Introduction to the DAO

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The Bisq exchange network is organized as a decentralized autonomous organization (DAO). The Bisq DAO's purpose is to make the Bisq's governance model as decentralized and censorship-resistant as the Bisq network itself.

The Bisq founders realized that decentralized software—no matter how technically robust—is no good if it’s still controlled by a single entity. All the software’s technical strength would be worthless if the whole project could be ruined by attacking the single entity that runs it.

Thus the need for decentralizing the resources in charge of running Bisq itself. These resources cannot be organized in the form of a company, a nonprofit, or any other traditional organization because a single entity would be a single point of failure. But what to do? How can a project do anything useful without becoming an organization with some kind of structure? How can strategy be determined? How can resources be allocated? How can work get done? How can revenue be earned, and how can it be distributed?

The Bisq project needed infrastructure to provide these functions, and the Bisq DAO is its solution.

You can see a video version of this introductory article in this YouTube playlist.

What is a DAO?

Conventional entities such as for-profit and non-profit corporations must be sanctioned by the state: they are legal entities registered in particular jurisdictions. No matter how big or small or virtuous or innovative they are, they cannot operate without state approval. In return for this approval, the entity is endowed with rights (e.g., limited liability) and responsibilities (e.g., taxes).

A decentralized autonomous organization (DAO) is just a generic term for a governance model sanctioned by software: code defines conventions for governing the project irrespective of the stance of the state.

Note
We say a DAO’s governance model must be sanctioned by software, not necessarily controlled by software. The Bisq DAO, for example, is not controlled by software: software merely provides a framework for the people involved with the Bisq project to (collectively) manage the software itself. The Bisq DAO operates on the idea that code is not law. Code is written by humans to provide a service to other humans, so it should be accountable to humans too.

The universe of DAOs is diverse. Just as companies come in many shapes and sizes, and some companies are scammy, fraudulent, or just poorly managed—that’s no reason to assume all companies are the same way. It’s the same with DAOs: some DAOs haven’t worked out so well, but others might turn out differently.

The Bisq DAO

The Bisq DAO forgoes a system where governance is dictated by the rigid rules of software in favor of a self-contained economy where governance is guided by software but ultimately determined by the collective, subjective judgments of its community.

It achieves this by introducing a unit of value called the BSQ token that enables Bisq stakeholders—contributors, traders, or anyone who owns BSQ—to make subjective value judgments. This token underlies all actions in the DAO.

BSQ Token

A BSQ token is a colored coin on the Bitcoin blockchain. More plainly, a BSQ token is merely a few satoshis with some additional properties that identify it as BSQ in Bisq software. Outside Bisq, a BSQ token just looks like a few satoshis. But on Bisq, the additional properties have the following results:

  1. The satoshis take on the market value of a BSQ token
  2. The owner of the satoshis is endowed with power to participate in various Bisq governance functions

See it for yourself: here’s a BSQ transaction on an ordinary block explorer, and here’s that same transaction on a BSQ block explorer.

The value of a BSQ token is determined by the market as stakeholders buy and sell tokens to perform various functions in the DAO. Because BSQ tokens are only recognized by Bisq software, BSQ trading can only happen in Bisq software.

Note
The BSQ token is not associated with any kind of initial coin offering (ICO) or capital-raising initiative. It’s merely a tool to decentralize the governance of the already-functional Bisq exchange service. As of December 2018, Bisq has facilitated over 19,000 trades without major incident since it went into production in April 2016.

You can learn more about colored coins here in this interview. Technical details of BSQ tokens are available [[1]].

Overview

Here’s a graphical overview of how the DAO works at a high level:

User-dao-diagram.png

Earn and distribute revenue

Determine strategy

Ensure honesty in high-trust roles

Learn more

For more information on how you can use the DAO, how it works, its technical foundations, etc. please see [Link to DAO page]