FOUNDATIONS OF

BLOCKCHAIN TECHNOLOGY
BCSE324L
Decentralized Organization
 Decentralized Organization
• Decentralization versus Distribution
• Centralized-distributed (Ce-Di) organizations
• Decentralized-distributed (De-Di) organizations
• Decentralized Autonomous Organizations
• Aragon
• DAOstack
• DAOhaus
• Colony
 Decentralization in Blockchain

• Blockchain decentralization refers to distributing control across a network of computers (called

nodes) that work together to maintain and validate the blockchain.

• Traditional centralized systems: where a central authority oversees transactions. Blockchain

eliminate the need for intermediaries by allowing participants to collectively manage the system.

• In a decentralized blockchain, each node holds a full copy of the blockchain and participates in
validating transactions. This process, called a consensus mechanism, ensures all nodes agree on the
validity of transactions, fostering trust and security within the network.
 Decentralization in Blockchain
Types of Decentralization in Blockchain
• Architectural Decentralization
• physical spread of nodes across multiple locations, reducing the risk of failure or attacks.
• ensures the system can continue functioning even if some nodes fail.
• Governance Decentralization
• decision-making power is shared among network participants through mechanisms like voting or
consensus protocols.
• prevents any single entity from having full control over the network’s direction.
• Data Decentralization
• Data is stored across many nodes in the network, providing redundancy.
• makes the system more secure and resistant to censorship or manipulation.
• Functional Decentralization
• Different participants perform various roles like mining, validating, executing smart contracts.
• Spreading these functions across participants ensures no single party controls all operations.
• Incentive Decentralization
• Rewards or incentives are distributed throughout the network, encouraging participants to act in
the system’s best interests.
• This alignment of incentives strengthens the network’s overall security and functionality.
 Decentralization in Blockchain
Advantages of Decentralization in Blockchain
• Security: By distributing control, decentralized networks are harder to attack or censor. The lack of a
central authority minimizes single points of failure.
• Transparency: Blockchain’s decentralized nature allows everyone in the network to view transaction
history, increasing accountability and trust.
• Trustlessness: Decentralized systems remove the need to trust central authorities. The consensus
mechanism ensures accuracy without reliance on a single entity.
• Ownership: Individuals can directly control their assets and data without relying on intermediaries.
Disadvantages of Decentralization in Blockchain
• Scalability: slower transaction processing as more nodes are involved in validating transactions.
• Governance: decision-making can be slow, leading to potential conflicts when participants disagree.
• Security Risks: While decentralization reduces central points of failure, distributed networks can still
be vulnerable to attacks like a 51% attack.
• User Experience: Managing private keys & security responsibilities are difficult for non-technical users.
• Regulatory Challenges: complicate enforcement of regulations due to the absence of a central authority.
• Energy Consumption: Some consensus mechanisms, like Proof of Work, require high energy
consumption, raising concerns about sustainability.
 Decentralization in Blockchain
Blockchain decentralization is achieved through:
Distributed Ledger
• The blockchain’s ledger, which contains a record of all transactions, is replicated and stored across
multiple nodes in the network.
• Each participating node maintains a complete copy of the blockchain, creating a distributed ledger
that is synchronized through consensus mechanisms.
Consensus Mechanisms
• utilize consensus mechanisms to agree on the validity and order of transactions
• Proof of Work (PoW) or Proof of Stake (PoS), involve a majority of network participants coming to a
consensus on the state of the blockchain
• This consensus ensures that all nodes have an equal say in validating transactions, avoiding the need
for a central authority.
Peer-to-Peer Network
• operate on a peer-to-peer (P2P) network architecture, where participants connect directly with each
other without the need for intermediaries.
• Each node communicates with other nodes to propagate transactions and blocks, maintaining the
integrity and consistency of the blockchain.
 Decentralization in Blockchain
Decentralized Governance
• Some blockchain networks employ decentralized governance models, where decisions regarding
protocol upgrades, changes, and improvements are made through a consensus-driven process.
• allows stakeholders in the network to have a say in the governance of the blockchain, reducing the
centralization of power.
Cryptographic Security
• The use of cryptographic algorithms ensures the integrity and security of data stored on the
blockchain.
• Once a block is added to the chain, it becomes extremely difficult to alter past transactions without
consensus from the majority of participants.
• This immutability protects the integrity of the blockchain and prevents tampering or manipulation.

• By combining these elements, blockchain decentralization and a trustless system is being achieved,
where no single entity or authority has control over the network. Instead, power is distributed
among participants who collectively maintain and secure the blockchain.
 Decentralization versus Distribution
Blockchain networks exhibit both distribution and decentralization, but they are not the same thing.

What is Decentralization in Blockchain?

