The Cult of DAO: How to Prevent a Hostile Takeover

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Decentralized autonomous organizations (DAOs) are popping up everywhere, but what are they? In simple terms, they are organizations without a traditional hierarchy.

Dash has been referred to as the first DAO. The DAO, famous for the hack that led to its demise, has also been called the first. Bankless DAO traces the concept to the 1990s while attributing the phrase itself to Ethereum Co-Founder Vitalik Buterin. BitShares creator Daniel Larimer claims to be the first person to discuss the concept but used the term decentralized autonomous corporation (DAC), in 2013. Buterin himself backs up this claim.

What matters more than who coined the term, or which was the first, is how can DAOs be free from an internal takedown, what I call the Achilles heel of DAOs. 

What Is a DAO and What Does It Do?

Corporations are supervised by boards of directors who protect the interests of shareholders and are managed by paid employees with specific skills. DAOs, however, have no such structure.

They are decentralized, meaning duties and responsibilities are distributed among members based on tokenized ownership interest and voluntarism. DAOs are also autonomous, which means they are self-governed. Code defines the rules and responsibilities of the participants, who use their influence within the organization to make decisions collaboratively.

While decentralized and autonomous, DAOs also fit the definition of an organization in that they have structure but in a non-traditional sense.

Every DAO has a different purpose. Some are organized as investment vehicles while others provide a service, fund projects, and more. TIME recently published an article highlighting what it’s like working at a DAO using dOrg, an organization that builds Web3 infrastructure, as the case study. Another article, published on the Cabin blog, highlights two types of DAOs—flash mobs and hyperstructures. Both have their place, but, according to the authors, hyperstructures are the superior ones.

While there are benefits to being a member of a DAO, there are some risks. One particular risk can destroy a DAO from the inside out if not dealt with in a judicious manner. It’s called a cult of personality.

The Achilles Heel of the DAO

Code always runs the risk of being hacked. DAOs are no different. That’s why one prognosticator has called open-source code the Achilles Heel of DAOs.

While code can be hacked, and open-source code is particularly vulnerable, weaknesses in a project’s code can be fixed. Satoshi Nakamoto proved that when the Bitcoin blockchain was hacked during the Value Overflow Incident in 2010. The Bitcoin blockchain hasn’t been hacked since.

A bigger threat to DAOs are personality cults, where one or several members attract a huge following and manage to leverage that following to increase their influence within the organization beyond their tokenized ownership. This threat is difficult to manage and can arise from unexpected corners of the organization. Cult leaders can be lurkers for a period before making their move, early members who amass a large stake over time, or evolve from a network of individuals with similar goals.

Traditional organizations can be overtaken by individuals with strong abilities and a lot of charisma. Nations fall prey to personality cults by political maneuvering. DAO cults, however, follow a different pattern. Cult leaders, whether individuals or a group, must gamify the organization’s code in their favor. This is what happened with Juno and Steemit.

Just as code can be hacked, it can also be gamed. All it takes is a brilliant individual or a cabal of collaborators hungry for power and the ability to persuade others to follow them. When it happens, the DAO loses its integrity.

What can be done to prevent a hostile takeover of a DAO? One might think well-written code or code so strong that it can’t be gamed. A better solution, however, is for early DAO participants to focus on recruiting a diverse membership base as quickly as possible. Just as decentralization is the best defense against a 51 percent attack on a blockchain, decentralization—the central feature of a DAO—is the best defense against a personality cult operating from within to destroy the organization. 

With DAOs, decentralization of human resources is just as important—or more important—than the decentralization of technology.

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