Table of Content

1. Introduction

2. DAO: The Future of Organization

Legacy Organizations
The Blockchain
Agencies
DAOs
Open Organizations

3. Blockchain Governance

Example 13
Blockchain Governance structure 15
Scalability 19
DAOstack voting system

4. The DAO stack

Arc
Arc.JS
The ArcHives
Alchemy

5.The GEN Economy

Circular Token Economy
DAO Economy
The GEN Model

DAOstack

1. Introduction

Since first appearing on the planet, humankind has been constantly inventing new ways to organize and increase
the scale of cooperation with more and more effective structures, from the nuclear family and tribes to states,
corporations, and the global economy. The most advanced organization thus far, the Internet, opened the door
for real-time information exchange at a worldwide scale, but it lacks the economic means for general-purpose
coordination and global peer-production. The Blockchain made this possible by providing a reliable, open and
programmable accounting system, consequently leading to the invention of the Decentralized Autonomous
Organization (DAO).

2. DAO: The Future of Organization

The ability to well-organize and coordinate a large number of individuals is one of the greatest forces and drivers
of society, which has gone through constant evolution over thousands of years. In this chapter we describe the
challenges of the legacy organization today, and a new possible form of web organization: the DAO.

Legacy Organizations

Cooperation of agents increases their efficiency with respect to external competing market forces. This is the
basic origin of the company and the reason organizations want to grow. However, coordination of agents

entails increasing coordination cost as the organization grows, and that is why organizations cannot grow
indefinitely.

The Blockchain

Blockchain is the second internet revolution, doing for value and business what the Internet has done for
information and media. It allows unprecedented levels of crowd coordination by eliminating altogether the
issues of fault and trust, and consequently forms the technological basis for Decentralized Autonomous
Organizations (DAOs). A DAO is a new form of scalable, self-organizing cooperation, that is operated by smart
contracts on the blockchain. Many believe that DAOs hold the promise for the future of business and work,
but despite a lot of traction in the blockchain community around this subject, a successful governance system
and operational basis for DAOs is still missing.

Agencies

The building blocks of DAOs are ​smart companies,​ or ​agencies (we will use those terms interchangeably). A
smart agency is an atomic governance unit that is managed and operated with smart contracts on the
blockchain. It has its own ​token (related to benefits of the company’s resources), its own ​reputation ​systems
(related to credibility and influence in company matters), and its own governance system (its “bylaws” encoded
in smart contracts).

A​ schematic illustration of a blockchain agency.

The solid balls represent agents in the company; their distance from the center reflects their influence power, or
reputation (the closer they are the more influence they have); and their size reflects their native token possession
(the larger the ball the more of the company’s tokens they hold). One agent is proposing to allocate 5 ETH to
agent A for her valuable contribution of fixing bug XXX. The agents of the company vote, with their vote
weighted by their reputation, and as soon as a majority of reputation holders agree with the proposal the
contract automatically executes the suggested token allocation.

DAOs

Agencies operate with smart contracts on the blockchain. They follow verifiable rules that cannot be broken
and are changeable only in accordance with the rules themselves. They may or may not be autonomous
depending on their chosen governance system; for example, an agency can reserve a veto option on its own
decision making process for another agency.

Scalability

The one common factor of all legacy organizations is that they are “sub-scalable”. Which means that they
become less and less effective as they grow in the number of agents and number of decisions they need to make.
Free markets, the Internet and network-effect based applications (such as Facebook and Airbnb) are all
“super-scalable” structures — that become more effective as they grow in members and interactions. With this
terminology, the DAO is a “super-scalable organization”, that assimilates the efficiency, agility and scalability of
free markets, while maintaining the coherence of a startup and the ability to pursue scalable missions.

DAO Topology

There are various modes of decentralization, and accordingly various modes to think about DAOs with respect
to an agency. The commonly known way to think about DAOs is the large assembly mode:

The assembly mode of a DAO.

In an ​assembly ​mode of a DAO, a large number of agents are interacting in decision making within a single
agency via its smart contract, assuming that reputation, and thus decision-making power, is fairly distributed.
Despite being the simplest, this mode is inherently in tension with scalability and has a limit on its processing
capacity, while maintaining resilience. We will introduce tricks to extend the process capability of this DAO
mode as well, but by itself it cannot be the entire answer.

The second mode of decentralization is the f​ ractal federal governance​:

The fractal federal-governance mode of a DAO.

In the extreme fractal federal-governance mode of a DAO, the DAO is an agency with a a few agents, each of
which is itself an agency with a few agents, each of which is itself an agency, and so on and so forth. In reality,
the DAO would probably be somewhere in between those two modes, and well beyond, as a nested mesh
network of agencies, interwoven with other DAOs through shared agencies:

The complex mesh-network mode of a DAO.

The complex DAO mesh network will naturally arise from its building blocks (agencies) with the infrastructure
provided by the DAO stack. Power can be well distributed in a ​meritocratic way across the DAO in order to
effectively utilize its collective wisdom and benefit the organization as a whole.

