Seems like most of the technical blame here is being placed on the lack of agility of the process. There were bidders available in the crypto world, but you can't turn those into dollars on the time scales required by a physical auction.
Which is to say, this failed in exactly the way that all us curmudgeons knew it was going to: DAO's and other software constructions are and remain software constructions and they can't make things happen outside their realm. If you want to buy things in the world of people you have to be able to actually make things happen with people. And web3 can't.
In some sense this was the best failure mode, anyway. Now it just goes away and we worry about the next big crypto thing. What if they'd succeeded? It's a physical thing. Someone has to store it, and guard it, and curate it, and all of that is labor that has to be done by people paid in dollars. A pure software construction isn't going to be able, more or less by definition, to supervise that. Frankly I was half expecting this to succeed, and then see the thing disappear in a high profile theft or mysterious disappearance, or just outright fraud.
I share the author's personal investment in this topic. It was my first introduction to the web3 world, and it really showcases the potential of truly decentralized communities.
Some of the flaws were visible, but overall how this community evolves and incorporates the input of its 17K participants will set up the norms and practices for DAOs for some time to come.
I'm hoping that the community created here endures and continues to test and expand the boundaries of this new type of organization.
> Nobody knew who won, and there was a lot of misinformation spreading.
It was also very confusing to watch the live chat on YouTube. There was no authoritative communication on the official twitter or website about who would be bidding on their behalf. Nobody knew who the person representing ConstitutionDAO was, or if Constitution DAO was even participating at all. A good number of commenters were convinced it was a "rugpull" / scam.
Then as the article says, in the twitter audio room afterwards there was the "Dewey Defeats Truman" thing. Having gone through a few election cycles in the US, I must say it did remind me of election day results, but that's not a compliment.
i don’t understand people who will loudly proclaim “x is true” without themselves having any reason to believe x is actually true. but that seemed to be the case just about everywhere. even coindesk — an entity that i’ve considered decently reliable in this space — published their “ConstitutionDAO wins” article before reliable confirmation (since redacted).
i get the pressure for a news outlet to call the shot early, but for everyday twitter/discord users? why propagate beliefs that you yourself haven’t heard from a reliable source? don’t people care that the things they say are actually true?
If you spend any time at all on crypto discord servers you will constantly get commentators saying that any particular project is a rugpull. That is par for the course and the skepticism is justifiable given the track record of frequent scams in this space.
That said I think this is an interesting idea but flawed execution, given that:
1)The most important part of the strategy in an auction is how high to bid (it's almost the only decision you make in the process). If the other side knows your maximum bid but you don't know that info for them you clearly place yourself at a huge disadvantage. A bad actor could bid you up to just below your max price and then stop just to screw you over, so you pay your max for something you would in normal circumstances get much cheaper, or conversely you are guaranteed to lose if someone knows your max and just wants to pay more. They can wait until you bid completely up to your max before putting in their first bid so they are guaranteed to get it very cheaply above your bid assuming noone else is involved.
2)They didn't seem to have much of a plan for success. That's pretty normal in the web3 world in my experience. There's a lot of "let's get there and then see what happens", but I think in this case it would have been great and more in the spirit of DAOs to have a vote and declare ahead of time "if we win we immediately donate it to x museum or whatever" so they don't have to pay for conservation and security.
also a lot of "rugpull" comments are a meme that get repeated in any uncertainty or accident, i spill my coffee "rugged again". in this case the team didn't know who their bidder was until after the auction ended.
How was this different from any other fund raiser? Some guys set up an LLC, raised funds and attempted to do something with the funds. They call it a DAO, but there's nothing 'decentralised' or 'autonomous' about it. It was a CO —centralised organisation— that managed the funds and placed the bid. And this is how it has to be if you intend to interact with anything else other than imaginary tokens on a blockchain, you need to be a legal person, which is antithetical to the idea of a DAO.
You are very short sighted. Yes, due to current laws and customs, they had to form an LLC as a workaround. But the laws will continue to adapt over time to support DAOs that don't need such workaround.
From the great Daily Gwei newsletter: "To do this sort of capital formation in the traditional finance world, you’d have to use centralized payment processors (who would most likely censor you), it’d be extremely slow, the money raised would be much less and the raise itself would be very exclusionary. You also couldn’t create a DAO out of it and have it be governed by token holders - the traditional system is just not set up to do this in any practical way.
...