• A blockchain is decentralized when control and decision-making are not in the hands of a single
entity. Instead, power is spread across multiple independent participants.
• Key Features of Decentralization in Blockchain
• No Single Authority: No one entity controls the blockchain.
• Consensus-Based Decision Making: Transactions are validated using protocols like Proof-of-
Work (PoW) or Proof-of-Stake (PoS).
• More Security & Trust: No reliance on a central authority to verify transactions.
• Censorship-Resistant: No entity can block transactions or manipulate data.

Example of a Decentralized Blockchain

• Bitcoin (BTC) and Ethereum (ETH)
• Thousands of nodes validate transactions.
• No central entity has control.
• Anyone can participate in mining or validation.
 Decentralization versus Distribution
What is Distribution in Blockchain?
• A blockchain is distributed when its ledger (database of transactions) is spread across multiple
computers (nodes) worldwide.
• This ensures redundancy and fault tolerance but does not necessarily mean that power is
decentralized.
• Key Features of Distribution in Blockchain
• Multiple Nodes: The blockchain ledger exists on many computers.
• Fault Tolerance: If some nodes fail, the network continues to function.
• Geographical Spread: Nodes are spread across different locations to increase security.
• Not Always Decentralized: A network can be distributed but still controlled by a central
authority (e.g., private blockchains).
• Example of a Distributed but NOT Decentralized Blockchain
• Hyperledger Fabric (IBM Blockchain)
• The ledger is distributed across multiple nodes.
• However, a central authority (enterprise) controls who can participate.
 Decentralization versus Distribution
Key Differences: Decentralization vs. Distribution in Blockchain

Can a Blockchain Be Both Distributed and Decentralized?

• Yes! The best blockchains are both distributed and decentralized:
• Bitcoin: Thousands of independent nodes (distributed) with no central control (decentralized).
• Ethereum: Thousands of validators (distributed) working independently (decentralized).
• However, some blockchains are distributed but NOT decentralized:
• Ripple (XRP): The ledger is distributed across multiple nodes, but Ripple Labs controls the
majority of validators.
• Bitcoin and Ethereum are both decentralized and distributed, while private blockchains like
Hyperledger are only distributed but centralized.
 Centralized-Distributed (Ce-Di) organizations

• Centralized-distributed organizations blend elements of both centralized and distributed structures.

• In these organizations, decision-making and control are primarily centralized, but operational
execution or other functions are distributed across various nodes, teams, or locations.

• This model strikes a balance between having a central authority or leadership with the benefits of
distributed execution and autonomy in different parts of the organization.
Feature Centralized (Bank) Distributed (Bitcoin) Ce-Di (Hyperledger Fabric)
Consortium governs rules,
One bank manages entire No central authority,
Control but peers hold their own
ledger everyone has full copy
ledgers
Alice signs TX → Broadcast Client → Endorsing Peers
Client → Central Server →
Transaction Flow to P2P → Miners validate → Collect endorsements
DB update → Notify
→ Block added → Orderer → Peers
Not needed (central PoW or similar mechanism Endorsement policy +
Consensus
authority validates) among miners Orderer service
Immediate inside bank Probabilistic (after 6 Deterministic, near-instant
Finality
system confirmations) once block committed
Medium resilience: peers
Highly resilient, many
Fault Model Single point of failure redundant but orderer is
nodes
key component
Speed Fast (ms to sec) Slow (minutes) Moderate (seconds)
Energy Cost Low Very high (PoW) Low
 Centralized-Distributed (Ce-Di) organizations
Key Features of Ce-Di Organizations:
1. Centralized Leadership and Decision-Making
• Core strategic decisions, leadership, and high-level governance are typically handled by a central
authority or executive team.
• This ensures consistency in vision, strategy, and major organizational goals.

2. Distributed Execution and Operations

• While decisions come from a central authority, day-to-day operations, project execution, and
specific functions (like sales, R&D, or customer support) are distributed across teams or
geographical locations.
• This is especially common in multinational corporations, franchises, or large-scale companies.
 Centralized-Distributed (Ce-Di) organizations
3. Coordination and Oversight
• The central authority maintains oversight through reporting structures, regular communication,
or performance management tools.
• Distributed teams or branches are held accountable to central leadership but are given some
degree of operational freedom.

4. Flexibility with Accountability

• Ce-Di organizations aim to provide local teams with enough autonomy to respond quickly to
challenges, while ensuring they remain aligned with the overall goals and policies set by the
central leadership.