Known Decentralized Structures

Decentralized structures are abundant in nature. The human body is a decentralized structure made of organs,
sub-organs and sub-sub-organs, all the way to the atomic cells, which themselves have their internal structure.
The functionality of the body is pretty decentralized and no cell instruct other cells what to do. Rather, each cell
is autonomously operating according to inputs it receives from its environment. The sense of an organism —an
autonomous and sential human being, is an emergent phenomena apparent only at the collective level.

Open Organizations

Our current economic system is based on an approximately zero-sum, or win-lose game. The force of
competition triggers evolution toward peak performance, but which is maximized with respect to local rather
than a global win. (I.e. a company optimizes with respect to its own survival, and not with respect to the benefit
of a larger whole. ) This is the problem of non-cooperative Nash equilibrium. The meaning of Nash

equilibrium is that, while another cooperative equilibrium may exist and is better for everyone, no single agent
has the incentive to change her strategy alone. It is a problem of large-scale coordination that prevents the
transition from competition to cooperation.

Intellectual Property (IP) is the traditional means to turn anti-rival resources into scarce elements, thus make
them sellable, but it has become less and less sensible, as well as practical, in today’s accelerated pace of
invention.

3. Blockchain Governance

Agency is the basic unit of governance over the blockchain. A blockchain governance system is a state-transition
function, that collects inputs from blockchain addresses and under certain rules spells out an output in terms of
the blockchain global state transition.

Blockchain governance system.

Instead of unwrapping this statement in formal language, let us explain it via an example.

Example

The simplest possible agency manages an ETH fund, and internally only has its native FND token. We will call
it Fundis. There are only three rules in the Fundis governance system:

1. The only collective decision that Fundis makes is sending ETH from its main wallet to a certain
   blockchain address (i.e. make an investment). This action is initiated by a proposal that is put up by
   some agent: say, agent X proposes to send 1000 ETH to address A. Then agents vote yes or no on that
   proposal, weighted by the number of FND that the voter has in her address:

Once a majority of FND holders approve a proposal, it is automatically executed.

1. The second rule of Fundis is that upon its establishment, FND tokens are issued and sended to buyers,
   one FND per ETH, for a period of one week.

2. The third and final rule is that at any time, any FND holder can send his FND to the main Fundis
   wallet, and get back his share of the ETH existing in that wallet at that moment, pro rata. His FND is
   destroyed.

There are a few immediate issues with this governance system, such as:

1. It might be very hard to recruita majority of FND holders to vote on one proposal. This issue is related
   to governance scalability, which we will discuss in length below.
2. It can be corrupted by a 51% attack. Say, there is $100m worth of ETH in the Fundis wallet. And, say,
   that it costs $60m to buy half of all FND tokens in the market. Then, an agent with enough liquid
   capital can purchase just above half of the FNDs in the market, and immediately thereafter make a
   proposal to send all ETH to his own address. That’s an easy $40m hit. This problem is related to
   resilience, which is the second topic we will cover below.
3. It is not clear (and probably not true) that those who hold more tokens would make the best
   investment decisions. It is not a deal-breaker, but might be leading to a pretty ineffective investment
   fund. This is in tension with meritocracy, which is another important criteria.
4. For further illustration, an additional attack is made by making the proposal to distribute all of Fundis
   ETH into addresses that will vote yes on this proposal, pro rata. Perhaps in the beginning decent agents
   will refrain from approving this cunning proposal; but once the first approvals will come, there will be
   a growing pressure for approving it (and not losing all of your money), until an avalanche effect will
   take place and the cunning proposal will be approved. This to demonstrate that resilience is a tricky
   issue.
5. Finally, even after the Fundis creators have realized that its governance system is heavily flawed, they
   cannot do much about it since Fundis governance system is not upgradable, which is another criteria
   we would like to impose.

This simple governance system highlights almost all of the issues with blockchain governance, which we will
discuss below. It also demonstrates the initial statement above: “A blockchain governance system is a
state-transition function, that collects inputs from blockchain addresses and under certain rules spells out a
global-state transition.”

Indeed, there are four types of inputs that agents can inject into the company:

1. Submitting a proposal;
2. Voting yes or no on an existing proposal;
3. Sending ETH to Fundis in order to buy FND in the first week of its establishment;
4. And sending FND to Fundis in order to claim back one’s ETH share.

