Monero is a DAO

Monero is a DAO

What is a DAO?

DAOs, for those unfamiliar, are decentralized autonomous organizations. The term was coined sometime in the 1990s or earlier, but was made famous by the infamous DAO crowdfund hack that resulted in a contentious fork of the Ethereum blockchain. In common parlance now it means an organization/collective/corporate entity which issues a token on a blockchain (typically Ethereum), and that token is used to vote on governance issues regaring how that entity will operate.

There are a number of DAOs which underpin the economy of the Ethereum ecosystem, including the following which were deployed in 2017-18:

All of these entities have issued tokens to allow voting on governance decisions, many of which were sold to large VC firms and private investors or kept by the founders and organizations under their control.

In the last several years DAOs have become quite trendy, particularly on the Ethereum blockchain. A few of the more ridiculous:

One of the most notable examples of the mania that bubbled up with regards to both DAOs and NFTs in 2021 was the Bored Ape Yacht Club creator Yuga Labs, who is now being investigated by the SEC for offering unregistered securities. The APE token DAO is peak absurdity. It is controlled by a few guys accused of being nazis, VCs including a16z who are in for half a billion dollars, and at most a few tens of thousands of apes. The entire thing is controlled by a few jpeg sellers, a16z, with maybe some minor input from the other ~10k BAYC plus BAYC-derivatives holders. Cool DAO bros.

Alongside this there are more serious ventures, including:

  • SporkDAO which puts on the ETH Denver conference every year and owns Bufficorn Ventures.
  • Wyoming created a new type of DAO LLC corporate entity in 2021 and promptly had the SEC intervene to block a DAO company from issuing stablecoins.
  • Other states have followed Wyoming's lead in trying to give DAOs a recognized legal wrapper, which is its own kind of irony: the whole pitch was an organization that doesn't need the state to exist, and the first thing everyone did was go ask the state for an LLC.

But why are DAOs important?

What is the one aspect of DAOs that other organizations lack - nominally decentralization. Things that are distributed on the internet and around the world that are hard to shut down. In the world of cryptocurrencies decentralization exists on a spectrum. There are many forms of decentralization, including development, node distribution, consensus, markets, etc., and none of these are binary. This decentralization is typically portrayed as a good thing by cryptocurrency proponents, even though they will generally admit that this property of decentraliztion results in far less organizational efficiency compared to a centralized entity.

So why does decentralization matter?

The short answer is: censorship resistance and resistance to political interference. If an organization lives on a few servers owned by a company in one jurisdiction, then that company, that jurisdiction, or anyone who can lean on them can shut it down, seize its funds, or force it to change behavior. A genuinely decentralized organization is hard to coerce because there is no single throat to choke. No CEO to subpoena, no AWS account to suspend, no treasury wallet to freeze.

That is the whole value proposition. It is also why most things that call themselves DAOs fail the test the moment you poke at them. If a "DAO" has a multisig held by three founders, or a token where the team and their VCs control a majority of the votes, or a website and a frontend that live on a single company's infrastructure, then it is not censorship resistant. It is a normal company with a token bolted on and a governance theater layer on top. The decentralization is marketing. (I've written before about how holding many coins is itself a form of decentralization.)

What is Monero?

Monero is a cryptocurrency like Bitcoin and Ethereum. It was launched in 2014 as a more private alternative to Bitcoin. It is at this moment the 28th most valuable cryptocurrency or token according to CoinGecko. It has become a favored currency for users and sellers on darknet markets, which became a $2B market by revenue in 2021.

Is Monero a DAO?

Is Bitcoin a DAO? Is Ethereum a DAO? According to the policyreview.info piece above the answer to all three would be 'no' because now the term is commonly understood to mean an organization based around one or more cryptocurrency smart contracts that in some way are used to govern the organization and generally control a treasury. I think the current general consensus view on the definition of the word is captured pretty closed by this quote they discussed from the Ethereum white paper:

Buterin, in the Ethereum white paper (Ethereum, 2013, p. 23), defines a DAO as a “virtual entity that has a certain set of members or shareholders which [...] have the right to spend the entity's funds and modify its code”. That is, the aim is to replicate “the legal trappings of a traditional company or nonprofit but using only cryptographic blockchain technology for enforcement” (ibid).