5. Scalability with Control

• The structure enables scalability by distributing workloads, operations, or customer interaction
across regions, while maintaining overall control over the direction of the organization.
 Centralized-Distributed (Ce-Di) organizations
Examples of Ce-Di Organizations:
• Franchise Models
• In franchise businesses (e.g., McDonald’s), the central company sets guidelines, branding, and
strategy, but franchisees operate independently to run day-to-day activities based on the
localized needs of the market.
• Multinational Corporations
• Companies like Google or Amazon maintain a centralized leadership for strategic decision-
making, but have distributed teams or branches operating worldwide, handling local operations
and market-specific strategies.
• Centralized IT Infrastructure with Distributed Teams
• In companies with centralized IT governance (cloud computing, data storage) but distributed
teams, central IT maintains control over systems and security, while individual teams manage
their local systems or projects.
 Centralized-Distributed (Ce-Di) organizations
Benefits of Ce-Di Organizations:
• Strategic Alignment
• A centralized decision-making authority ensures that all parts of the organization are working
toward the same overarching goals.
• Operational Flexibility
• Distributed teams have the flexibility to adapt to local market conditions, regulatory
environments, or customer needs, providing a degree of agility.
• Efficiency
• Centralized leadership can make high-level decisions quickly, while distributed execution
allows for efficient scaling and localized problem-solving.
• Risk Management
• Centralization helps mitigate risks by maintaining control over critical areas (e.g., cybersecurity,
financial decisions), while distribution allows for resilience through redundancy in operations.
 Centralized-Distributed (Ce-Di) organizations
Challenges of Ce-Di Organizations:
• Communication Gaps: Ensuring smooth communication between central leadership and distributed
teams can be challenging, leading to potential misunderstandings or delays.
• Maintaining Control: While operations are distributed, central leadership needs to ensure that all
distributed entities remain aligned with corporate policies and goals, which can be difficult to enforce.
• Cultural Differences: In multinational or geographically distributed organizations, local teams may
have different cultural approaches to work, which can create friction with centralized management.
• Resistance to Local Innovation: Centralized control may limit the ability of distributed teams to
innovate or react to local conditions, as they may be constrained by overarching policies or strategies.

Ce-Di organizations offer the stability of centralization with the operational

flexibility of distribution, making them well-suited for large-scale enterprises,
especially those with global operations or complex functional structures.
 Decentralized-Distributed (De-Di) organizations
• Decentralized-distributed (De-Di) organizations are characterized by their lack of a central authority or
hierarchical structure, and the distribution of decision-making power across various nodes or participants.
• This model is often associated with blockchain technologies, peer-to-peer networks, and other
decentralized systems, where autonomy, collaboration, and transparency are emphasized.

Key features of De-Di organizations include:

• Decentralized Governance: Instead of relying on a single authority, decision-making is distributed across
multiple actors. This is often achieved through consensus mechanisms, voting systems, or smart contracts.
• Autonomy: Each node or participant operates autonomously, contributing to the overall function of the
organization without needing constant oversight or approval from a central authority.
• Transparency: Decisions, transactions, and operations are often visible to all participants, fostering trust
and accountability.
• Scalability: These organizations are often highly scalable because they don’t rely on a single point of
control. The distributed nature allows them to grow organically, with each new participant contributing to
the network.
• Resilience: The distributed nature of these systems makes them more resistant to attacks, failures, or
manipulation, as there is no single point of failure.
 Decentralized-Distributed (De-Di) organizations
Examples of De-Di organizations:
• DAOs (Decentralized Autonomous Organizations): Organizations that are governed by smart
contracts on a blockchain.
• Peer-to-Peer Networks: Systems like BitTorrent, where data is shared and distributed among peers
without a central server.
• Cryptocurrencies: Decentralized currencies like Bitcoin and Ethereum operate without a central
authority and distribute ledger management across participants.

Benefits of De-Di Organizations:

• Increased Security: By spreading decision-making and data storage, De-Di models reduce the risks
associated with centralized data breaches or attacks.
• Improved Efficiency: Automation, especially through smart contracts, can reduce the need for
intermediaries, speeding up processes.
• Empowerment of Participants: Participants have more control and ownership over decisions and
resources.
 Decentralized-Distributed (De-Di) organizations
Challenges:
• Coordination: Without a central authority, achieving consensus can be complex and time-consuming.
• Regulatory Issues: Governments and regulatory bodies often struggle with how to regulate
decentralized organizations.
• Complexity of Governance: Developing efficient and fair governance models that ensure
accountability and prevent abuse of power remains a challenge.

