Sample DAO Charter
By: Alexander Kuzmin
Tags: Blockchain, Bitcoin, Ethereum

Quorum & Margin of Votes

Each economic act IDO undertakes falls into one of the three tiers:

Tier 1: “Service Proposals”.

There is certain class of small scale and repetitive tasks to be performed in the legacy world. A legal entity is needed for that. It is unreasonable to do voting and tenders for tasks smaller than a certain sum per case and not exceeding certain annual budget altogether. Thus, so-called “service operators” are used for that. “Service operator” is a sub-category of “contractor”. To fit into this tier, a particular single proposal has to be smaller that certain maximum amount and the volume of all passed proposals for a particular service operator during the last 12 months has to be smaller than certain minimum amount.

If available, a service such as Colony.io should be used for this tier (may involve “burn&birth” tokens switch procedure). Quoting Colony: “Management decisions are not typically taken by a company’s investors and neither should they be in a True DAO. While you can (and in some cases should) weigh votes by ownership, that’s not appropriate for day to day operations. Wealth is no proxy for expertise (or even rationality), so rather than weighing votes by stake, a True DAO must have a robust reputation mechanism for accurately and trustlessly identifying competence and trustworthiness by systematic and objective assessment of behaviour. Indeed, company wide voting should not be necessary for every decision — it must be possible for day to day operation and expenditure to happen with as little friction as possible, without compromising security.”

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Tier 2: “Ordinary Proposals”.

Most of the important acts fall into this tier. A proposal is considered “ordinary” if it it doesn’t fit into the “service” category based on its total amount or expected economic impact. The quorum represents the minimum number of tokens required for a vote to be valid. The quorum level depends on the amount (size) of proposals linearly. Smaller proposals require smaller quorum: as less members would care about it, naturally. Larger proposals take higher quorums so initiators need to undertake certain “PR” efforts to let members know of the proposal and reach the quorum. Quorum is calculated as coefficient multiplied by the proposal amount (in USD).

In order to prevent “proposal spam”, a minimal deposit of 0.1 IDO token is required to be made when creating a proposal. The deposit gets refunded if quorum is achieved. If quorum is not achieved, the deposit goes to the dormant pool.

The margin of votes required to pass is 51% of voting IDO tokens. Parameters are defined by the regular IDO voting procedure.

Some proposals do not have an obvious “amount” so they can’t be directly USD-quantified. These proposals require the default quorum of 25%.

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Tier 3: “Critical Proposals”. This part is based on “Futarchy: Vote Values, But Bet Beliefs” by Robin Hanson. Works for DAOs with large number of owners.

Potentially influential and sensitive proposals are run very differently because direct owners’ vote (sort of weighted plebiscite) doesn’t work well in such cases. To qualify as “critical”, a proposal ranking has to be achieved through regular voting.

The described method was originally proposed by economist Robin Hanson. Under this system, individuals vote not on whether or not to implement the particular proposal, but rather on its outcome metrics and voters do it in the economically responsible way. Essentially, voters put their money where their mouth is. Prediction markets are used to pick the proposal that best optimizes the needed metric. With offers to approve or reject, two prediction markets are created each containing one asset (temporary crypto-token), one market corresponding to acceptance of the proposal and one to rejection. If the proposal is accepted, then all trades on the rejection market would be reverted, but on the acceptance market after some time everyone would be paid some amount per prediction-market-asset based on the chosen success metric, and vice versa if the proposal is rejected. The market is allowed to run for some time, and then at the end, the policy with the higher average v price is chosen.

Example: suppose IDO runs (rules) Great Britain. The success metric chosen is GDP in trillions of pounds, with a time delay of ten years, and there exists a proposed policy: “Brexit or not”. Two assets are released, each of which promises to pay 1 pound sterling per prediction-market-asset per trillion dollars of GDP after ten years. The markets might be allowed to run for two weeks, during which the “yes” prediction-market-asset fetches an average price of 24.94 pounds (meaning that the market thinks that the GDP after ten years will be 24.94 trillion pounds) and the “no” prediction-market-asset fetches an average price of 26.20 pounds. Brexit does not happen. All trades on the “yes” market are reverted, and after ten years everyone holding the asset on the “no” market gets 26.20 pounds apiece.

Critical proposals are handled by those with large enough amount of IDO tokens (yet another important parameter).

Fighting 51% Attacks

A potential problem is the ability for the majority to pass a proposal to send all the funds to themselves or a similarly malicious deed. To prevent this, the minority must always have the ability to retrieve their portion of the funds. The solution is to incorporate into the rules that a IDO can split into two, or “fork”. If an individual, or a group of IDO token holders, disagree with a proposal and want to retrieve their portion of Ether before the proposal gets executed, they can submit and approve a special type of proposal to form a new Decentralized Organization. The token holders that voted for this proposal can then move their portion of the IDO budget to this new Decentralized Organization, leaving the rest alone with the remaining budget and all attached “managers” and “service operators” (see below). Since the code is open source, the new group will contain any related software as well.

