Can a Bot Run a Company?

The DAO is an ambitious project that's already amassed an incredible amount of funding. A lot could go wrong, but it could be revolutionary if it goes right.



Can a bot run a company? A hot new tech venture that wants to run entirely by code thinks so. It's called "The DAO"—short for Decentralized Autonomous Organization—and it aims to run as a for-profit corporate body that will obviate the need for human beings to make business decisions. That is, provided that the human beings behind The DAO can set it up right.

While this leaderless digital profit-maximization machine may sound more like a clever science fiction plot device than a serious investment vehicle, The DAO has raised over $150 million worth of funding on the Ethereum platform since it first launched a mere month ago. For context, this blew the $116 million record for cryptocurrency-business financing raised by Silicon Valley darling 21 Inc. out of the water. An eyebrow-raising start to be sure, but The DAO faces a long and bumpy road to the world of ubiquitous, autonomous digital organizations that its founders envision.

Disrupting Investing

The DAO presents itself as part venture capital fund, part crowdfunding platform, and part super-cool engine of democratic capitalism for tomorrow. It seeks to raise investment into the platform by selling digital "DAO tokens" in exchange for ether (ETH), the cryptocurrency of the distributed computing platform Ethereum on which The DAO is built. The DAO, which defines itself as "the sum of those holding the DAO's representative tokens," will then invest these funds into promising projects that will hopefully yield big returns for token holders. 

Where The DAO differs from traditional venture-capital firms is in its management structure. Like the similar BitShares project that preceded this effort, there are no executives or middle managers to call shots and guide activity. As its website proudly informs: "THE DAO IS CODE." Or maybe code plus consensus, but more on that in a moment. Purchasing a DAO token is a bit like entering into a new kind of business arrangement where you bind yourself to the financial outcomes of a crowd-influenced, pre-programmed directive. 

Integral to this are "smart contracts." First conceived by the cryptographic legal theorist Nick Szabo two decades ago, a smart contract is a computer protocol that digitally enforces terms in way that is self-executing or self-enforcing. Relying on an established court of law to adjudicate contracts can be messy and costly. Digitization provides us an opportunity to secure agreements in a way that makes it expensive or even impossible to breach contractual terms—no taxing trips to the justice of the peace required! Smart contracts can largely enforce themselves.

Vending machines are a kind of proto-smart contract. You insert the right amount of money into the machine, select your choice of snack or beverage, and the machine spits out your tasty treat. You did not need to engage with a physical human to munch on those Peanut M&M's since the parameters of each transaction are prefigured into the mechanics of the machine: It can tell how many of each kind of snack can be sold, and at what price. It's a cheap and low-risk way to do business.

Smart contracts work similarly, but instead of physical currency and mechanical verification, cryptocurrency and digital consensus combine to execute conditional agreements. Parties can create a digital contract that is coded to perform certain functions in response to specific inputs. Futures contracts can self-execute when a market feed shows that a price moves in a particular way. Rental cars can unlock themselves for use upon receiving the right cryptocurrency payment. And, in the ambitious case of The DAO, investment firms can theoretically automate core business operations.

The Humans Behind the Bots

So, if The DAO is "run by robots," how do decisions get made? By humans, actually. Humans decide what terms to select, and the code executes. Here's how it is supposed to work

There are three kinds of parties in The DAO: contractors, curators and token-holders. Contractors are teams who propose projects to be funded by The DAO. These are the "investees" that will actually build the goods or services that receive funding. Not just anyone can be a contractor. They must first be pre-approved by one of a handful of "curators" that largely consist of the Ethereum development and support team

Then there's the token-holders: regular old Joes who pick which pre-approved projects to fund. They vote with their DAO tokens—the more DAO you have, the more your vote counts. If a contractor's proposal receives majority approval with a participation rate of at least 20 percent of token-holders, The DAO will automatically execute that investment and distribute profits as programmed. At least, this is the plan. is one of the first technology projects to put The DAO's plans into practice. The company hopes to build a peer-to-peer smart contract infrastructure for physical properties—kind of like a "Smart Contracted Internet of Things." It also developed much of the infrastructure at the core The DAO.

The team put forth their investment proposal to The DAO community to be vetted and voted. The DAO community liked it. The proposal reached the minimum approval threshold and was greenlighted for sale on The DAO. If all goes well, will be able to build a profitable product with the money raised through The DAO, and DAO token holders will enjoy revenue streams from the product for years to come. DAO tokens appreciate, ETH appreciates, and more innovations are introduced to the world.