Decentralized-distributed models represent a significant shift in

organizational structures, offering both new opportunities and challenges in
areas like governance, security, and efficiency.
 Decentralized Autonomous Organizations
• A Decentralized Autonomous Organization (DAO) is a way to manage and organize groups without
the need for a central leader or traditional management structure.
• DAOs became possible with the rise of blockchain technology, allowing communities to operate
independently and transparently, where decisions are made collectively by the members.
• Example
• Imagine you and your friends start a fitness club, but instead of putting one person in charge, you
all agree to vote on every decision.
• If you need to decide on purchasing new equipment, everyone votes, & the majority decides.
• This way, no single person has all the power, & everyone has an equal say.
• To make things more efficient, instead of meeting in person, you use the internet to vote, which further
decentralizes decision-making.
• This system runs automatically, based on a set of agreed-upon rules. This is essentially how a DAO
functions.
 Decentralized Autonomous Organizations
DAO vs Traditional hierarchical structure
• A DAO is a modern way to manage resources and people without relying on a central authority, like a
CEO or government.
• In traditional organizations, leaders or boards make key decisions.
• In a DAO, there is no single person in charge.
• Instead, the members decide together using computer code — like a set of rules written into a
computer program — that everyone in the organization agrees on.
• These rules are often stored on a blockchain, a digital ledger that tracks everything transparently
and securely.
 Decentralized Autonomous Organizations
How DAOs Work
• Let’s take the fitness club example. Say your club needs to buy a new treadmill, and you must decide
how to allocate the funds. Normally, a treasurer would handle the money and make purchases.
• But in a DAO, this process is automated using smart contracts, which are self-executing contracts with
terms directly written into the code.
• Proposal: One of the members submits an online proposal to buy a new treadmill, and all
members can view it.
• Voting: Members then vote on the proposal. Voting power may be influenced by the level of
involvement or contribution to the club. The DAO’s system automates the voting process.
• Execution: If the majority agrees, the smart contract automatically releases the funds and makes
the purchase. No one needs to handle the money—the code does it all.
 Decentralized Autonomous Organizations
DAO vs. Traditional Organizations
• DAOs rely on a collective decision-making process powered by smart contracts on a blockchain.
• Traditional organizations use a hierarchical structure where decisions are made by leaders or
managers at the top.
 Decentralized Autonomous Organizations
Benefits of DAOs
• The main goal of a DAO is to create a system where decisions are made fairly and transparently, with
no single person or group having control over the rest.
• In a DAO, everyone has the opportunity to propose ideas and vote on important matters, ensuring the
group’s direction reflects the collective will of its members.
• Key benefits of DAOs include:
• Inclusivity: Every member has an equal opportunity to contribute and influence decisions.
• Decentralized control: Decisions are made collectively with DAOs, reflecting the will of all
members of the entire community.
• Transparency: All decisions and transactions are recorded on a blockchain, making everything
open to review and reducing corruption.
• Efficiency: DAOs operate through smart contracts, which streamline processes by removing the
need for traditional administration.
• Global participation: DAOs allow participation from people worldwide, enabling diverse
perspectives.
 Decentralized Autonomous Organizations
Types of DAOs
• DAOs come in various forms, each designed to address specific needs.
• Like managing investment, governance, services and much more, may have distinct committees for
different responsibilities.
• Investment DAOs: Members pool money and vote on investment opportunities, such as buying
trendy exercise equipment for your fitness club.
• Social DAOs: These focus on building a community or supporting a cause, with members
collaborating on shared goals.
• Service DAOs: Members provide services (e.g., organizing fitness events) and are rewarded for
their contributions.
• Governance DAOs: These allow members to vote on decisions about how the organization is
run, such as choosing new fitness classes or setting rules.
• Protocol DAOs: These are responsible for maintaining and updating technical protocols, such as
managing the rules for a fitness app.
 Aragon – DAO as a Service
• Aragon is software that allows you to create decentralized autonomous
organizations (DAOs) on the Ethereum blockchain and its Rinkeby test
network.
• Aragon software can be used to create DAO’s for clubs, companies, non-
profits, and other organizations that collaboratively manage finances and
decision-making through its decentralized process.
• As of 2024, Aragon DAO has around 6,000 decentralized autonomous
organizations (DAOs). These DAOs span various industries, including
decentralized finance (DeFi), non-profit organizations, research groups,
and decentralized marketplaces.
 Aragon – DAO as a Service
• The totality of the Aragon offering includes
• Aragon client, a tool for creating and participating in DAOs
• Aragon Network, a wider DAO that is made up of a network of DAOs
• Aragon Association, a non-profit organization that distributes the proceeds of
the Aragon token sale.
• Each Aragon organization is managed by a smart contract system called
aragonOS, which defines the stakeholders of the organization and their rights.
Organizations can also install apps that allow them to integrate functions such
as fundraising, voting, and payments.
 Step-by-Step Process
Step 1: Open the Aragon App & Connect Wallet

• Action: Go to Aragon App → Click Connect Wallet → Select MetaMask.

• Example: MetaMask wallet with some ETH (for gas fees) on Polygon network.

• Why? Aragon needs a blockchain account to deploy smart contracts for your DAO.
Step 2: Select a Network

• Action: Choose Polygon (Polygon because the gas cost is $0.01 instead of $5–10
on Ethereum)

• Why? The DAO smart contracts live on this blockchain.

Step 3: Describe Your DAO

• Action: Enter DAO Name and Description.

Name: GreenFund DAO

Description: A DAO to fund eco-friendly projects.

• Why? This will appear on your DAO dashboard and proposals.

Step 4: Pick a Membership Template
• Action: Aragon offers two main templates:

1. Token Voting DAO → For communities (members get governance tokens like ERC-20).

2. Multisig DAO → For small teams (few signers approve transactions).

Example: Choose Token Voting DAO because 100 people have to vote using tokens.

