Original title: DAO LAY LO MO

Article translation: Block unicorn

Article translation: Block unicorn

After spending a third of my life in Hong Kong, my Cantonese is still rubbish. I can say my address with an acceptable accent, but nothing else (other than my basic Cantonese swear phrases, which are ok).

Walking the streets of Hong Kong, you might think the island is a city of disaffected people because of the noise and tone of overheard conversations. If you happen to like dim sum, the cacophony of loud Cantonese is a key part of the experience. If you're really a local, you'll be able to swear with the right tone. Cantonese is said to have nine tones, and I know zero of them. My Mandarin can barely pronounce correctly and there are only four. My mentor is always correcting me.

The most common swearing is Diu Lay Lo Mo (𨳒your old mother) - it is often used in many contexts. Even if 90% of your sentences are in English, a properly placed Diu will get you far.

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The return of wind turbines

Look around - every object you interact with begins with someone's imagination. The idea then infects others, subsequently convincing them to give up their material or financial capital to create it. The more organized, popular, and well-funded an idea is, the easier it is to realize.

The goods and services enjoyed by a society depend on the ability of a particular place to organize and deploy capital. The importance of organization is perfectly illustrated by the way cities and nation-states have used seafaring to expand their economies.

Like most American high school students my age, we spent a lot of time in history class documenting the various ways in which European nations colonized the Americas, Africa, and parts of Asia. New and exotic continents and trade routes were "discovered" by brave men in search of fortune. Today's curriculum may focus more on the various nasty ways countries expand their empires (as they should) - but when I was in school 20 years ago, history classes weren't so sober.

During the Ming Dynasty—a century before the age of European exploration—a Chinese naval captain named Zheng He landed at various points along the coast of Africa in impressively large ships. His ships featured waterproof hulls, magnetic compasses, and fresh citrus fruit to combat the scourge of scurvy.

Unfortunately, the then emperor unilaterally ended China's sea voyages due to the financial strain of Zhang Qian's voyage and other internal economic problems. Shipyards were mothballed, and China's economic engine entered a long period of stagnation that was not broken until Deng Xiaoping's Southern Tour in 1992.

Centuries after Zheng He's death, a cold, damp, dark island called England became a global empire thanks to its mighty navy. (It also helps that England doesn't have to constantly defend their land borders, allowing them to pick and choose battles to keep the Continent divided - but I digress.)

Technology adopted among various European or even Chinese seamen was not a factor in determining which nation-state floated the most impressive ships. Rather, it is the way sailing is financed. What really made the British (and the Dutch) so successful was their creation of the limited liability company.

A corporation is a fictional concept that allows strangers to agree on a codified set of principles under which they can pool capital and limit risk. When one party violates the spirit of the agreement, the legal system that supports corporate charters ensures that everyone believes the illusion by legitimizing sometimes violent state retaliation. The emergence of corporations enabled all kinds of people—rich and not alike—to participate in the expansion of global trade. Citizens across Europe have collectively agreed that slips of paper, also known as "stonks," could be used to represent fractional ownership of these fictitious entities, thereby giving rise to the first stonk market and enabling investors to speculate on the future success of a given company.

A system that includes as many people as possible chasing their dreams is more likely to succeed because it raises more money. The other way - at least, as it pertained to voyages of the time, where the sovereign (e.g. Spain) or emperor (e.g. China) decided unilaterally which voyages to make and kept most of the profits - simply couldn't compete effectively. In our Nakamoto After the revival led by Satoshi, we don't think of the corporate entity as decentralized - but half a millennium ago, a company funded by various individuals was the original decentralized organization. It is well known that decentralized, inclusive systems are more successful at many tasks than centralized, exclusive systems.

The conclusion is that a fictitious thing called a corporation allows a group of people to exploit risky opportunities appropriately and create great wealth for shareholders and the motherland. This new framework for organizing people and capital allows to take full advantage of globalized trade at sea.

So, what will be the new shared fiction that brings billions of people together to create and grow various metaverses in the near future? It is a Decentralized Autonomous Organization, or "DAO” 。

The focus of this article is to illustrateDAOfirst level title

DAO triple-entry bookkeeping

My junior year, I foolishly applied to an advanced accounting class. As with many universities, students can take many courses in the first two weeks. Only after the first two weeks of term will you need to decide on your final course load.

The professor begins by describing the various skills we will learn to spot inconsistencies and fraud in accounting statements. After partying abroad for a semester, forensic accounting didn't sound appealing. I dropped that class.

Forensic accounting became a thing because of a fatal flaw in double-entry bookkeeping. The fatal flaw is that by looking at a set of managed accounts, we implicitly assume that all payments are going to the correct party, when the company in question actually owns assets worth the value recorded on their books. To truthfully verify the information provided, we must ask a third party whether certain payments were made (banks), or whether a company has title to an asset (government title office).