The folks at are so serious about distributed technologies that they are willing to fund their venture through a heretofore unproven, autonomous, decentralized corporation that will retain rights in their product. This requires considerable trust in the platform. As CTO Cristoph Jentzsch and DAO White Paper author told CoinDesk, "We don't actually know who started [The DAO]. Of course we can see the address on the blockchain but we don't know who owns the address. The only way to speak to The DAO is to make a proposal and vote." 

Digital Democratization 

There are hundreds of millions of dollars worth of ETH tied into these hopes for The DAO. But why? Established crowdfunding and venture capital organizations seem to do well enough. Sure, you need to trust that the old centralized platforms don't unduly censor projects or abscond with your money. But what of the alternative? This kind of corporate arrangement is untried and potentially quite vulnerable to unknown attack or programming errors. It is almost certainly illegal in many places throughout the world. And who in their right mind would entrust their personal capital in a loosely-defined autonomous system with no known creator?

The New York Times found one such intrepid soul to highlight in its weekend feature on the project. The "31-year-old French socialist with an appetite for risk" that invested in The DAO is excited about profit opportunities as well as the prospect of disrupting money management. And he's bullish on experimentation for experimentation's sake as well: "It's important for people to propose and try an alternative," he said.

Seth Bannon of TechCrunch gushed that with The DAO, "a new paradigm of economic cooperation is underway—a digital democratization of business." He envisions a world where not only "the privileged" but anyone with access to the internet and a working knowledge of the Ethereum platform can found and fund promising new ventures.

Noln Bauerle of Bordless Blockchain writes at CoinDesk that The DAO should be thought of as a "new Dow," but unlike the legacy stock market index, it will be owned and controlled primarily for the benefit of market participants.

And about that latent robophobia? The Ethereum website cheerily suggests that "one of the many advantages of having a robot run your organization is that it is immune to any outside influence." Of course, this can sometimes be a disadvantage as well.


Not everyone is wowed by The DAO. Even the more innovation-minded among us may understandably balk at the prospect of investing serious money in a proudly leaderless corporation operating purely via experimental code in dubious legal circumstances.

There have already been missteps: Miscommunication over the start date of the sale lead to controversy and tension, resulting in a terse reprisal from CTO Cristoph Jentzsch that "The DAO will instantiate when it damn well pleases… Welcome to true decentralization, middlemen not welcome." (The press coverage inspired even less confidence, replete with a disclaimer that the author could not guarantee whether any of the story's facts and statements were accurate or legitimate.) "Leaderlessness" may yet prove to be a bigger challenge than first anticipated.

But even if a lack of leaders proves surmountable, there remains the question of investor quality. Daniel Larimer was the founder and chief developer of BitShares, an earlier, similar project that ultimately failed. He recently wrote an intriguing blog post comparing his project to The DAO and predicting what challenges this newcomer will face. He was quite blunt: "Smart contracts cannot fix dumb people."

If you put garbage in, you'll get garbage out, no matter how fancy the distributed mechanism that processes it all. The DAO could be quite good at eliminating the core problem it set out to solve: the corrupt administrator. But it does nothing to improve the economic and political problems that plague any such venture, and in fact could actually make them worse.

The biggest uncertainty, however, is the legal status of such an undertaking. Depending on an investor's national jurisdiction, participating in this leaderless stock market could run one far afoul of established securities regulations.

For their part, The DAO's top facilitators (don't call them leaders!) believe that the platform is set up in such a way that they bear no legal responsibility for the project's outcomes. But this defense has not saved others operating cryptocurrency projects in legal grey-areas in the past. Successfully integrating into existing legal systems will require lots of patient outreach to policymakers and judges until the appropriate norms are developed. This is quite difficult, but not impossible.

In the meantime, the team is seeking to program around regulations with a project called DAO.LINK. While still in development, DAO.LINK is described as a "bridge between and brick-and-mortal companies" that will allow firms to harmonize their DAO operations with their municipalities' regulations. Leaderlessness, it seems, requires a much more complex digital infrastructure than one might anticipate. 

The DAO is an ambitious project that has already amassed an almost incredible amount of funds in short order. A lot can go wrong, but in the event that things do go right with this maiden robocorp, the implications of a world occupied by autonomous digital corporations will be interesting indeed.