There are three possible actions (resulting with a global-state transitions) Fundis can make, and three rules of its
governance system to trigger them correspondingly:

1. Issuing and sending FND to senders of ETH in the first week (1 FND per ETH);

2. Sending ETH from Fundis wallet to senders of FND, pro rata (and burning the FND);

3. Sending ETH to an address following a successful proposal (as described above).

Reputation Systems

Instead of weighing votes of agents with their native token stake, a company can have different balance sheets to
denote the influence of agents inside votes. Generally, reputation scores are non-transferable assets — an agent
cannot transfer its reputation to another agent. The simplest case is when a company has a single reputation
system — meaning, the same influence score for all types of decisions. More generally, a company can maintain
multiple reputation scores that are used for different cases. Reputation is used here interchangeably with
influence power, and can form the basis for a meritocratic governance system, where those who are most
appreciated — due to their past contributions — have the most influence. One way to allocate reputation to
agents would be via proposals. For example, one can propose to allocate 100 FNDr (Fundis reputation score
units) to agent A for her recent valuable contribution C. Reputation can also be algorithmically tied with
economic remuneration of the company to a contributor of value; as well as with one’s votes and evaluations in
relative to the collective. This topic is called reputation flow, and will be covered somewhere else.

Reputation systems alone solves most of the problems of the previous token-based governance system, but it
still remains unscalable.

Blockchain Governance structure

The governance of an agency can be divided into two types of actions, the ​do’s​ and the ​don’ts:​

1. The ​do’s are the logical and operational rules under which ​agency functionalities can be triggered.
   For example: if a majority of reputation holders in a DAO approve the issuance of new tokens, token
   issuance will be automatically triggered by the DAO’s smart contract. We call these operational logics:
   governance schemes​.

2. The ​don'ts are the restrictions and limitations that must absolutely be respected by an agency, and that
   cannot be violated even by an approved scheme. For example, if a DAO approves an upper cap of one
   million tokens, token-issuance schemes will operate only as long as the total number of tokens issued is
   less than a million. We call these limitations: ​global constraints​. Constraints can be absolute, or they
   can be designed to be upgradable under specific conditions.

We collectively denote governance schemes and global constraints by ​elements​. Given the elements of an
agency, its entire governance protocol (including the protocol to change the protocol) is unambiguously
defined.

Agency functionalities

An agency deployed on the Ethereum blockchain via the DAO stack can, in principle, do anything that can be
done on the blockchain. In particular:

● Token distribution​.

Each agency or DAO can issue and distribute its own native tokens to
contributors of value, as valued by the organization. The issuance of native tokens enables the
organization the creation of its own separate economy. The utility or benefit of the tokens can be
anything that the agency decides about, such as entitling access to the DAO’s product (we will call
these u​ tility tokens​), or entitling a share of the agency’s revenue (we will call those ​share tokens​).

● Funds allocation​.

An organization can earn, or collect via its own-token sale, external tokens such as
ETH, GEN or other DAO’s tokens. It can keep them in reserve, and distribute to third parties in
exchange of a particular effort or contribution. This is somewhat analogous to an agency using its
funds to compensate contributors, employees or other service providers.

● Reputation assignment.​

Each agency can assign ​reputation scores to its members. Reputation is a
representation of one’s professional credibility, and thus influence, within the organization. As
opposed to traditional blockchain-based tokens, reputation is not transferable. It is awarded to or
earned by specific members, according to their merits and contributions made to the organization.

● Collective data curation​.

An organization can manage its own collective databases of objects, and
maintain their curation. It can be the curation of articles, website, organizations or anything else. The
power of a shared database lies in its network effect; if everyone are looking at the same spot (because
it’s well-curated), then that spot is valuable (and monetizable too). We will see below a few examples
with the collective DAOstack registries, the ArcHives.

● External activity​.

An agency can act within another agency as asingle entity. For example,an agency
can submit a proposal inside another agency (or DAO), and vote on others’ proposals.

● Governance upgrade​.

Each organization can configure and update its own governance system. By
approving or removing certain elements, the agency defines how it functions, what it can or cannot do,
and what are the mechanisms for changing these governance schemes.

Schemes

For example, a simple rewarding scheme in a DAO can be as follows:

● An agent submits a proposal to the DAO to reward 150 tokens and 200 reputation bits to another
agent for contribution made to the DAO.
● Anyone can vote ​yes ​ or ​no​ on this proposal, to be weighted by their DAO reputation score.
● Once a majority of the DAO reputation holders vote ​yes, ​the DAO’s operating system executes the
proposal and allocates 150 tokens and 200 reps to the contributing agent. Note that this agent can also
be yet another agency.

Similarly, when looking back at the Fundis example above, it had three rules, which could be written as three
distinct schemes. Thus, the entire governance system of Fundis is describable via those three elements. We will
use this modularized formalism in the next chapter, when describing the DAO stack and in particular the ​Arc
governance framework.
A more complicated example
For the sake of illustration, a fairly more complicated reward scheme could be described as follows:

● An agent submits a proposition requesting to be rewarded for a particular contribution.
● The scheme triggers an alternative voting system, enabling anyone holding reputation in the DAO to
propose a specific number of tokens to award the agent with.
● Votes are weighted by the reputation score of each voter, and the total amount of tokens to be awarded
equals the weighted m​ edian​ of all voters.

● As soon as 20% or more of reputation holders have expressed a vote, and not more than 2% of
reputation was engaged in the vote during the last day, the DAO will allocate the amount of tokens and
a proportionate amount of reputation to the contributing agent, following the median at that moment.

