The LAO team is extending Moloch v2, with Raid Guild’s Minon framework, to create new structures that could open up the pathway towards unaccredited, for-profit DAOs.
The era of DAOs is just beginning. With the creation of the Moloch v2 smart contracts, we’re nearing an ERC-20-like standard for blockchain-based organizations.
One fact that’s thus far underappreciated is that these smart contracts are just the tip of the iceberg. The Moloch v2 smart contracts can be extended through Raid Guild’s framework called Minion. These extensions open up an entirely new universe of possibilities for DAOs and the range of transactions they can undertake.
On The LAO team side, we’ve been fascinated with how these extensions may change the landscape of DAOs and wanted to share some of our initial findings. In short, we believe that Minions will enable DAOs to increase in their complexity and also open up pathways to create entirely new structures that protect investors and potentially even provide a pathway to create for-profit DAOs that unaccredited investors may participate in.
Overview of Minion
By way of background, a Minion is a short extension that interacts with the Moloch v2/LAO smart contract. At its core, Minion is an escrow program that receives funding from a DAO. However, the Minion can only transfer funds to another Ethereum address after it has been authorized by DAO members via their proposal sequence — a true programmatic proxy.
Through Minion, Moloch-based DAOs will be able to seamlessly create sub-groups of DAOs, which enable DAO members to segregate and pool funds in a way that will protect investors, manage tax risk, and potentially also decrease the risk of fraud. They also open up the possibility of creating DAOs to interact with liquidity pools, but we’ll discuss that in a separate post.
Overview of The LAO’s New Minion — Baby DAO
We’ve been playing around with a Minion pattern that we’ve internally been calling “Baby DAOs.” This structure enables a group of members in a parent DAO to authorize the creation of a “Baby” for any purpose.
These babies can be thought of as “throw away” pools that can be used to raise funding or provide an investment for a specific project or initiative. For example, when DAO babies are combined with Moloch v2 functionality, you can coordinate a wider range of financial functions and explore more opportunities to cooperate without losing the security and trust assumptions of smart contracts:
- Group of DAO-members pool capital to source and approve investment opportunities (and “rage quit” if they want their capital back)
- Create a “baby,” which members of the DAO that want to participate in an investment have to voluntarily fund and join (and possibly even rage quit prior to an investment if they somehow change their mind).
- All without the need for members to charge fees to facilitate investment.
The result is fairly profound. DAOs and DAO babies could enable the Ethereum ecosystem to efficiently rely on the collective wisdom of the crowd in order to identify potential investment opportunities, but each member will have to voluntarily approve and pledge their capital in order to participate in the investment.
Under such an approach, the risk of individual fraud is presumably decreased for two reasons. First, since the main DAO has to authorize the creation of a Baby DAO, the main DAO members act as a natural filtering mechanism, enabling a group to better identify and flag potential investment opportunities that are fraudulent and specious in nature. Second, since entering into an investment requires an affirmative act on the part of the member — and since the member retains the right to walk away with their pledged capital at multiple points during the process — no member has control over another members’ funds. The DAO itself becomes effectively non-custodial in nature.
Due to these characteristics, a DAO-plus-Baby architecture, such as that outlined above, opens up the possibility of creating DAOs where unaccredited and accredited investors could work together, potentially decreasing — if not dramatically decreasing — the risk of fraud that underpins most of the global securities law regulations.
DAOs are the most transparent and participatory organizations and we have seen to date. Through the above architecture, the risk of asymmetric information should theoretically decrease in much the same way that we’re seen on the internet and other open-source projects. Open source projects have tended to verify “Linus’s law” (i.e., “given enough eyeballs, all bugs are shallow”). We think the same approach could apply for investments. If a DAOs has enough members, then the risk of member’s identifying or authorizing the investment into a project that is fraudulent in nature should go down.
This structure we think is appealing from a policy perspective. A crowd of accredited and potentially even unaccredited investors could source potential projects to invest in and members could pool their capital to facilitate the investment. In this flow, there is equal access to deal flow and potentially a large pool of capital for projects to receive needed funding. At the same time, no one member has control over another member’s funds.
These possibilities are simply not possible in the legacy world.
Smart Contract Breakdown
Currently, we are working on different versions of the Minion code. The Minion can be configured to work with raw Ether, WETH/ERC-20s, or both. The goal at the end of the day will be to pare these down as much as possible. In the interest of simplicity, the Minion itself has only a few core functions: Constructor, doWithdraw, proposeAction and executeAction.
When the Minion is deployed, the “Constructor” function requires a DAO address to interact with (this DAO is the Parent, and in our case, The LAO).
The Minion/LAOproxy is funded directly with ETH or WETH by sending it to its contract address. In the case of WETH/ERC20s there is also the option to receive funding via the Moloch v2 proposal process (the “Do Withdraw” function is used to withdraw ERC-20s received via the Parent DAO).
Even though a Minion can receive its funding entirely outside of the Parent DAO, the decision to release those funds from the Minion still resides with the Parent DAO.
To release these funds anyone can execute “Propose Action” which requests the Parent DAO’s permission to release funds to a specified recipient address and amount, along with a description (when “Propose Action” is called it “Submits Proposal” to the Parent DAO).
The Members of the Parent DAO can then evaluate this request through the standard Moloch v2 “Sponsor Proposal” -> “Vote” -> “Process Proposal” sequence.
If the proposal has passed, then the Minion may finally call “Execute Action” to send the funds in the amount approved by the Parent DAO directly from the Minion to the recipient address named in “Propose Action.”
This, again, is just the beginning of a slew of different types of future DAOs. By extending the Moloch v2 smart contracts through Minion, we now have the possibility of opening up to a range of DAOs and Baby DAOs, as well as, the transactions they can operate with. Stay tuned as we experiment with the tremendous possibilities that await!
Learn More
If you would like more information about becoming a LAO member or project, please reach out to us at hello@thelao.io. For further information, check out our docs, which cover questions about The LAO’s structure and operation, or hit us up via email or telegram.
