the economic benefits of the "circle of trust."

The term DAO became significantly more well-known following "The DAO" project launch on the Ethereum platform in 2016. This DAO was a specific organization, but its publicity brought considerable attention to the idea of decentralized autonomous organizations as a whole.

Despite this publicity, and growing public awareness, confusion around DAOs persists, and it is our belief that DAOs cannot be understood in words only. You need to experience them to understand them, and the knowledge in this book is designed to pair with hands-on knowledge gained by playing with crypto. Keep an eye out as you browse through the book for boxes with Quests in them. Inside each Quest box is a practical thing you can do in crypto. For more comprehensive instructions and practical exercises, please visit our website, howtodao.xyz/quest.

Quest 1: Get a wallet.

If you're new to the world of crypto, the first step is to acquire a wallet, which will enable you to begin engaging with different decentralized applications.

Here is our first quest: Set up your Ethereum wallet and sign in with it to our website.

Metamask and Coinbase Wallet are the two most popular wallets. On their official websites, you can find detailed instructions on how to install them on your phone or computer.

Once you've completed the installation, head over to howtodao.xyz and click on the sign-up option. Choose the wallet option and use your newly created wallet to connect. Congratulations, you are now a true Web3 user!

As a Web3 user, be cautious when installing your new wallet or interacting with other sites. Always make sure to only use the official website to avoid falling for phishing attempts.

You can find detailed instructions at howtodao.xyz/quest.

Chapter Summary:

Why Crypto?

Bitcoin's emergence: Introduced by the pseudonymous entity Satoshi Nakamoto in 2008, Bitcoin pioneered the use of blockchain technology, allowing for decentralized, peer-to-peer transfer of digital value without a central authority. It laid the groundwork for the development of subsequent cryptocurrencies and related technologies.

Ethereum's development: Vitalik Buterin launched Ethereum in 2015, building on Bitcoin's foundational blockchain technology but introducing smart contracts and the Ethereum Virtual Machine (EVM). This platform's capabilities allowed for more complex financial operations, decentralized applications (DApps), and the facilitation of initial coin offerings (ICOs), significantly expanding the blockchain's use cases beyond mere currency.

The rise of DAOs: The concept of decentralized autonomous organizations (DAOs) evolved, influenced by early cypherpunk ideas and discussions within the cryptocurrency community. The launch of "The DAO" in 2016, a complex set of smart contracts running on Ethereum, marked a significant turn in understanding the potentials and risks of fully decentralized, autonomous organizational structures and governance.

3

HOW WAS THE FIRST DAO CREATED?

In the spring of 2016, the world of cryptocurrency was rocked by an event that would come to be known as The DAO hack. The downfall of what was one of the first DAOs would ultimately help identify flaws and ensure that the entire concept of DAOs could survive into the future. Confusingly, it centered around an organization simply known as The DAO, which we briefly introduced in the previous chapter. Nowadays there are dozens of DAOs, but back then "The DAO" was really the only DAO out there.

The story begins in November 2015, when Slock.it, an ambitious project that was kind of like "Craigslist-meets-AI-meets-Ethereum,'' launched the world's first decentralized investment fund, allowing the company to seek funding through smart contracts encoded on the blockchain. The fund was known as The DAO, and it launched in April 2016. Interested investors could exchange Ether (the native cryptocurrency of Ethereum) for DAO tokens-tokens being a unit of ownership that represents your rights to something-enabling them to vote on projects and start-ups to get funded. Successful applicants would receive funding from The DAO treasury, and if their projects were profitable, investors would also benefit from the upside. This was a new type of investment vehicle: essentially a decentralized venture-capital fund, an experiment in crowdfunding built on the Ethereum blockchain that allowed anyone to invest in a pool of money that would be used to back various projects, all without the need for intermediaries like banks or brokers.

By the end of Slock.it's twenty-eight-day crowdfunding round, The DAO held a phenomenal $150 million worth of Ether from more than eleven thousand investors-14 percent, in fact, of all the Ether in circulation. The DAO was one of the largest crowdfunding campaigns in history, and as a result, The DAO was hailed as a groundbreaking innovation in the world of finance. But it was not without its flaws. It had not been subject to the same rigorous security audits, and this weakness would ultimately prove to be its downfall. In the early hours of June 17, 2016, an unknown attacker began siphoning funds from the business because of a vulnerability in the smart-contract code that governed its operations. The attack went unnoticed at first, but as more and more funds were drained from the organization, panic began to set in. The DAO's administrators scrambled to find a way to stop the attack, but not before $50 million worth of crypto had been stolen.

As the news of The DAO hack spread, it sent shock waves through the world of crypto. Many began to question the viability of the entire blockchain ecosystem, and some predicted that the hack would be the death knell for Ethereum, the platform on which The DAO was built. But The DAO hack was not the result of a flaw in the blockchain technology, and the Ethereum community refused to concede defeat. Within days of the attack, a group of developers proposed a radical solution: to "fork" the Ethereum blockchain-essentially creating two different versions, each with its own set of transaction records and history-and create a new version that would erase the effects of The DAO hack. Ultimately, the decision to create a new version of Ethereum was adopted by a majority of Ethereum operators. The result meant there were now two separate versions of the network: the original chain, which became known as Ethereum Classic. (Ethereum Classic wanted to keep everything as is because it followed a philosophy known as Code Is Law: if the code has a bug that has been exploited, we should just accept that outcome and learn from it.) The new chain was simply called Ethereum. For the new version, the hard fork effectively reversed the hack, restoring the stolen funds to its owners.

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