But the policyreview paper also mentions that some have argued Bitcoin is the first DAO, including apparently Buterin himself:

While some argue that Bitcoin is effectively the first DAO (Buterin, 2014; Hsieh et al., 2018), the term is today understood as referring not to a blockchain network in and of itself, but rather to organisations deployed as smart contracts on top of an existing blockchain network.

One distinction between BTC, ETH, and XMR in terms of DAOiness is whether or not there is a treasury. For the "Bitcoin organization", there is no treasury. There truly is no "Bitcoin organization", not in the way there is for Ethereum.

Monero is interesting precisely because it sits in between, and it sits there in a way that I'd argue is closer to the spirit of a DAO than most of the things wearing the label. Monero does have a treasury of sorts: the Community Crowdfunding System (CCS). But look at how it works. Anyone can propose work, the community discusses it openly, and people fund the proposals they like with their own XMR. The funds are held by a small set of trusted community members and released against milestones. There is no token that confers voting power proportional to how much money you put in. There is no premine sitting in a founder's wallet bankrolling the whole thing. There is no VC cap table determining the roadmap behind closed doors.

That is the part that matters. When people say "DAO" they usually mean the smart-contract plumbing: a token, an on-chain vote, a treasury contract. Monero has none of that machinery, so by the smart-contract definition it is formally not a DAO. Fine. But the smart-contract plumbing was always supposed to be a means to an end, and the end was a decentralized, censorship-resistant organization that no small group controls.

Oftentimes these organizations are decentralized in name only.

This is the dirty secret of the DAO scene. The token-voting model that is supposed to make these things decentralized usually does the opposite. Token distributions are overwhelmingly skewed toward founders, early investors, and the VCs who bought in before the public ever could. One token, one vote turns into a plutocracy where the people who put up the capital own governance, which is just... a company. Voter turnout in most DAOs is abysmal, so in practice a handful of whales decide everything. The Yuga Labs / APE situation is the cartoon version of this, but it is the rule, not the exception. The frontends live on AWS, the domains are registered to a Delaware C-corp, and the "community" gets to vote on the color of the bikeshed while the actual decisions happen at the a16z partner meeting. Decentralized in name only.

Two-column comparison. Left, 'Calls itself a DAO': governance token (one-dollar-one-vote), treasury in a founder multisig, VCs hold most votes, frontend on one company, labeled 'decentralized in name.' Right, 'Monero (never claims it)': no token or premine, funded by the open CCS, no cabal-controlled treasury, devs and nodes everywhere, labeled 'decentralized in fact.'
What gets called a DAO, versus what Monero actually is.

Who is the DAOest?

The things that loudly call themselves DAOs are, with embarrassing frequency, the least decentralized organizations in crypto: VC-controlled, premined, treasury-in-a-multisig, plutocratic by design, and one cease-and-desist away from disappearing. Meanwhile Monero, which never once claimed the label and would be formally excluded by the smart-contract definition, quietly checks every box that actually matters.

Run down the list. No premine. No founder's reward. No insider token allocation. No treasury controlled by a corporation or a cabal. No token-weighted voting that hands governance to whoever showed up with the most money. Development is distributed across contributors all over the world; consensus runs on nodes nobody can subpoena; funding flows through the open, opt-in CCS rather than a VC round. There is no CEO to arrest, no company to sue, no single server to seize. When governments have come after Monero, the response has been to delist it from a few exchanges, which is exactly what you'd expect: you can attack the edges, but there is no center to attack.

That is what a decentralized autonomous organization was supposed to be before the term got colonized by people selling tokens. Monero is autonomous, it is genuinely decentralized, and it is an organization in every sense that counts, held together by shared protocol and shared incentives rather than by a cap table.

So who is the DAOest? Not the golf-course DAO. Not the buy-the-constitution DAO. Not the ape jpegs. The DAOest of them all is the one that never asked for the title. Monero is a DAO.

If you want the longer argument for why decentralization is worth the inefficiency it costs, I get into that over at Such Software and in some of my other posts.