More generally, the spectrum of possible scheme’s design is nearly endless. Schemes can activate different
actions (including the functionalities mentioned above), incorporate a variety of different logics, and rely on a
variety of different voting systems which might associate voting power with reputation, tokens, or a
combination of both. Another common typology of schemes is the one allowing DAOs to offer their native
tokens for sale under some conditions (the so-called token sales).

Global Constraints

Global constraints are specific conditions that can be attached to a particular agency or DAO and that will limit
its functionalities. As a general rule, for any operation to go through within a particular agency, it must comply
with the list of constraints configured by the organization. Regardless of the list of approved schemes in the
agency, none of these schemes will be able to trigger a particular functionality in the organization if doing so
would not conform with even a single one of the global constraints.

For instance, global constraints that might be adopted by DAOs and agencies include:

● An upper cap imposed on the total amount of tokens that can be issued by the organization.
● A rate of token inflation (i.e. dynamic cap) over a time period (e.g. 2% per month).
● A burn rate on the usage of the an agency’s funds.
● A maximum amount of reputation that can be issued within a particular time period.
● A list of agents that can request the issuance of more tokens or reputation (i.e. whitelisting).
● The registries from which the DAO can approve new schemes.

An organization can define certain global constraints to be permanentand others to be modifiable. In the latter
case, the organization will also define under what conditions these constraints can be updated (e.g. by a 75%
decision of token holders, or only via this or that specific scheme).

Scalability

The scalability of a decentralized governance system is in inherent tension with its resilience. Decentralization
requires the system to be open for random participants under certain rules (i.e. it uses an ​open protocol)​ . By
resilience we mean that we need enough participants to review every decision. But this is clearly in tension with
the scarce resource of participants’ attention, whether it is computing power — in the case of blockchain, or
human attention — in case of DAO governance.

Compositionality

Consider the following two cases. In the first, nine agents of a company with equal votes. In the second, three
agents of a company with equal votes, each of which is by itself a company, composed of three agents with equal
votes. A sub-company casts its votes in the mother company as soon as it develops its decision via an internal
majority.

It is easy to see that in the first case, it requires theattention and consensus of five human agents in order to cast
a decision in the mother company; whereas it is sufficient to have the consensus of four human agents in the
second scenario to form a decision in the mother company.

Monetization of Attention

Forming a decision requires the attention of voters. The more decisions are there to evaluate, the more attention
is needed. However, attention is a scarce resource. In one way or another, to form a resilient decentralized
decision-making system, attention should be monetized to reflect its inherent scarcity. In the Bitcoin blockchain
it is formed in terms of ​transaction fees​, and in the Ethereum blockchain as ​gas​. For DAO governance, attention
needs to be monetized with the token that reflects the community of agents whose attention is being called for.
point further below.

Relative Majority

Naively, a straight-forward way to form scalable decision-making process is by demanding only a relative
majority to approve a decision. By relative majority we mean that the majority of approvals is only with respect
to those who cast their vote and not all potential voters in the system.

The size of the balls reflect the voting power of agents. The empty balls are those who have not cast their vote on a
specific proposal; the darker balls voted yes, and the lighter balls voted no. Clearly, there is no absolute majority of
approvals, but there is a relative majority of approvals out of all voting agents.

Note that relative majority votes requires a finite time window for the proposal to be considered.

We describe next a resilient governance protocol, without a quorum, that is based on relative majority and
attention monetization.

Attention funnel

Another trick to improve on scalability is to programmatically focus the entire collective attention at any given
time on a few decisions, and thus enhance attention per decision and guarantee resilience. We describe it
through an example, the simplest decision-making protocol that is potentially decentralized, resilient and
partially scalable — in the number of agents the organization can have, but not in the number of decisions the
organization can make. The protocol is described with the following steps:

1. Proposals​.

Decisions are initiated by proposals; proposals are submitted by agents and are then voted
on with a y​ es​ or n​ o​.

2. Reputation​.

Agents’ votes are weighted with their reputation. We confine to a single reputation
system per company for now. Sub-companies and sub-sub-companies in a DAO will focus on specific
branches of production or decision making. In this fractal framework, the notion of a single reputation
score per company is not inconceivable.

3. Boosted proposals.

Once a proposal is ​boosted — by means defined below — it is opened for voting
for a finite time (say, 2 weeks), by the end of which a decision — yes or no — is made according to the
relative majority of voters reputation (i.e. majority out of all those who placed a vote during that time).

4. Quiet ending​.

To avoid finalization attacks, the effective decision (majority of yes or no) cannot be
changed in the ending interval (of, say, 1 day). Meaning, if on the last day of opening the majority
changed from yes to no (or vice versa), the opening interval is extended by another day. The vote is
closed only once there is no change of decision during the last day of voting.

