The recent news of the SEC ruling that The DAO is a security, I think this topic raises both important legal and philosophical questions as to what it means for an organization to be truly decentralized. After I read the paper issued by the SEC yesterday, the three areas of concern that jumped out to me were:
- Voters in The DAO effectively had little control, since curators were responsible for allowing projects to make proposals.
- Advertising returns in the form of dividends are clearly an investment product.
- If a large amount of the funds is taken off-chain and held by individuals, it means that some centralized entity is taking custody of funds at one point or another.
It looks like a large reason that The DAO, specifically, was a security was that it did not give investors many rights as a token holder. I would argue that the main thing that makes The DAO a security is the fact that curators would create investment-specific proposals with the intention of making a return. But what if The DAO basically coded itself as a non-specific voting mechanism? At first, you might think, of course, a voting machine is not a security, but then you have to think about the kinds of decisions that are being made. What if those decisions concern investments? Or how about if those decisions are for funding charities? A vote could decide the question of what block should be included next in a blockchain.
My question is, could we take the idea of The DAO, where decisions are decentralized, but generalize the code enough to say that tokens are used as a method to make decisions? The kinds of decisions that are made may be related to investment, or may not. You could think of this as a kind of network-managed, autonomous decision-making agent.
I'm posting this to hopefully start a discussion around what defines a company (with centralized managers), vs. a public utility that is made up of a bunch of different actors.
Why I find this an interesting topic:
After seeing the rise and fall of The DAO, I fell in love with the idea of a completely decentralized organization that funded projects. However, the largest disappointment, in my mind, was that hardly anyone actually voted for any proposals. The highest voter turnout for any given DAO proposal was for proposal 17, which received only ~9.8% of the total tokens. This made me think how we could use better voting structures for decentralized organizations. Six months later, I realized that implementing a modified version of a Futarchy governance model could be the perfect way to achieve a commonly desired outcome.
So a little intro to the project:
The Vega Project (“Vega”) is an effort to create a generalizable system which enables coordinated action for a group of participants based on the decentralized decisions of the individual participants who make up the group.
Using smart contracts, the Vega Project can:
(a) Enable any participant to introduce proposals to the group.
(b) Enable any participant to support and vote on proposals that have been made by other participants.
(c) Track the impact of active participants’ decisions on the achievement of the group’s objectives over time.
Through implementation of consensus rules and a carefully designed incentive structure, Vega enables individuals to apply swarm intelligence in the pursuit of their shared objectives, harnessing the wisdom of the crowd to make group decisions for the purpose of maximizing the benefits to the individual participants.
Essentially a system for effective digital democracy, Vega enables any group to manage itself strictly through the consensus of individual actors, provided only that the group is able to establish shared objectives which are clearly and unambiguously defined; precise metrics for assessing the group’s performance in achieving its objectives; and effective incentive structures which properly align the interests of individual participants with the shared interests of the group, all without any centralized control.
Perhaps this question could be answered by "expert" lawyers, but in the spirit of crowd intelligence and transparency, we think it's important to get an understanding of what the community thinks.
As a community, do we think that creating a generalizable system that incentivizes decision-making is a security or not, according to the SEC?
