One of the benefits of a traditional legal structure is the established body of law and regulations that define fiduciary duty and protect the interests of minority and/or passive stakeholders in a shared enterprise. DAOs on the other hand, must explicitly define all the rules and protections within their internal governance process.
The following situation is a good illustration of the problem with collectively managing funds using a DAO that we would like to solve:
A simple DAO is deployed with a vault that holds the organizations collective funds, in order to move an arbitrary amount of funds from the vault for an arbitrary purpose a vote is required with a simple majority to pass.
There are two fundamental issues with this approach, (1) it assumes that all stakeholders will pay attention and vote so that true majority can be reached to approve of proposals, and (2) there are no protections for minority or passive stakeholder interests. If a bad proposal is presented a relative majority of stakeholders is required to act in order to prevent it from passing.
These challenges become particularly problematic when you consider certain types of “malicious proposals” which are designed to incentivize people to vote to approve even if they would normally disagree with the proposal. The most straightforward example of this is a proposal which moves all funds into a contract which then releases funds to all stakeholders who voted to approve the transfer.
In a traditional organization there are legal provisions that provide recourse for stakeholders in such situations, but in the case of a DAO where the stakeholders and proposers may not be legal entities (they may be pseudonymous or even other DAOs), such retro-active protections would not be particularly effective deterrents.
One potential way to solve this problem would be to use a subjective oracle mechanism like the propose Aragon Court to enable a single individual to raise a dispute and prevent a proposal from being executed. This could be accomplished by requiring proposers to agree to a “fiduciary agreement” in order to submit a proposal. The agreement would have them put up a deposit which could be retrieved after the vote is completed. If anyone feels the proposal does not meet the standards set in the fiduciary agreements they can raise a dispute by putting up an equal deposit. The proposal could be immediately canceled, and the dispute could be settled. If they win they take their counterparties deposit as profit.
Such a mechanism would allow an organization to enforce some standards on the types of proposals that can be made, preventing obvious malicious proposals, but could also be used to set a subjective standard for the purpose of the funds–much like a traditional organization would have bylaws. This would set clear expectations and provide protection for minority and passive interests because it would only take a single honest actor to prevent at bad proposal rather than a relative majority of stakeholders.