Result: Aragon installs the Token Voting plugin and creates an ERC-20 token (e.g., GFD
token).

• Distribution: 1000 GFD tokens and distribute 10 tokens to each member.

Step 5: Set Proposal Permissions
• Action: Decide who can create proposals.

• Example: Any token holder can propose, but they need at least 5 tokens to prevent
spam.

• Why? Stops people with 1 token from spamming.

Step 6: Set Governance Parameters
• Action: Configure:
1. Support threshold: Minimum % of YES votes for a proposal to pass.

2. Minimum participation (Quorum): % of tokens that must vote.

3. Voting duration: How long voting stays open.

• Example:

1. Support threshold: 60%

2. Minimum participation: 30%
3. Voting duration: 3 days

Allow early execution if quorum reached early.

Step 7: Review & Deploy
• Action: The app summarizes:
Name: GreenFund DAO

Token: GFD

Governance: 60% threshold, 30% quorum

Voting duration: 3 days

• Click Deploy DAO → Confirm in MetaMask (pay gas).

• What Happens in Background?

Aragon deploys core DAO contract, Token Voting plugin, and Vault smart contracts on
Polygon. DAO now lives on the blockchain.
Step 8: Launch Dashboard & Create First Proposal

• Action: Go to DAO dashboard → Click New Proposal.

• Example:

Proposal Title: “Fund Solar Project”

Action: Send 100 MATIC to address 0xABC... if approved.

• Voting: Members vote YES or NO.

• Result: If passed, the DAO executes the transaction on-chain.

 Decentralized Autonomous Organizations
Challenges and Limitations of DAOs
• While DAOs offer many advantages, they also face several challenges:
• Scalability: As more members join, decision-making can become slower and more complicated.
• Complexity: Setting up and running a DAO requires technical expertise.
• Security risks: DAOs are vulnerable to hacking and coding errors.
• Participation fatigue: Frequent voting can lead to decreased member engagement over time.
• Legal issues: DAOs face uncertainty in terms of legal recognition and regulatory compliance.
• Immaturity: DAOs are still new, with limited real-world experience to guide best practices.

The Future of DAOs

• Although DAOs are still in their early stages, they have the potential to revolutionize how we think
about governance, organizations, and decision-making.
• By eliminating the need for central authorities and ensuring transparency, DAOs may provide a more
democratic and efficient way to manage everything from small clubs to large global projects.
• However, as with any new technology, there are risks and challenges, but continued development
could lead to creative solutions and wider adoption.
Create the Club (the DAO)

• A DAO is needed decentralized trust. If one person controls the money, they can
cheat or disappear.

• DAO provides smart contracts so that rules are enforced automatically on the
blockchain.

Purpose:

• Remove single point of trust → all decisions and funds are managed by code.

• Transparency → anyone can verify actions.

Without this step:

• Someone has to hold the wallet → risk of fraud, mistakes, lack of trust.
Step 2: Who can decide? (Reputation system)

• Not everyone should have equal power if they didn’t contribute.

• Reputation (REP) = voting power that cannot be sold.

• If REP were transferable like tokens, rich outsiders could buy votes
and take over the DAO.

Purpose:

Align voting power with contribution (money, work, ideas).

Without this step:

People with no effort could block important proposals.

External actors could bribe members to control the DAO.

Step 3: The Proposal
• In decentralized governance, any change must be proposed and voted on, so the
system knows the intent before execution.

• On-chain proposals are like “tasks” that wait for approval.

Purpose:

• Record decision-making transparently.

• Let members evaluate and vote.

Without this step:

• Anyone could directly spend DAO funds without permission.

• No accountability for actions.
Step 4: How does the group decide?
• Default rule: Absolute Majority (>50% of total REP) = ensures only proposals with wide
support pass.
• This is the safest way for important decisions because it needs a strong consensus.

Purpose:

• Prevent small groups from hijacking the DAO.

Problem:

• In large DAOs, voter participation is low. Getting >50% REP is hard → decision-making
stalls.

Without a fix:
• DAO becomes slow and inefficient. Proposals expire without enough votes.
Step 5: Boosting (Holographic Consensus)
• Instead of forcing 50% REP for everything, allow active participants to highlight
important proposals by staking GEN.

Staking creates an economic game:

• If you boost good proposals, you earn rewards.

• If you boost bad ones, you lose tokens.

Purpose:
• Prioritize important proposals in large DAOs.
• Give incentives to pay attention.

Without this step:

• Only a few proposals pass, or DAOs become inactive because quorum is hard.
Step 6: Voting after Boost
• Boosted proposals switch to Relative Majority (YES > NO), so fewer voters can
pass it if they are active and committed.
• Still fair because anyone can vote NO and counter.
Purpose:

• Speed up governance for large groups without losing fairness.