In saying all of this, it’s not just the rapid capital formation aspect of DAOs that fascinate me - it’s also the rapid social coordination that can form around a common goal. It has a flywheel effect to it too: more capital raised > more social credibility/marketing the DAO obtains > more capital comes in because of that and so on and so forth. This is why ConstitutionDAO has gone from $0 to over $40 million in less than a week - this is really the true power of a global, decentralized and censorship-resistant internet-native economy - built on Ethereum and powered by humans."
If you don't agree or see that this is qualitatively different from "any other fund raiser", I don't know what else to say. What other examples do you have of spinning up $40M in short order for something like this? It's a qualitative difference in speed, scale, decentralization, etc., that will continue to grow. This is just the start.
> "To do this sort of capital formation in the traditional finance world, you’d have to use centralized payment processors..."
Oh no. Anyways.
> "... (who would most likely censor you) ..."
Got any examples top of mind? I sure don't. Unless you're on the OFAC list which again, shrug.
> "... it’d be extremely slow ..."
Would it? Wires seem to be faster than Bitcoin by a country mile. Faster than ETH last time I ran one too, and with RTP and FedNow, that bar goes down further - should be as fast as Solana if not faster.
> "... the money raised would be much less ..."
Because it would be real money, not play money. Tokens are closer to frequent flyer miles in people's minds.
> "... and the raise itself would be very exclusionary."
If you mean "open to accredited investors" well, I'm ok with that.
> "You also couldn’t create a DAO out of it and have it be governed by token holders - the traditional system is just not set up to do this in any practical way."
You can't govern the same way via a set of non-binding twitter polls? Or like a SurveyMonkey thing?
The core promise of a DAO (note: I do not feel the ConstitutionDAO is a good example) is that it is funded & organized using smart contract interactions.
For example: a simple smart contract could be set up by 1000 parties that share the same goal (but may not share a mutual trust) across the globe to say that “the funds in this wallet are locked for 1 year. After 1 year, contributors can vote on whether to unlock the funds (make them redeemable) or re-lock them for another year.”
Rather than placing trust in complex legal structures across countries, centralized payment processors & currency exchanges, the security & accuracy of voting procedures like SpiderMonkey, and the goodwill of all other contributors, the trust can be placed in the contract code and security of the chain.
This does not automatically make it better, nor does it mean it is impervious to problems (like bugs in the contract), but it is a different system that is not easily & transparently achievable via traditional means, and certainly not in a matter of days by simply using a web application (Juicebox).
Not sure how it avoids the existing legal system. That seems to be mostly an unconfirmed talking point for those shilling DOAs as something more transformational than they are. Disputes will happen and under current systems, can be resolved through the court system. We've seen this happen already.
We could stand for some competition in rule making, but the current rule makers would need to cede some control.
Yes, participants are still required to follow the laws of their country. e.g. If you made gains on this hypothetical DAO, it isn’t magically exempt from capital gains tax.
The laws around setting up and participating in DAOs are still being defined, but at the moment it is more accessible than creating the same procedures through traditional legal contracts. Maybe that will change.
> > "... and the raise itself would be very exclusionary."
> If you mean "open to accredited investors" well, I'm ok with that.
How dare you. Drug lords and ransomware writers have as much rights to buy the US constitution as everybody else. It's their hard-earned money, they should be able to use it however they want. /s
Can you explain the history of accredit investor laws and how they were designed to keep out criminals? I thought they kept out retail, i.e. the less wealthy.
Criminals are traditionally the opposite and have "legitimate" funds that they have washed through and through using the existing financial system.
Well the OFAC list and AML/KYC laws do that. Accredited investor laws are to stop poor people from getting rekt by snake oil salesmen which led to the Great Depression.
People could contribute "anonymously" without to go through banks and payment processors. Now eth fees are not that low and transfers not as fast as we want but if we can cut the middle man(banks) I think it's worth it(for some people).
Not only that, They have to refund the ETH to everyone. (minus the high gas fees that were paid)
It is perhaps due to the high gas fees with the ETH price volatility and showing the total amount funded publicly which costed them since they were unable to afford the additional auction costs.
Perhaps better alternative blockchains that are designed to scale with very low transaction fees and support smart contracts with EVM compatibility, would have been better for this use case.
Clearly Ethereum has let down the web3 crowd once again on this occasion. What a shame.
Never mentioned anything about 'the banks' but regardless, they are still around because everyone needs to eat and you can still pay for your groceries with your card linked to your bank account which payments provide very low transaction costs and it is still fast.