5. Boosting stack​.

At any point in time there can only be a finite number of boosted proposals, say, 10.
All other proposals stand in a queue, and are ordered by a ranking system. Every time a proposal in the
boosting stack is finalized, the proposal with the highest rank in the queue enters the boosting stack and
is opened for finite-time voting.

6. Promotion​.

Anyone can propagate a proposal up in the queue by placing GEN tokens on stake. If the
proposal is successful the promoter gets back her tokens plus some possible profit; and otherwise they
are destroyed, going to the DAO, or distributed to voters according to the specifics of the protocol.

7. Ranking system​.

The ranking system of proposals in the queue can be a function of R+ , R− and B ,
where R+ ( R−) is the amount of reputation already voting yes (no) on this proposal and B is the total
amount of tokens staked to promote that proposal. A simple sensible choice could be, for example,
(R ) . Note that anyone can promote an existing proposal, not only the proposer. + − R−

Finally, rather than limiting the number of boosted proposals, we can have a boosting threshold for the scoring
function of proposals in queue, above of which proposals are being boosted. This alternative way solves for
scalability, but again potentially compromises resilience. An additional element is needed.

Holographic Consensus

We have discussed above a variety of solutions to resolve the scalability problem of governance systems, the ​core
tension between scalability and resilience; but at least so far did so partially. This is an issue for any consensus
system: too much of the collectiveattention spent on each decision makes the system unscalable; while too little
potentially makes it not resilient to faulty decisions, or not representative of the consensus. Naive consensus is
simply not scalable.

To fully overcome this problem a decentralized and scalable governance system has to allow for “edge decisions”
that are made by non-majority groups, as long as they are ensured to be in line with the consensus. We coin this
situation “holographic consensus”, reminiscent of a hologram in which each little piece of the three-dimensional
image contains the information of the entire picture. While we fully elaborate on this in a separate article, we
would like to draw here the basic principles behind holographic consensus.

In holographic consensus we want to eliminate possible mismatches between decisions made by small groups on
behalf of the greater majority and the decision that would have been made by the greater majority itself, if
enough attention was available. To eliminate possible mismatches, we introduce a novel prediction game, in
which anyone — not necessarily a DAO reputation holder — can place predictions, backed by stake, on the fate
of proposals. You can identify an under-appreciated proposal and place a 100 GEN stake on the prediction that
this proposal will pass once attaining the collective attention. Or vice versa, you can stake 200 GEN predicting
that a certain proposal is over-hyped and will not pass as soon as being boosted and tightly considered. Correct
predictors make profits, and incorrect ones lose their stake. By playing the prediction game predictors
contribute to the governance process by signaling to, filtering and maintaining the governance process.

4. The DAO stack

DAOstack provides the foundational tools for the creation, operation and governance of DAOs, internally and
externally within a broader ecosystem. In a nutshell, it can be regarded as an analogue of ​Wordpress for DAOs
— it does for blockchains what ​WordPress has done for the web. This vision is made possible with the following
stack of components in place:

The DAOstack ecosystem is made of a multitude of distinct but interoperable DAOs, interacting with one
another in order to maximize the potential benefit of open and distributed collaboration. At the technical level,
all DAOs are made of a series of smart contracts, deployed through ​Arc​: a Solidity framework of governance
allowing to create, configure, deploy and operate DAOs onto the Ethereum blockchain, possibly relying on

IPFS as an overlay network for data storage and retrieval.

Arc

Arc is a general governance framework for an interacting internet of blockchain agencies, the basic operating
system for DAOs. It is an open-source, modular and general-purpose framework by design, and it comes with
an open library of template governance modules, or ​elements​, that will evolve by the needs of its users. It also
allows an easy upgrade and modification of a governance system to better fit the organization’s needs over time.

Arc is not limited to a specific set of governance systems, and it makes it easy for third parties to create their own
elements per their needs. By combining available ​elements each agency can implement its own governance
system that specifies the rules for the issuance, management and assignment of scarce resources, including
transferable assets (e.g. tokens) and non-transferable assets (e.g. reputation).

Architecture

Arc elegantly implements in smart contracts the basic decomposition of governance systems discussed in the
previous chapter, with: ​actions, ​schemes and ​global constraints that every agency can be built of. Below is a visual
representation of the logic and smart contract architecture of the Arc framework:

A sketch of the Arc contract bundle per agency.

The Controller

The controller contract is the main engine of the agency. It is “owned” by and gets commands from the
subscribed schemes alone, which operate its functions. Via its functions its sends commands to the ​actors
contracts: the ​token and ​reputation ​printers, the funds ​wallet and the ​avatar, ​as well as the upgrading functions
of the governance system and the technical architecture itself.

Subscribed elements

Subscribed schemes and constraints are elements that have been registered by a previous scheme which is
allowed to register schemes. An agency usually begins its life with one such scheme, the ​Genesis Scheme​, but can
add new ones that can register or unregister certain elements under certain conditions.

Agent’s input

The only interface for agents to interact with the agency is via its subscribed schemes. Each scheme comes with
its specific “knobs” (functions) which can be operated by external agents (blockchain addresses) via transactions
that call and operate these functions.

