What if your fellow investor could simply vote to steal your stock without compensation or legal means? What if they could choose to empty your bank account by majority vote? What if they could do it with only 25% of multiples?
Welcome to an exciting new world managed by Decentralized Autonomous Organization (DAO). Here, JUNO cryptocurrency holders have stripped investors of about $ 120 million worth of tokens that are allegedly cheated, or at least unfairly acted on by some tokens, “Airdrop.” .. The method is similar to a stock split.
See: DeFi Achilles heel on display: Voting can cost $ 100 million in cryptocurrencies from investors
Decentralized Autonomous Organization (DAO) is a voting-based governance mechanism for smart contract control that allows you to manage decentralized (DeFi) projects without centralized human input.
Thanks to the pseudo-anonymity of cryptocurrencies and the global decentralization of blockchain, they are also outside the jurisdiction of courts and governments. That’s why DeFi-based DAO-controlled decentralized exchanges (DEX) generally don’t have money laundering prevention (AML) controls.
Read more: PYMNTS DeFi Series: DeFi and DAO unpacking
Ruthless competition
Although they are fairly new, blockchain followers claim that DAOs will soon enter the mainstream business.
“We are just beginning to increase our influence on how organizations around the world govern themselves,” DAO said in a CoinDesk column on March 16th, Paul Brody, global blockchain leader at global consulting and audit firm EY. I gave my opinion. “As DAO becomes more widespread, DAO heralds a new way of working and a new era of intense digital competition, thereby transforming traditional organizations.”
That’s not necessarily a bad thing, he added, pointing out the DAO vote, which ended the members of the project team hired by the DAO vote.
“I tried to sort out the allegations and counterclaims, but it wasn’t successful,” Brody said. “The discussion about the proposal has become very subjective.”
However, “the team had few clear and public success indicators,” he said. “We’re still in the early stages of this kind of governance battle, but we quickly realized that if I worked for DAO, I needed clear indicators and good documentation. Extreme transparency helps make people more responsive. Despite being crowdsourced, one of the reasons ride-sharing services are consistently superior is ruthless and endless feedback. It’s a cycle. “
What is justice?
What happened to the JUNO whale, was it ruthless transparency?
The issue that caused the JUNO vote on March 16th came through airdrop. This is a fairly common way to reward early investors with cryptocurrencies to support immature and unproven projects. When the project is successful and the value of the tokens rises, a “snapshot” of all the digital wallets that previously held those tokens will be taken. These wallets are usually given more tokens from the cache reserved for that purpose.
For more information on the discussion and voting, see the article linked above. Please note that the relevant amount has changed as Juno’s price has risen in the last few days. However, the core of the accusation was discussed for some time. The social media channels of the blockchain development project Juno are: The owner of numerous tokens, the whale, split them into 50 wallets in anticipation of airdrops.
However, it was reported that one wallet or one person would be dropped up to 50,000 JUNOs in the air.
When tokens from 50 airdropped wallets were transferred to one wallet, I noticed a fraudulent alleged misuse of a flaw in smart contracts. The proposal to remove everything but 50,000 JUNO from that wallet initially failed, winning only 10% of the votes. In particular, the whale claimed that the wallet was consolidating tokens on behalf of a group of investors.
With numbers
This highlights another issue of DAO governance, low turnout.
It has already led to other questionable financial decisions.
In 2020, a flaw in the smart contract that manages the DeFi lending platform MakerDAO was revealed, and Ethereum’s sharp drop in prices trapped mortgage borrowers in a secure loan cleared for a $ zero bid, forcing a group of customers. Over $ 8 million. ..
The first DAO vote approved compensation for their losses, but the second vote overturned it by large MKR token holders. Only 38 votes were voted, and less than 9% of the tokens were voted.
Ideal
All of this presents a major issue with the idea (or ideal) of decentralized governance. Companies that don’t have a human manager and most small token holders don’t want or can’t vote don’t even notice that voting is taking place. We will return to centralized management by a small group of major shareholders.
The only difference is that, in theory, you are not bound by the laws and regulations of the jurisdiction in which they are incorporated. And no administrator has been formally appointed to enforce the authorities.
There is no reality yet. DAOs are new enough that there is often still a traditional built-in foundation that holds the majority, and even the majority, of tokens. And there the leader can be asked for an explanation, or at least ordered or empowered to act.
The borrower, who lost to MakerDAO, sued the MakerDAO Foundation and entered into court-ordered arbitration.
But to find out what flaws are inherent in DAO’s system, take a look at another blockchain project, the Bribe Protocol with the proper name. Provides payment to token holders who delegate voting rights to buyers. This is basically pay-to-play “distributed” governance.
Is that your motto? “A place where DAO token holders are paid to govern.”
So how does capitalism work in a system that gives a company the freedom of an autonomous corporate state that is governed only by its own rules? Voting purchases are a business, and where are large investors managing results like oligarchs?
If EY’s Brody is right, we’ll find it.
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