In July 2021, the group Pleasr got their hands on the album Once upon a time in Shaolin of the Wu-Tang Clan, available in a single copy in the world, for 4 million dollars. In October of the same year, the venture capital fund Andreesen Horowitz contributed $5 million to support the Friends With Benefits community. What do these two stories have in common? A specific application of blockchain: DAOs, an acronym for Decentralized Autonomous Organization.
Because apart from the roller coaster of the price of bitcoin and other cryptocurrencies, the blockchain allows enough applications to see the development of the universe of decentralized finance (DeFi), NFTs, these non-fungible tokens which make it possible to buy and exchanging works of digital art, or… DAOs, in which some followers see the possibility of bringing about a form of direct democracy. An encouraging horizon as abstention reaches new heights in the first round of the 2022 legislative elections…
A “digital community with a common account”
But before talking about politics, let’s dissect how they work. A DAO basically works like a business, which you would buy tokens from instead of shares. Each purchased token gives the right to one or more voting rights, which allows each participant to influence the financial or political decisions taken by the group. Decentralization is at the very foundation of the blockchain: it was present in the white paper of the creator of the bitcoin protocol, Satoshi Nakamoto. It is found in the uses of smart contracts, which allow transactions to be concluded without going through notaries, or in the creation of NFTs, which aim in particular to prevent artists from having to go through intermediaries to find their audience. As such, that the crypto universe is seeing the emergence of “decentralized autonomous organizations” is not very surprising. But what do members of a DAO really want? What are their activities, their ambitions? For investor Cooper Turley, interviewed by CNBC, they only make up “internet communities with a common account”. This is the image of PleasrDAO, which comes together to buy an album, HerStory DAO, which funds and collects crypto projects from women and black artists or FlamingoDAO, which collects NFTs.
For François Dorléans, founder of Stratumn, DAOs go further. They are “a good way to manage common property”. Imagine that you belong to a community of which you do not know all the members: not everyone necessarily trusts each other, but you have to manage a project together “or common resources, forests or oceans, if we take issues ecological. In this case, the blockchain solves both the problem of trust by tracing and securing each transaction and that of controlling the borders of the community and respecting its rules. In other words: those who participate in the DAO have tokens, those who do not have them are external to the group. If a sanction must be taken, this can be translated directly by withholding tokens from the offender or any other modality that has been adopted previously.
The issue of governance
This question of governance is the main argument for promoting DAOs: according to some, they would allow companies to adopt a much more horizontal mode of organization – rather than meeting in a shareholders’ meeting, there is no would only have to vote on each subject via the blockchain. According to others, they would facilitate the democratic process by making it liquid, by securing the vote, by allowing direct expression rather than delegating decision-making power to representatives – at least that is what the Democracy organization is promoting. Earth. While all the social movements of recent years, the Yellow Vests, Brexit, the rise of the alt-right in the United States, reflect serious crises of confidence in the institutions, bringing direct democracy up to date may seem tempting.
The problem is that the first renowned DAO, an investment vehicle called “The DAO” and having raised 150 million dollars in 2016 from several thousand individuals, is also the one that planted the seeds of mistrust. Installed on Ethereum, the project was described as the first space where the code would really take the place of law (in reference to the famous phrase “Code is Law” by the jurist Lawrence Lessig): if you participated financially in the DAO, you accepted its operation , you would participate in deciding where to invest… in short, everything would be fine. Until a user decides to use a flaw in the code in question to steal 50 million dollars. Very quickly, the community voted to create a hard fork of Ethereum, that is, it built a second version of the blockchain in which theft does not exist. But is the code really law, if we change it every time we need it?
Repairing democracy without worrying about the impacts of technology?
Respecting the interest of the group or taking advantage of the flaws of a DAO for one’s personal interest, “this is a direct illustration of game theory, comments François Dorléans. If the system is too complex, if the incentives are too weak, the interest in complying with the DAO rules disappears. The entrepreneur still sees in these technologies an interest for questions of customer knowledge or for the management of common goods, in particular because it gives substance to the principles laid down by the economist Elinor Ostrom for the management of shared goods. The simple fact of accessing the DAO is generally an opportunity to constitute a starting capital for the project; their intrinsically participatory culture makes it possible to define the rules of participation, decision-making and group conflict management, which helps to align the interests of the participants; and everything is done in a transparency that facilitates control.
In the turmoil caused by the concept of DAO for several months, the law professor at Grenoble-Ecole de management Nathalie Devillier sees for her part only a symptom of the “mainstreamization of a technology hitherto reserved for a few groups of Silicon Valley insiders. From there to considering that it is necessary to restore democracy to human interactions, there is, first of all, a taste of deja vu: “Access to democracy, to care, to education are often brandished to legitimize the use of new technologies. But it is not because we can use them that their use is relevant for these issues. There are, then, large areas to discuss in society, “on the ecological cost of these projects, the legal framework in which they fit, the real security they offer”. Because even if blockchain enthusiasts speak of it as an indestructible innovation, it does not prevent fraud or “last mile security breaches”. If the user interface is not perfectly constructed, nothing prevents subverting it to recover cryptocurrencies, falsify a vaccination pass or even influence votes.