Token printer

The token printer issues and allocates the native tokens of the agency to agents. It is “owned” by and gets
commands from the controller alone.

Reputation printer

The reputation printer assigns the agency reputation to agents. It is “owned” by and gets commands from the
controller alone.

Wallet

The ​wallet will be implemented in a next version (at the moment the ​avatar is also the wallet). It holds external
funds owned by the agency and distributes them to agents. It is “owned” by and gets commands from the
controller alone.

Avatar

The ​avatar is the “face” of the agency (and its address), which acts externally and is capable of doing — via the
help of particular schemes — anything that can be done on the blockchain. In particular, it can participate as an
agent in other agencies — e.g. submit and vote on proposals — on behalf of its agency. It is also the identity to
which reputation in other agencies is assigned.

Protocol upgrade

The controller can — when receiving commands from the ​subscribed schemes ​— register new ​schemes and
constraints​, or unregister old ones. Since the governance protocol of an agency is fully specified via its ​elements​,
every agency can easily upgrade and modify its governance system (if this ability is rooted in its existing
protocol). The conditions to perform a protocol upgrade are defined in subscribed schemes that can operate the
elements-(un)registration. The agency can have different conditions to register or unregister different elements.
(E.g. it might require a 60% majority of reputation holders to modify the schemes and most of the constraints,
but a 75% majority of token holders to increase the token supply.)

Technical upgrade

The controller has one special function that transfers its ownership over all of the ​actor contracts to a new
address. Whatever would be this new address, it will have a complete control over the assets (transferable and
non-transferable, such as reputation in other agencies) of the agency. It can be an upgrade to an improved
architecture of Arc, or to a whole new architecture, if desired so by the agency.

Example

We present below an illustration of the interaction between the above elements:

● An agent wants to activate a certain “reward scheme” of a particular DAO.
● The agent will submit a transaction to the smart contract of that scheme (possibly via one of the
DApps integrated with Arc), along with the relevant input required for that scheme (e.g. agency,
number and type of tokens, recipient address, etc.).
● Other agents may approve this request with their vote.
● Once enough votes approve the request — as defined by that specific reward scheme — the reward
scheme will command the controller to execute the proposal (with the specific parameters), and the
controller will command the relevant acting contract to execute the reward allocation.
● All functions governed by the controller are subject to the global constraints registered by the DAO.
Global constraints act as both an ex-ante and ex-post modifier. Before executing any function, the
controller is required to run all global constraints stored in the array to ensure that they all return false
at this particular point in time. Given that the state of the DAO might change after a function has been
executed, once execution is completed, the controller is required to go — once again — through all
global constraints, and will revert everything to the previous state if any of them returns false.

Universal elements

Elements

— schemes and constraints — are universal by design. Meaning, all DAOs can rely on the same
universal element contracts rather than deploying their own contract each time. The only contracts that are
deployed independently for each agency are the controller and the actors. Such a design contributes to the
scalability, functionality and security of the framework.

Design Principles

Arc was designed with the following design principles in mind:

● Generality​. Arc is a general framework that supports an indefinite number of governance elements.
Arc’s library of schemes and global constraints will grow with the addition of new templates and
modules, possibly developed by third parties and the open-source DAOstack development community.
When combined, it will allow for people to experiment with an increasingly large number of
governance protocols, and consequently for the successful ones to float up by evolution and natural
selection.

● Modularity​: The Arc framework is highly modular by design. Every DAO’s governance structure is
made of small building blocks (the governance modules, or ​elements​) that can easily be added,
combined, edited or removed. This modularity becomes a point of efficiency in that these building
blocks do not need to be redeployed onto the blockchain, rather only referred to, saving both storage
and operation cost. Moreover, it makes development of sophisticated governance protocols easier and
easier the more building blocks exist. Last but not least, it makes contract security management much
more sane, whereas writing entire protocols each time from scratch is inconceivable security wise.

● Simplicity​: Arc has been designed with a strong emphasis on simplicity — in terms of both technical
design and usability. The modularity of the framework makes it possible to focus on individual
building blocks, whose complexity can be kept to the minimum. As the building blocks are modular
and reused, each will receive a lot of individual scrutiny, affording a higher level of vetting and the
corresponding greater level of security. To facilitate ease of use, in Arc, bundles of smart contracts can
be deployed with a single transaction.

● Upgradability​: The governance structure of each DAO can be easily upgraded to use new schemes
and constraints or different parameters of existing ones. More granularly, each DAO created through
the Arc framework comes with a particular set of rules, which by default include rules to change the
rules. In addition, the DAO also comes with the ability to upgrade its technical architecture and evolve
to a better and better one over time.