By definition, DAOs exist only in digital format on public blockchains. This means its assets, liabilities and shareholder equity (issued governance tokens) are fully transparent and publicly verifiable by anyone with an internet connection. Additionally, the movement of funds between the DAO and any of its counterparties is also publicly recorded via the blockchain.

Imagine a Metaverse called PalmByte and a commercial landlord called TrumpDAO. TrumpDAO builds the biggest and worst virtual buildings and homes and rents them out to virtual characters inside PalmByte, all in gold.

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assets:

1000 ether

Liabilities + Shareholders' Equity:

1000 TRUMP worth 1,000 ETH

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assets:

(minus) 1,000 ETH [Andochu fee + virtual land purchase]

(plus) 100 buildings

Liabilities + Shareholders' Equity:

1,000 TRUMP worth 1,000 ETH

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income:

income:

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Operating expenses:

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net income:

0 ether

Every TrumpDAO data input used to create this balance sheet and income statement is publicly verifiable on the Ethereum blockchain. This is very important because now TrumpDAO needs financing to expand.

TRUMP token holders have the power to decide how to raise additional funds to purchase more land, which can then be used to increase rental income. They can dilute themselves by issuing more TRUMP tokens in exchange for ETH, or they can try to tap Metaverse's fixed income market.

The cost of capital for landlords like TRUMP is currently 5% per annum. Token holders decide to issue bonds in the hope that other incarnations of PalmByte will invest. The face value of the bond is 1,000 ETH.

Imagine that you are an ETH rich PalmByte avatar looking to earn ETH yield. Obviously, you want to lend to the DAO, whose business will allow them to pay you back. As a savvy Metaverse investor, you can check out TrumpDAO's documentation. Some clever development team has developed a handy tool that can quickly verify the accuracy of any DAO's accounting statements by comparing the DAO's accounting statements written to the blockchain with the records of all inputs. This service is pretty much redundant because you can't lie about triple-entry bookkeeping. To entice avatars to pay for the service, this accounting dAPP also does a simple financial ratio analysis.

The output is the solvency of TrumpDAO. You learn that their return on capital is 10% and the bond offered has a coupon of 5%. The dAPP also checks ZillowDAO for the current market value of units owned by TrumpDAO. You want to assess the risk of recovery if TrumpDAO defaults. The PalmByte real estate market is hot -- all these new dorkers are moving across the wafer to get better tax treatment and drive up prices.

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assets:

1,000 ETH (raised by selling TrumpDAOBonds)

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Liabilities + Shareholders' Equity:

1,000 TrumpDAOBonds worth 1,000 ETH

1,000 TrumpTokens worth 1,000 ETH

In this brief example, the following actions, verifiable by the public blockchain, took place:

1. The DAO sees an opportunity to develop virtual land.

2. The DAO issues tokens in exchange for ETH.

3. The DAO paid the architect with ETH and bought the virtual land, then created 100 units for rent.

4. The DAO earns rental income.

5. The DAO issued bonds to fund additional development.

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Metaverse Fixed Income Markets

The simple example above is powerful because the trust necessary to create a company, issue equity, do business, and issue debt to scale as in the TradFi (traditional finance) system is absent in the Metaverse. The DAO structure is completely transparent, and it is cryptographically impossible for the DAO to misrepresent its behavior because every piece of data generated by the DAO resides on the public blockchain.

The Achilles’ heel of the crypto fixed income market will be – at least initially – the need to use an analog legal system to enforce digital property rights. For example, lending Bitcoin or another cryptocurrency to a potato farmer, you need to trust the legal system of some nation-state to uphold your property rights if the farmer refuses to honor the contract. This is not a problem if both the investor and the lender reside in the same jurisdiction. However, the promise of crypto finance is that, for the first time ever, we can connect the world and funnel capital to groups that do not have access to TradFi capital due to judicial related issues.

The Metaverse DAO raises cryptocurrencies, earns cryptocurrencies, and distributes cryptocurrencies. It is an end-to-end crypto-economy where every operation is publicly verifiable on the blockchain. Therefore, it is impossible to deceive investors by making misleading and confusing accounting statements. Those who want to judge the health of the DAO need only query the blockchain and presto! A complete, honest set of books emerged.

The programmatic nature of crypto capital also facilitates debt recovery. Programmatic liens can be easily placed on digital assets. Not paying back? After the grace period, ownership can be divested automatically, the asset sold, and the net proceeds credited and credited. The asset recovery process is open, transparent and without the staggering legal bankruptcy fees found in TradFi. Paradoxically, after more than 7 years, Mt. Gox's claim was finally paid. If a similar situation were to occur in the Metaverse, the bankruptcy and recovery process would happen within a few blocks, measured in minutes.