Unlike Ethereum which it has gotten worse to use over time to the point that it is useless to pay for your groceries. Perhaps there are other blockchains that are better for both for setting up DAOs and paying for your food.
They don’t have to return the ETH, they agreed to return the ETH. 9 of 13 of the leaders of the (centralized) org have to agree to be able to move funds back to the people, there’s nothing technically forcing them to do so.
Beside maybe a legal obligation that people would have to take them to court over to sort out, no better than a gofundme/kickstarter.
Because the cost of a contract initiation on a DAO is much less than that expensive lawyer you must hire to make that LLC a reality. Your LLC collects the funds but in exchange, you can't issue a security that easily. Selling shares to random online folk isn't easy either. But the most important thing is convincing people. DAOs are now an initiated concept. A centralized version of that needs to emerge again and find its stable model over many years, just like DAOs. This will hopefully happen.
The most fascinating part was that they raised $45mm in seven days from people from all over the world using really nothing but solidity contracts on the ethereum blockchain(no complicated PayPal integration, or Stripe etc., no web hooks or callbacks or AWS lambdas etc)
Did they actually hold $45 million or was it the equivalent in ETH? My understanding at least is it would be hard to turn large amount of ETH into dollars without taking a chunk out of the worth of ETH.
As much as I'd like to take your word on that you'll need to offer something more to actually demonstrate it's true as there is other speculation here it caused a dip and I have no idea which of you is correct.
I get the daily trading volume of ETH itself is large but don't see ready statistics for ETH->USD.
Take a look at any of the defi providers and you'll see that there is a lot of money floating around in pure crypto payment infrastructure. If you're not in the defi world, you could pick https://curve.fi as a good example because you might have heard of uniswap but probably haven't heard of curve. I see on their website that the weekly volume of deposits and withdrawals to their liquidity pools is $7bn. All done on solidity, no direct payments infrastructure at all. If you looked at any of the others (aave, balancer, yearn) you would mostly see a similar story. People who onramp and offramp to fiat currencies and therefore handle real money are actually in the minority.
As a tangential aside we wanted to be able to handle crypto and real money payments for something so actually used stripe for credit cards and "coinbase commerce" who offer a stripe-like slick checkout experience and api for accepting crypto payments. The only real downside to the coinbase checkout that we've found is that the blockchains take long enough to accept transactions and the price fluctuates enough that you constantly get people under or overpaying by very small amounts that are expensive to deal with. Still not sure what if anything to do to elegantly handle this.
They will just return the eth. People who deposited will need to pay gas fees to claim it back though. And yes the saga definitely isn’t over - there will be many more collective fundraising DAOs going forward!
Not only that, I believe they had to exchange the ETH for USD before the auction to prove their holding. They now need to turn the USD back to ETH. ETH crashed by about 10% yesterday afternoon (which could be due to them liquidating that much ETH, that would be a big story itself) and so they will have lost a fair bit there!
I think FTX agreed to return the same amount of ETH regardless of fx rates but let’s see. ETH daily volume is over $20b wouldn’t have made a material difference.
I only put in ~$20 worth of ETH to participate in the community excitement, the gas fees were 2.5x that so it won’t be worth it for me to reclaim it. I’m sure there are others in a similar boat who won’t be getting a refund. I hope they’ll donate whatever is leftover.
yea i had the same thought as well. Wondering how that'll pane out since the refunded amount wouldn't be the same as the initial amount they paid due to gas fees.
1. I’m concerned with who won this. The game was stacked for the opponent of the DAO who had all of the information. Maybe it’s tinfoil hat but I think there was an ideological battle at hand - the preservation of centralization vs decentralization. Worst yet the DAO lost due to an inherent value it represents: transparency.
2. Some people were speculating at the 10% drop in ETH was some sort of manipulation to depress the buying power. After reading this, it feels like the liquidation of the DAO’s ETH might have caused that... probably bot momentum. I don’t know crypto markets that well.
> 1. I’m concerned with who won this. The game was stacked for the opponent of the DAO who had all of the information. Maybe it’s tinfoil hat but I think there was an ideological battle at hand - the preservation of centralization vs decentralization. Worst yet the DAO lost due to an inherent value it represents: transparency.