● Interoperability​: Arc is designed to facilitate interactions and promote interoperability between
different agencies and DAOs. In practice, it means that agencies can interface with other agencies in a
seamless manner, exchange tokens, form agreements, act as individual agents within other agencies and
acquire their tokens and reputation. Arc makes it possible for a mesh network of interconnected
agencies to emerge and spontaneously create the DAO ecosystem.
● Openness​: Open frameworks such as Wordpress, Google add-ons and Android invite independent
developers to create their own apps, templates and integrations — thereby instantiating and supporting
a vibrant development community and which in turn benefits the framework with a wide set of
applications. Similarly, we expect DAOstack to attract developers from the Ethereum community to
develop their own governance modules or frontend DApps — thus creating a thriving plethora of
templates, modules, and applications for this emergent ecosystem. The DAOstack code is fully open
source, backend and frontend. Another aspect of Arc as an open protocol is that all integrated
collaborative DApps are potentially interoperable with one another. Just as users of two web
applications can interact with each other since both apps ride on the same open protocol (HTTP), then
users of two collaborative DApps riding on Arc will potentially be able to interact with one another (if
enabled by the collaborative DApps).

Arc.js

Arc is a pretty extended Solidity framework, the integration with which requires a sufficient acquaintance with
the Solidity smart-contract programming language and the Ethereum blockchain. To make the integration of
third-party apps simple for enthusiastic front-end (JavaScript) developers, we have designed Arc.js as an easy
JavaScript gate.

Arc.js is a JavaScript library built on top of Web3.js (Ethereum’s JavaScript API), with which any functionality
of the Arc framework can be called directly from within the JavaScript environment, without knowledge of the
Solidity programming language.

We expect this additional layer to make the Arc framework (and the rest of the DAO stack) extensively more
accessible for the open-source development community, and third parties, and thus greatly promote the early
adoption of the DAO stack and the growth of its ecosystem.

The ArcHives

Arc is the basis operating layer for the DAOstack ecosystem, and the ArcHives are its shared, curated records.
Shared, curated registries can be very powerful, providing a central locus for data integrity and data quality; but
more so, they are the locus for the ecosystem network effect, which is also a source for another open-ecosystem
monetization (i.e. business model). We will describe below the basic ArcHives of DAOstack: Compendium,
Mosaic and the Hive Registries, and will explain the monetization model behind them. Beyond these, each
agency or DAO can have their own independent registries, and in particular DAOstack can also have many
other registries in the future.

Compendium

Arc’s open framework makes it possible for anyone to deploy new governance ​elements ​— schemes and
constraints. For the purpose of security, DAOs will likely decide to limit themselves to schemes that have gone
through exhaustive and professional audit, and more so, have been heavily battle tested. For that purpose,
DAOstack has implemented its own “app store” for elements, the Compendium, which records all governance
modules that have been approved by the DAOstack expert community.

Compendium provides an additional utility to the GENs. One one hand, it would cost GENs to deploy a
governance module onto the registry. On the other hand, independent developers who develop and register
their own elements on Compendium can have a universal business model, collecting a particular amount of
GENs (voted on by the DAOstack community) upon every subscription of new agency to that module. It is an
app store for governance modules. All of the elements developed by the DAOstack founding team will remain
free of charge for the community.

Once there is a network effect of users using the Compendium for the elements they subscribe to, the value
proposition of this registry will appreciate and accordingly its monetization capability. It will be more profitable
for developers to publish their elements on this registry, and thus to pay the registration fee. The registration fee
is also useful to filter spam publications, as it will only be profitable if the element will be approved and
sufficiently used by the DAOstack ecosystem.

Mosaic

DAOstack also implements an organization registry that records a list and metadata of all agencies and DAOs
deployed through the Arc framework. This database is critical for the interoperability of all collaborative
DApps and organizations in the DAOstack ecosystem. Mosaic will be curated by the DAOstack community,
which also implements a search engine to facilitate discovery. Just like in the case of the Compendium, it will
cost GENs to register or promote an organization on the Mosaic registry.

The Hive

The Hive is where innovators, professionals and stakeholders can meet each other within multiple
organizations. It is an open billboard that everyone can use to post requests or offers, which are registered and
can be promoted by spending GENs. The Hive registry is curated by the DAOstack community, which, again,
also implements a search engine to facilitate discovery. While each collaborative DApp may have its own
(non-blockchain) database, the Hive is where all collaborative DApps can maintain data interoperability and
enhance the network effect.

Alchemy

The DAO stack is designed to make it easy for independent developers and third parties to develop their own
collaborative application on top of Arc and to be integrated with the DAO stack and its community. At the
same time, DAOstack itself develops its native collaborative DApp which makes it easy to interface with Arc:
open agencies and DAOs, configure their governance protocol, make proposals and vote on existing ones,
collaborate with others on projects and much more. It is intended as a first interface to this new world of work
and organization.

In its Alpha stage, Alchemy is an app for crowd management of resources, enabling organization to significantly
increase their decision-making capacity and deploy large capital to large communities, effectively. Alchemy is
ready to launch for pilot on the Ethereum mainnet.