Without this step:

• Even boosted proposals would require >50% REP, which defeats the point.
Step 7: Execution
• The DAO’s smart contract executes the action automatically (send ₹500 to Dave).

• No human admin can stop it once it passes.

Purpose:

• Full automation = trustless governance.

Without this step:

• Someone would still need to manually pay Dave → risk of delay or fraud.
 Example

Basic Setup
• 4 members: A, B, C, D
• Each has 10 REP → Total REP = 40

• To approve a normal proposal (not boosted):

• Need >50% of total REP = >20 REP saying YES

Case 1: Normal Voting (NO Boosting)
Proposal created by A.

Votes:

• A (creator) → YES (10 REP)

• B → YES (10 REP) Then

• YES = 10 + 10 = 20 REP
• C → NO (10 REP) • NO = 10 REP
• Total voted = 30 REP,
• D → Not voted (10 REP idle) • but threshold >20 REP
Result:
20 is NOT greater than 20, so FAIL.
Case 2: If Boosting Happens (with GEN)
Votes:

A → YES (10 REP)

B → YES (10 REP)

C → NO (10 REP) Then

D → Not voted YES = 20

NO = 10

Boosted rule: YES > NO → Passes

 DAOstack
• DAOstack is a framework for DAOs, focused on scalability and interoperability. It uses
modular smart contracts for governance.

Key Components:
• Arc – A library of smart contracts for DAO creation.
• Alchemy – A user-friendly interface for managing DAOs built on DAOstack.
• GEN Token – Used for governance signaling and staking.

Features:
• Holographic Consensus – Combines prediction markets with governance for efficient
decision-making.
• Extensibility – Developers can build custom governance schemes.
• Interoperable – Multiple DAOs can interconnect.

Real Example: Genesis DAO (first DAOstack DAO) funded dApps using this mechanism.
Step 1: Create the Club (the DAO)
• People want a shared treasury for project development.
• Instead of trusting one person, lock money into a DAO smart contract (Moloch
framework).

Purpose:

• Shared ownership → no single wallet owner.

• On-chain rules → no one can steal or misuse funds.

Without this step:

One person would hold the project money, creating risk of fraud or arguments.
Step 2: Who can decide? (Shares)
• In DAOhaus, voting power comes from Shares.

• deposit money → get shares.

• Shares = voting power + claim on treasury.

Purpose:

• Align decision-making with contribution (more shares = more say).

• Simple, easy to track → no complex reputation or GEN token system.

Without this step:

Everyone would have equal power, even if they contributed nothing.
Step 3: The Proposal
• Any member can submit a proposal: “Send money from DAO to fund the project.”

Purpose:

• Record intent transparently.

• Others can review before funds move.

Without this step:

Anyone could directly withdraw DAO funds → no accountability.

Step 4: How does the group decide? (Voting with Shares)
• Each member votes YES/NO.

• Simple majority of shares decides the outcome.

• Example: Out of 40 shares, if 25 YES vs 15 NO → Proposal passes.

Purpose:

• Transparent, easy-to-understand governance.

• Small groups can make quick decisions.

Without this step:

Decisions would be arbitrary. No fairness in treasury use.

Step 5: Rage Quit Option
• If a node/person disagree strongly with a decision, that node/person can exit
(rage quit).

• Node burn their shares.

• Node withdraw their share of the DAO’s treasury.

Purpose:

• Protect minority members.

• If the DAO takes a bad decision, node can safely leave with your money.

Without this step:

Unhappy members are trapped → could lead to fights, forks, or sabotage.
Step 6: Execution
• When a proposal passes, the smart contract automatically executes (sends
funds to proposer).

Purpose:

• No human admin.

• Automation ensures trustless, fast action.

Without this step:

Still need someone to manually pay → risk of fraud/delay.

 Example

Setup
• Members & shares: A=10, B=10, C=10, D=10 → Total shares = 40
• Treasury:₹1,00000
• Rule to pass:YES shares > NO shares at the end of the voting period (idle not
count)

• Timeline params (example):

• Voting period: 3 days
• Grace period: 2 days (time for unhappy/idle members to rage-quit)

• Rage-quit rule: Members who voted NO or didn’t vote can withdraw their pro-rata
share of the treasury during grace period.
• YES voters must wait until the proposal is processed.
• If node hold 10 of 40 shares, node can withdraw 10/40 = 25% currently in the
treasury.
Scenario A — “Pay money to D for project
development” (clear pass with decent turnout)
Step 1 Proposal: D (or anyone) submits proposal: “Pay money
to D for project development”

Step 2 Voting (3 days):

Step 3 Grace period (2 days):
• A votes YES (10)
• Only NO and idle voters can rage-quit now.
• B votes YES (10)
• C (NO) can rage-quit up to 10/40 = 25% of
• C votes NO (10) treasury = ₹25000