There is nothing maliciously being done against a DAO here. It was an auction, the stupidest thing a bidder at an auction can do is announce their maximum bid limit way before an auction take place. That's what happened here, it is a given in any auction that you will either be outbidded if your maximum bid is known or you will be pushed to spend it all, it's a pretty simple game theory setup.
malicious isn’t what is happening here. Ideological. You are saying it’s “simple game theory.” Which I’m highlighting is WHY it was important that someone won this knowing there was a stockpile of 40million dollars that the DAO represented. They knew the price they had to pay was over double the estimate. We could argue someone was just really passionate about the constitution or my point... they felt like the DAO winning this was part of greater ideological battle. The meme in crypto is its “probably nothing”
DAOs are what crowdfunding platforms should have been. Kickstarter and what not ended up being all the risk and none of the upside if the idea actually got traction. One can argue, this DAO was neither Decentralized nor Autonomous; what it did right was giving people a sense of ownership. We tend to focus on the costs and weaknesses of DAOs, but hardly any non-crypto services operate on "we let you hedge some money on a random idea". Turned out if you let people play, they play.
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[ 0.27 ms ] story [ 447 ms ] threadWhich is to say, this failed in exactly the way that all us curmudgeons knew it was going to: DAO's and other software constructions are and remain software constructions and they can't make things happen outside their realm. If you want to buy things in the world of people you have to be able to actually make things happen with people. And web3 can't.
In some sense this was the best failure mode, anyway. Now it just goes away and we worry about the next big crypto thing. What if they'd succeeded? It's a physical thing. Someone has to store it, and guard it, and curate it, and all of that is labor that has to be done by people paid in dollars. A pure software construction isn't going to be able, more or less by definition, to supervise that. Frankly I was half expecting this to succeed, and then see the thing disappear in a high profile theft or mysterious disappearance, or just outright fraud.
It was also very confusing to watch the live chat on YouTube. There was no authoritative communication on the official twitter or website about who would be bidding on their behalf. Nobody knew who the person representing ConstitutionDAO was, or if Constitution DAO was even participating at all. A good number of commenters were convinced it was a "rugpull" / scam.
Then as the article says, in the twitter audio room afterwards there was the "Dewey Defeats Truman" thing. Having gone through a few election cycles in the US, I must say it did remind me of election day results, but that's not a compliment.
i get the pressure for a news outlet to call the shot early, but for everyday twitter/discord users? why propagate beliefs that you yourself haven’t heard from a reliable source? don’t people care that the things they say are actually true?
That said I think this is an interesting idea but flawed execution, given that: 1)The most important part of the strategy in an auction is how high to bid (it's almost the only decision you make in the process). If the other side knows your maximum bid but you don't know that info for them you clearly place yourself at a huge disadvantage. A bad actor could bid you up to just below your max price and then stop just to screw you over, so you pay your max for something you would in normal circumstances get much cheaper, or conversely you are guaranteed to lose if someone knows your max and just wants to pay more. They can wait until you bid completely up to your max before putting in their first bid so they are guaranteed to get it very cheaply above your bid assuming noone else is involved. 2)They didn't seem to have much of a plan for success. That's pretty normal in the web3 world in my experience. There's a lot of "let's get there and then see what happens", but I think in this case it would have been great and more in the spirit of DAOs to have a vote and declare ahead of time "if we win we immediately donate it to x museum or whatever" so they don't have to pay for conservation and security.
also a lot of "rugpull" comments are a meme that get repeated in any uncertainty or accident, i spill my coffee "rugged again". in this case the team didn't know who their bidder was until after the auction ended.
From the great Daily Gwei newsletter: "To do this sort of capital formation in the traditional finance world, you’d have to use centralized payment processors (who would most likely censor you), it’d be extremely slow, the money raised would be much less and the raise itself would be very exclusionary. You also couldn’t create a DAO out of it and have it be governed by token holders - the traditional system is just not set up to do this in any practical way. ... In saying all of this, it’s not just the rapid capital formation aspect of DAOs that fascinate me - it’s also the rapid social coordination that can form around a common goal. It has a flywheel effect to it too: more capital raised > more social credibility/marketing the DAO obtains > more capital comes in because of that and so on and so forth. This is why ConstitutionDAO has gone from $0 to over $40 million in less than a week - this is really the true power of a global, decentralized and censorship-resistant internet-native economy - built on Ethereum and powered by humans."
If you don't agree or see that this is qualitatively different from "any other fund raiser", I don't know what else to say. What other examples do you have of spinning up $40M in short order for something like this? It's a qualitative difference in speed, scale, decentralization, etc., that will continue to grow. This is just the start.