5. The GEN Economy

Circular Token Economy

Agencies, DAOs and DApps (Decentralized Applications) are all based on circular token economies. The
general idea is that tokens are being distributed to contributors of value — for value that is contributed to the
network. On the other hand, the same tokens gain benefit from the value created by the network. The more
value is being created the higher the value of the tokens, the more the organization can incentivize the
contribution of more value, and so on and so forth.

The DApp Model

In the ​DApp model​, the utility — and thus value — of the tokens is directly related to the usage of a network
application. Tokens are being distributed to contributors of value to the network: builders, early adopters and
maintainers of the DApp. On the other side, the usage of the DApp requires the spend of those same tokens.
For example, Ether was distributed to founders and builders of the Ethereum blockchain, and is now being
distributed to miners that maintain the network. On the other hand, Ether needs to be spent by users in order to
process autonomous computations on the Ethereum blockchain or use its storage.

Success of the DApp drives up the demand for its usage, thus the demand for its token and thus the token’s
value. The more people run computations on the Ethereum blockchain the more Ether they would need to
spend, and the higher would be its value in the open market (given its limited supply).

DAO Economy

The added feature of a DAO with respect to a DApp is its ability to process and execute general-purpose
collective decision making. There are various domains of decisions a DAO can engage with, and accordingly a
various categories of DAOs (and the possible hybrid of those).

Decentralized Collaboration

When the governance system of the DAO is used for decisions about the incentivization and reward of
contributions to the DAO itself, we would call it a ​decentralized collaboration​.

As already seen from the blockchain DApps, the token-distribution incentive model works very well in driving
engagement and adoption. In the Bitcoin network, miners adoption rate looks like this:

Total hashing power in the Bitcoin network has grown exponentially and multiplied about 650 millions times
over the past 7 years, due to the built-in economic incentive in mining

However, in the blockchain case, miners are only the maintainers of the network, and no direct reward is
awarded for the developers of the network or its early adopters. In newer projects tokens are commonly
distributed to founders of the project, and by the founders as bounties to other contributors of value. But this
incentivization model cannot be systematized and scaled up without the governance system of the DAO.

With DAO stack and, for example, the relative-majority decision-making protocol described ​above,​ tokens can
be easily distributed to contributors of value, including developers, promoters and early adopters of a network.
There is no limit (unless chosen so by the DAO itself) on the purpose and rate of reward to contributions, and itallows for crowd engagement and coordination at unprecedented levels.

The token of a decentralized collaboration is tied to the result of that collaboration. For example, if the result is
a DApp, then the tokens distributed in the decentralized collaboration are the DApp tokens.

Decentralized Cooperative

In the DApp model the purpose of the network is to create and support an application, and the value of the
token is tied to the usage of that application. A ​share model fits the situation where the purpose of the agency, or
network, is simply to gain external revenue. It can be an agency that is developing inside a bigger agency, or a
DAO, and receives its tokens in return; or it can be an investment DAO that invests in other projects and is
intended to make a return on investment. In either case, the value of the token is tied with the external revenue
of the organization, and this relationship can be implemented in various ways. One way is to implement a
redemption scheme whereby the agency (or DAO) tokens are made redeemable against the funds existing in the
agency wallet, pro rata, and thus the value of the token is derived from the revenue made by the agency. Other
implementations can involve dividend or other mechanisms. In this model the DAO is a ​decentralized
cooperative​, and its token resembles its share.

Decentralized Curation Network

DAOs can also organize around the curation of content. The value of the network is then manifested in having
a shared locus of information, thus shared locus of attention, on the DAO registries. Once there is a network
effect of attention looking at the same point, that point can be monetized by the network itself. The network
curates the objects posted on the its registries, and promoters of content would pay with the network’s token to
post and promote content. Posting low-quality content would result in negative curation, and thus reduction of
the poster’s reputation. Promotion of content is tied both with boosting fees and the endorsing reputation;
thus, the better the content of a promoter is, as curated by the network, the cheaper it would be for him to post
again in the same network, and vice versa.

The GEN Model

DAOstack is a DAO that involves the three above categories. It incentivizes contributors to participate and
develop the DAO stack and its ecosystem. In that sense it is a d​ ecentralized collaboration​. It intends to use part
of its raised funds (collected via its token sale) for investments in projects that would come on top of the DAO
stack (as well as in projects which will build and enhance the DAO stack), and accelerate the ecosystem, while
also expecting return on investments. In that sense it is a ​decentralized cooperative​. Finally, it will also be a
decentralized curation network​, in particularly for governance elements and DAOs, but possibly for many other
hings. In all contexts, the GEN is the token that drives the effective navigation of the collective attention of
DAOs on top of the DAOstack ecosystem, and in particular the token that engines the prediction games
described above that are critical for holographic consensus and effective governance of large organizations.

https://daostack.io

https://steemit.com/crypto/@originalworks/370-steem-60-bonuses-sponsored-writing-contest-daostack

This post is a submission to @OriginalWork contest here.
DAOstack2018