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DAO Bank

A pure crypto fractional reserve bank that issues its own currency is now possible. Imagine CountryWideDAO, a bank focused on real estate loans. To fund its equity buffer, it raised ETH and issued a governance token. Token holders vote to elect members to the lending committee, which creates and modifies automated lending criteria.

CountryWideDAO ingests the public address of a property asset as data and analyzes the loan amount for that property. It then places a digital lien on the property so that in the event of a default, the asset is automatically sold on a decentralized exchange (DEX) and the net funds flow back to the bank.

In order to expand its deposit base, CountryWideDAO pays ETH interest rate on deposited funds. Its balance sheet includes property loans against ETH deposit liabilities. The DAO governance committee discloses reserve ratio requirements, token buffers, return on assets, and other standard bank accounting ratios. Depositors and investors of the governance token are able to view the health of the bank in real time.

If a bank violates certain metrics defined by the DAO's governance advisors, it will automatically rebalance its accounts by raising interest rates to attract deposits, disposing of property loans, and/or issuing additional tokens to increase shareholder equity.

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credit score

Various types of job opportunities will be available in the Metaverse. In the TrumpDAO example above, an architect offers his services in exchange for payment in ETH. In this way, an avatar can establish a publicly verifiable employment history and, in turn, a credit score. All payments are public information, so any time an avatar tries to borrow funds, a potential lender has instant access to their complete financial situation.

Various credit scoring dAPPs will use different algorithms to try to determine the creditworthiness of an avatar. Some models will become standard due to their ability to predict defaults. In order to earn credit in the Metaverse, avatars must purchase credit score subscriptions from various dApps that lenders require when applying for a loan.

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credit cardDAO

Want to buy that sexy Punk PFP but don't have the money? Don't worry - the credit card DAO will fill the need.

These DAOs will use your avatar's credit score to issue you a Metaverse credit card, allowing you to spend cryptocurrency on approved purchases. DAOs allow for instant approval based on credit scores, concepts involved and items to buy. A credit card DAO can even adjust the interest charged based on various factors, all of which are publicly verifiable.

Default risk is reduced because DAOs can automatically increase Metaverse income so that they get their money back first.

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Mortgage DAO

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Fixed Income Legos

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credit boom

The essence of credit and debt is the ability of energy to time travel. Back in the present, future energy production is the magic that drives the global economy. This will always be true as long as the creation of economic activity is greater than the real interest rate.

Given that there is so much exploitable value in creating entirely new worlds of human experience, the ability to borrow from a better future will spin the flywheel of development even faster. The absence of accounting fraud and the programmatic nature of Metaverse asset recovery will improve the quality of borrowers, thereby reducing risk for lenders.

The Metaverse fixed income market will support billions of people and will become the world's largest, most liquid, and most important debt market in a short period of time. The current hegemony of the U.S. economic model depends directly on deep and liquid corporate and government debt markets. The US is a country of 350 million people - so imagine the size and quality of the Metaverse fixed income market serving 3 to 4 billion internet-connected souls and hundreds of thousands of DAOs.

As readers know, I'm a metaverse superhero. After writing this piece, however, yet another pillar of intellectual rudeness emerges. The exponential increase in human living standards after the first industrial revolution was a product not only of technological progress but also of the financial system that created the ability for companies and individuals to invest now to create a better future. For all its flaws, TradFi supports the improved standard of living we enjoy today and enables governments, companies and individuals to create a better future through the efficient allocation of capital. It's a shame it's been perverted so absurdly, but Lord Satoshi is here to save us from evil.

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everything, everything

Every single TradFi innovation in fixed income financial products — and more — is possible in the Metaverse thanks to the DAO structure. The main difference between the Metaverse fixed income market and the TradFi market is that the infrastructure will operate publicly.

Each DEX and dAPP will have its own token, allowing users to jointly build the financial system they want. It will not be a closed system where the end customer has no ownership, but rather consistent economic rents paid for using the power of financial engineering. It will not be a system that selectively bans certain individuals and businesses from financial services based on appearance, gender or industry. It will be an inclusive system through which a larger economic pie can be generated for participants to share.

This will not be a system without risk or failure. As hordes of computers and humans rewrite how financial services work in a virtual world, there will be massive collective errors.

This is a once-in-a-lifetime opportunity for investors looking to fund builders of an entirely new financial system. Many wished they were financiers, not assets transported or financed by the European Age of Discovery. The creation of the Metaverse Fixed Income Market offers the opportunity to create the most important financial services in a whole new field. Raise your fist at TradFi and repeat after me - "DAO LAY LO MO!"