> "To do this sort of capital formation in the traditional finance world, you’d have to use centralized payment processors..."
Oh no. Anyways.
> "... (who would most likely censor you) ..."
Got any examples top of mind? I sure don't. Unless you're on the OFAC list which again, shrug.
> "... it’d be extremely slow ..."
Would it? Wires seem to be faster than Bitcoin by a country mile. Faster than ETH last time I ran one too, and with RTP and FedNow, that bar goes down further - should be as fast as Solana if not faster.
> "... the money raised would be much less ..."
Because it would be real money, not play money. Tokens are closer to frequent flyer miles in people's minds.
> "... and the raise itself would be very exclusionary."
If you mean "open to accredited investors" well, I'm ok with that.
> "You also couldn’t create a DAO out of it and have it be governed by token holders - the traditional system is just not set up to do this in any practical way."
You can't govern the same way via a set of non-binding twitter polls? Or like a SurveyMonkey thing?
For example: a simple smart contract could be set up by 1000 parties that share the same goal (but may not share a mutual trust) across the globe to say that “the funds in this wallet are locked for 1 year. After 1 year, contributors can vote on whether to unlock the funds (make them redeemable) or re-lock them for another year.”
Rather than placing trust in complex legal structures across countries, centralized payment processors & currency exchanges, the security & accuracy of voting procedures like SpiderMonkey, and the goodwill of all other contributors, the trust can be placed in the contract code and security of the chain.
This does not automatically make it better, nor does it mean it is impervious to problems (like bugs in the contract), but it is a different system that is not easily & transparently achievable via traditional means, and certainly not in a matter of days by simply using a web application (Juicebox).
We could stand for some competition in rule making, but the current rule makers would need to cede some control.
The laws around setting up and participating in DAOs are still being defined, but at the moment it is more accessible than creating the same procedures through traditional legal contracts. Maybe that will change.
> If you mean "open to accredited investors" well, I'm ok with that.
How dare you. Drug lords and ransomware writers have as much rights to buy the US constitution as everybody else. It's their hard-earned money, they should be able to use it however they want. /s
Criminals are traditionally the opposite and have "legitimate" funds that they have washed through and through using the existing financial system.
It is perhaps due to the high gas fees with the ETH price volatility and showing the total amount funded publicly which costed them since they were unable to afford the additional auction costs.
Perhaps better alternative blockchains that are designed to scale with very low transaction fees and support smart contracts with EVM compatibility, would have been better for this use case.
Clearly Ethereum has let down the web3 crowd once again on this occasion. What a shame.
Unlike Ethereum which it has gotten worse to use over time to the point that it is useless to pay for your groceries. Perhaps there are other blockchains that are better for both for setting up DAOs and paying for your food.
Oh dear.
Beside maybe a legal obligation that people would have to take them to court over to sort out, no better than a gofundme/kickstarter.
https://github.com/jbx-protocol/juice-contracts
I get the daily trading volume of ETH itself is large but don't see ready statistics for ETH->USD.
As a tangential aside we wanted to be able to handle crypto and real money payments for something so actually used stripe for credit cards and "coinbase commerce" who offer a stripe-like slick checkout experience and api for accepting crypto payments. The only real downside to the coinbase checkout that we've found is that the blockchains take long enough to accept transactions and the price fluctuates enough that you constantly get people under or overpaying by very small amounts that are expensive to deal with. Still not sure what if anything to do to elegantly handle this.
It would be a pretty funny outcome: "hey sorry we couldn't buy the Constitution, thanks for sending us 10 eth last week, here's 11 eth back"
The 'banks' are still laughing at Ethereum with the slow transactions speed and the very high gas fees involved, just for a simple transfer.
Making it useless for buying food. Everyone needs to eat.
I don't see the improvement here.
2. Some people were speculating at the 10% drop in ETH was some sort of manipulation to depress the buying power. After reading this, it feels like the liquidation of the DAO’s ETH might have caused that... probably bot momentum. I don’t know crypto markets that well.
There is nothing maliciously being done against a DAO here. It was an auction, the stupidest thing a bidder at an auction can do is announce their maximum bid limit way before an auction take place. That's what happened here, it is a given in any auction that you will either be outbidded if your maximum bid is known or you will be pushed to spend it all, it's a pretty simple game theory setup.