Management

“Manager” is a sub-category of “contractor”. Rule parameters — such as minimum discussion period and others — for this sub-category may be set differently. To ensure stability and continuity of development, top management positions should not be re-elected as frequently as once a year. This subcategory has a specific parameter — the length of moratorium period. This is the minimum period a manager is assigned for. The moratorium can not be longer than 365 days. Managers can voluntarily resign, of course.

Budget

The Budget consists of the following parts:

Ether (ETH): mainstream Ethereum cryptocurrency-to-date, naturally stored on the blockchain. Other tokens that can naturally travel over Ethereum blockchain, for example “equity” of other DAOs, DACs or Decentralized Organizations. Metadata referring to the multi-signature storage of bitcoins. Bitcoins is the currency most needed (and most convenient) when dealing with third party services. The same is true when receiving cryptocurrency in return for IDO tokens — most of the funds statistically come in the form of bitcoins. Converting it back and forth creates friction and unnecessary costs. Thus, bitcoin incoming from new investors are kept in multi-signature storage where private key holders are selected by the regular internal voting procedures. The IDO Bitcoin Fund is a smart contract separate from the core system that holds bitcoins on behalf of the IDO. It is controlled temporarily by the top 5 IDO owners who participate in governance. Yet unfulfilled obligations of managers, contractors, and service operators.

Dividends

As a result of a regular voting procedure, dividends may be paid.

Watching Investors’ Rights

IDO is an autonomous entity, executing code on the Ethereum P2P network. It utilizes decentralized, blockchain-based management as its organizational form and token sales as a way of raising funds. This unregulated frontier is the new horizon of the investment spectrum. Each investor should understand that the classic startup-and-VC model is structured with key differences in return horizon, ownership model, entry phases, exit methods, business model, legal structure, LP mix, fund currency and market approach. The new model is almost diametrically opposed. The one is a closed market, dominated by command-and-control practices, led by a few rich people on Sand Hill Road. The other is a wide-open global market where anyone can play, and where risks are more evenly distributed.

The new model includes advantages such as: stability via decentralization, smart contracts, global fundraising, instant liquidity, simple issuing of dividends, simple voting. The focus remains on vision and entrepreneurship and not on bureaucracy and formalities. IDO can also boast some VC-manner investment elements too: structure, coaching, evaluation, commitment, supporting functions, clear milestones, and — most importantly — investor protection.

Token owners need to always check whether the following issues are addressed:

— Scam protection

— Technology check

— Proof of ability to execute

— Business viability check

— Efficient use of funds and business-based thresholds for minimum and maximum raise

— A transparent token sale process

— Escrow of accumulated funds

— Controlled release of funds

— Delayed founder liquidity

— Clear future monetization model

Ease of Exit for Every Stakeholder

IDO is set to grow the community of contributors by creating clear incentives and providing transparent internal rules. Tokens are designed so that every investor has maximum opportunities for exit at every stage of the project development.

Main Organisational Focus: Transparency

We differentiate ourselves from both competitors in the industry segment and alternative projects, which target the same potential investors, by providing a framework that is absolutely transparent and invulnerable to any sorts of corporate attacks and internal corruption.

Although a complete automation of all processes is impossible, human errors, sabotage, and fraud are minimized as compared to traditionally managed projects.

IDO Token Supply and Dormant Tokens

IDO is the name of the token that acts as shares in the Ideal Decentralized Organization. The price of IDO depends on the performance of the Decentralized Organization. There are 1,000,000 (one million) IDO tokens representing 100% of IDO ownership and management rights. Initially, minimum one token can be bought. Before deployment of the system 500 thousand IDO are to be distributed to founders, developers, and early buyers. At the beginning the remaining undistributed 50% of tokens constitute the “dormant pool” where tokens have no voting rights. During the process of sale of tokens from dormant pool the Decentralized Organization can function, members can vote, budget can be used. Anyone can buy tokens as long as they are available for sale, i.e. before the dormant pool becomes empty. Tokens are sold in exchange to most broadly used cryptocurrencies, at a price fixed in USD. Price is set by current owners’ voting and can be changed at their will according to the rules of IDO code. When buying tokens, an investor acquires them from two sources simultaneously: minimum 90% of the desired volume is brought from the dormant pool and maximum 10% may come from all current owners aggregated. Owners do not have to sell so the availability is determined by the status of the dormant pool. Maximum of what an individual token owner can sell is calculated according to the following formula: New_investment_size * 0.1 * Current_share_of seller / Sum_of_all_currently_voting_shares.

Constant Parameters’ Values

— Token supply: 1,000,000 (one million) IDO tokens representing 100% of IDO ownership

— The starting size of the dormant tokens pool: 500 thousand IDO

— Token supply for new investors at fixed prices: min 90% from dormant pool, max 10% from private owners

— Minimum number of tokens that gives the right to participate in solving Critical Proposals: ***

Current Values of Changeable Parameters’

— Margin of vote: 51% of tokens voted

— Maximum “Basic Proposal” size: 1,000 USD

— Maximum 12 months volume of proposals for one “service operator”: 1,000,000

— Default quorum for non-quantifiable proposals: 25%

— Quorum coefficient: *** %/USD

— Currencies of allowed external (non-ETH) storage: BTC

— Minimum guaranteed “manager” term: 365 days