• D doesn’t vote (0) • D (idle) can rage-quit up to ₹25000

At end of voting:
• YES = 20 • A & B (YES) cannot rage-quit yet.
• NO = 10
Passes because 20 > 10
Sub-case A1: Only C rage-quits
• C withdraws ₹25000
Final holdings
• Treasury becomes ₹1,00000 − ₹25000 =
₹75000 • A: 10 shares × ₹1,833.33 =
₹18,333.33
Step 4 Process proposal:

• DAO sends ₹20000 to D • B: 10 shares × ₹1,833.33 =

₹18,333.33
• Treasury becomes ₹75000 − ₹20000 = ₹55000
• D: 10 shares × ₹1,833.33 =
Final state (A1): ₹18,333.33+ ₹20,000 payout =
₹38,333.33
• Treasury: ₹55000
• C: Rage-quit cash = ₹25,000
• Members: A=10, B=10, D=10 shares (C left)
Sub-case A2 — D Rage-Quits in Grace Period
• D’s position: idle (0 votes).
• During Grace: D rage-quits 10/40 = 25% of treasury.

• Suppose treasury = ₹100,000 → D withdraws ₹25,000.

• Burns his 10 shares.

• Execution: Proposal runs, but D is no longer a member → he does not get the
₹20,000 payout.

• Net Result for D: walks away with ₹25,000 (his fair treasury share).

• DAO Result: Treasury left = ₹75,000 → payout of ₹20,000 to D is skipped/blocked

(depends on contract logic). Remaining = ₹75,000.
Scenario D’s Rage Quit D Stays

Withdrawal from treasury ₹25,000 none

Proposal payout none ₹20,000

Remaining shares 0 (burned) 10 (keeps)

Final value to D ₹25,000 ₹40,000

Risk avoided? Safe exit Must trust DAO execution

Sub-case A3: C and D both rage-quit
• C takes ₹25000, D takes ₹25000 → ₹50000 out
• Treasury becomes ₹1,00000 − ₹50000 = ₹50000

Process proposal:

• Pay ₹20000 to D

• Treasury becomes ₹50000

Final state (A2):

• Treasury: ₹50000

• Members: A=10, B=10 shares (C & D left)

 Scenario B : Tie (fails)
Votes:

• A YES (10)

• B NO (10)

• C idle (0)

• D idle (0)

YES=10, NO=10 → Tie = Fails

• No payment goes out, nothing changes in the treasury.

• Members could still rage-quit for other reasons, but there’s no proposal-related grace
trigger to worry about here.
 Scenario C: Very low turnout (still can pass)
Votes:
• A YES (10)
• B NO (0)
• C idle (0)
• D idle (0)
YES=10, NO=0 → Passes (because YES > NO among votes
cast)
Configure a quorum (some
Grace period:
DAOs) or rely on rage-quit to let
• B, C, D (NO/idle) may rage-quit:
dissenters leave safely.
• If all three exit, they hold 30/40 = 75% of the DAO →
withdraw ₹75000
• Treasury becomes ₹1,00000 − ₹75000 = ₹25000

Process proposal:
• Pay D ₹20000
• Treasury becomes ₹25000 − ₹20000 = ₹5000
 Scenario D: Add a new member (mint shares)
Proposal: “Mint 10 shares to X for future work.”

Before voting: Total shares = 40, Treasury = ₹1,00000

Votes:

• A YES (10)

• B YES (10)

• C NO (10)

• D idle (0)

YES=20, NO=10 → Passes

Grace period (protection against dilution):

• C (NO) and D (idle) can rage-quit before new shares are minted.

• If C rage-quits: takes ₹25000, leaves with shares burned

• If D rage-quits too: takes another ₹25000

• Treasury could drop to ₹50000 before minting happens

Process proposal:
• Mint 10 shares to X
• New total shares = (40 − any rage-quitters’ shares) + 10
• If C & D left, remaining shares were A=10, B=10 (=20).
• After mint, total shares = 20 + 10 = 30 (A=10, B=10, X=10)
 Colony

Step 1: Create the Pizza Club (the DAO)

• A Colony is like a company on-chain. C
• Create a “Pizza Club Colony” that has its own treasury, rules, and domains.
• Purpose:

Same as DAOstack — remove single point of trust. Treasury is managed by smart

contracts.

• Without this step:

Someone holds the club’s funds → risk of misuse or vanishing.

Step 2: Who can decide? (Reputation, not tokens)
• Colony uses Reputation (REP), earned by doing work or contributing funds.
• REP = voting power.

• Purpose:
Example:
Align power with contribution.
• Alice bought ingredients → gets 20 REP.
Without this step:
• Bob baked the pizza → gets 30 REP.
Rich outsiders could just buy control.
• Charlie cleaned up → gets 10 REP.

• Dave just eats → 0 REP.

Total REP = 60.

