Ethereum Users Giving the DAO Another Try After Digital Stickup
Ethereum Users Giving the DAO Another Try After Digital Stickup
(Bloomberg) -- Four years after the $55 million hack on the DAO threatened the future of a new blockchain system known as Ethereum, the crypto community is giving it a second try.
It’s known as the LAO this time, which stands for Limited Liability Autonomous Organization. If that sounds like some kind of cyber law firm, that’s the point. Unlike the DAO, or decentralized autonomous organization, project where anyone with an Ether wallet could join in an effort to provide funding to startup projects, the LAO is limiting the number of participants as well as the amount of cryptocurrency they can contribute. So far, the LAO has raised 3,600 Ether, worth about $878,000, and awarded its first funding to a startup.
By contrast, when the DAO was attacked in June 2016 it held $250 million of Ether and counted thousands of participants. It was the most ambitious project seen on Ethereum at that time when the network was less than one year old. In a controversial move that still is argued over these days, the Ethereum community voted to change the blockchain history to make it so the DAO attack never occurred and no one lost any money.
Yet the spirit of wanting to help pick projects worthy of funding to further the Ethereum ecosystem has never gone away, said Aaron Wright, co-founder of OpenLaw, a digital contracting system that helped create the LAO.
“I don’t think that vision has ever dimmed when it comes to Ethereum,” said Wright, who is also a professor at Cardozo Law School in New York. A lot has been learned about security, governance and making the LAO work inside of existing U.S. law, he said. This time, the LAO ties every transaction to legal documents via so-called smart contracts and the investors are vetted to ensure know-your-customer and anti-money laundering laws are obeyed, Wright said.
“We have a robust set of tools to experiment with DAOs, and that’s what the LAO is about,” he said. “The LAO is the marriage of the legacy world and the crypto world.”
Like the DAO, the LAO works as a type of virtual venture capital fund. LAO users, who Wright said are more like partners in a partnership than security owners, contribute a maximum of 120 Ether each. Startups pitch their projects to the LAO participants who then vote on whether they think it deserves funding. Right now there are 42 LAO proposals for things like creating a market for digital art to something called “The IAO” that describes itself as like the LAO “but for fishing,” according to the LAO’s web site.
One supporter of the LAO is Christoph Jentzsch, the co-founder of slock.it who wrote the code for the DAO in 2016. At the time, lawyers told Jentzsch that if a terrorist organization had somehow received funding through the DAO that other DAO users could be held liable, he said. That’s no longer a threat with the LAO.
“Their whole idea about limiting liability is great because that was certainly lacking in the DAO,” he said. Jentzsch, who owns 1% of the LAO and is able to vote on projects for funding, said if it can become a for-profit venture it could help solve the funding issue facing Ethereum projects. On the other hand, he worried that LAO investors might not spend much time vetting projects as they only have a small amount of Ether at stake.
“This is a bit missing in the LAO,” he said, referring to an economic incentive to do a lot of due diligence on projects.
The first startup to receive funding from the LAO is called Tornado.Cash, which received 244 Ether, worth about $59,000, Wright said. It adds a layer of privacy to Ethereum transactions that are traceable on the Ethereum blockchain if a person’s address is known.
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