Step 3: The Pizza Proposal
• Any member can propose a task or funding action.
Example: Bob proposes “Reimburse ₹500 to Alice for buying cheese and
tomatoes.”

• Purpose:

Record intentions transparently.

• Without this step:

Anyone could just grab treasury money.

Step 4: Reputation-weighted Decision
• In Colony, proposals pass if no one objects within the challenge period.

• If no one disputes → lazy consensus = proposal goes through automatically.

• If disputed → goes to a vote weighted by REP.

• Purpose:

Saves time, not every small thing needs everyone’s vote.

• Without this step:

Every ₹100 expense would require full DAO-wide voting → very slow.
Example:

• Bob proposes reimbursement.

• If no one challenges → auto-approved.

• If Charlie challenges (“too much money for cheese!”) → REP-weighted vote:

• Alice (20 REP) + Bob (30 REP) = 50 YES

• Charlie (10 REP) = 10 NO

Proposal passes (50 > 10).

Step 5: Domains & Skills (Work
Hierarchy)
• Colony allows dividing work into domains (like
Marketing, Kitchen, Cleaning).
• Reputation is tracked separately per domain. Example:

• Alice has REP in Kitchen, not Cleaning.

• Purpose:
• If proposal is “Buy mop for ₹200,”
Only relevant contributors get influence in their Alice’s Kitchen REP doesn’t count.
domain.
• Only Charlie’s Cleaning REP (10) would
Without this step: matter.

A Cleaning REP holder could dominate Kitchen

budget decisions.
Step 6: Funding Flows (Budget
Control)
• Money sits in a global pot. Each domain gets a
budget allocation.
Example:
Purpose:
• Treasury = ₹10,000.
Structured treasury → avoids chaos.
• Kitchen budget = ₹7,000.
Without this step:
• Cleaning budget = ₹3,000.
Everyone fights for one pot of money.
• Reimbursement for cheese comes from
Kitchen budget only.
Step 7: Automatic Execution
• Once a proposal passes or auto-approves, the smart contract pays out.

Purpose:

Trustless. No admin needed to release funds.

Without this step:

A treasurer might delay or refuse to pay.

Example:

• Alice receives ₹500 from Kitchen budget automatically.

Feature Aragon DAOstack DAOhaus (Moloch-style) Colony
Token-based governance with
modular permissions & Reputation + GEN boosting Shares-based simple voting Work/task-based Reputation +
Core Governance Model
optional arbitration (Aragon (Holographic Consensus) with rage-quit lazy voting and domains
Court)
Proposals auto-pass unless
Dual-mode: Absolute majority
Flexible (majority/quorum, Simple majority of shares cast challenged (lazy consensus);
Voting Mechanism or (after boost) Relative
can customize) (abstentions ignored) REP-weighted vote if
majority
challenged
Boosting via GEN tokens to
Boosting / Staking No boosting or staking No boosting No boosting
push proposals forward
Rage-quit for exit protection;
Token incentives possible; GEN incentives for correct Reputation earned via work;
Incentive System shares = claim and voting
arbitration for disputes staking; REP for voting decays with inactivity
power

Managed via modules; can be Managed by Avatar/controller;Shared treasury; volatile due Budget divided into domains
Treasury Management
legally aligned single pool to rage-quits (hierarchical)

Moderate-to-high complexity Moderate complexity; many

High flexibility; moderate
Complexity / Ease of Use (requires understanding Simple and minimalistic moving parts (domains, REP
complexity
boosting) decay)

DAOs needing legal structure, Small grant or funding DAOs; DAOs based on work
Large, proposal-heavy DAOs
Best For complex permissions, communities needing contributions and task
with voter apathy
enterprise-ready setup simplicity and exit options management

MetaCartel, smaller grant Gnosis Guild, decentralized

Real-World Examples Decentraland, BrightID dxDAO, Genesis DAO
DAOs teams/project groups
 Acknowledgment

I sincerely thank Malathi madam for her insightful materials on

blockchain, which greatly contributed to enhancing this presentation.
References
1. Mastering Blockchain: A deep dive into distributed ledgers, consensus protocols, smart
contracts, DApps, cryptocurrencies, Ethereum, and more, 3rd Edition Paperback, 2020 by
Imran Bashir.

2. Blockchain Technology Explained: The Ultimate Beginners Guide About Blockchain Wallet,
Mining, Bitcoin, Ethereum, Litecoin, Zcash, Monero, Ripple, Dash, IOTA and Smart Contracts,
2017 by Alan T. Norman.

3. Hands-On Blockchain for Python Developers: Gain blockchain programming skills to build
decentralized applications using Python, 2019 by Arjuna Sky Kok

4. Building Blockchain Projects: Building decentralized Blockchain applications with Ethereum

and Solidity by Narayan Prusty.

5. Ethereum Projects for Beginners: Build blockchain-based cryptocurrencies, smart contracts,

and DApps by Kenny Vaneetvelde.