June 20th, Social Kapital, a decentralized VC fund and business idea marketplace, is to launch its crowdsale campaign. The news comes after the immense success of The DAO, a similar company, that has just closed the largest recorded crowdfunding campaign in history.
Whilst The DAO pursues the holy grail of complete automation on the Blockchain, Social Kapital places more emphasis on using the Ethereum Blockchain to power its community and governance committees.
DAO success encourages followers
The DAO, a fintech industry phenomenon, has recently managed to secure more than $132 million in what was the largest recorded crowdfunding event in history. Such an outstanding result was not achieved due to some unbelievable product or service - in fact, the company does not offer either, as of yet. The DAO’s main virtue lies in the innovative way of its organization, enabled by its underlying technology - the Ethereum Blockchain.
The DAO is a decentralised investment fund whose shareholding and business processes are codified as Ethereum smart contracts. Any project contractor may submit a proposal to The DAO for funding. The so-called curators (software experts) inspect the smart contract accompanying the proposal to check for possible attacks. If the proposal code is given a clean bill of health by the curators, token holders can then vote on whether to finance the proposal. If a funded proposal turns profit later down the line, they are eligible to receive revenue from its operation.
All The DAO’s decision making going forward is automated and autonomous. Ether is disbursed to contractors, and revenue is received from them entirely via smart contracts.
Security concerns higher on agenda
However, such a revolutionary concept, potentially capable of changing the entire way business is done in the coming decades, does not come without its own flaws. Several independent experts, such as Slock.it engineers, Vlad Zamfir, Emin Gün Sirer and Dominic Williams, have already expressed concerns regarding The DAO’s security. They have listed several attack vectors, which could be potentially used by malevolent actors to undermine the organisation’s security. According to the reports, the main problems of the organization are caused by an imperfect mechanism of collective decision making. The mentioned mechanism can allegedly be exploited by major shareholders of The DAO in a number of ways, with the goal of personal enrichment at the expense of smaller investors. Additionally, the researchers have pointed out an opportunity to manipulate other people’s votes, in order to impose the attacker’s will on them.
A different type of investment DAO
Based on these reports, the community has proposed an initiative to halt the company’s activity, until the identified security flaws are resolved. But improving an already existing system is not the only solution. There are already companies working on concepts which are similar to The DAO, and which do not seem to have the same flaws.
One such company is Social Kapital. On the surface, it’s almost identical to The DAO - it’s the same decentralized venture fund and business idea marketplace, powered by Ethereum technology. However, Social Kapital is not a simple clone. The developers have gone one step further and introduced several measures which are meant to protect the investors’ assets and their ability to vote in accordance with their own independent will. The voters have an opportunity to not only vote ‘yes’ or ‘no’, but also ‘abstain’, thus avoiding 100% commitment on issues which are not critical to them. Additionally, regardless of how shareholders vote, it does not affect their ability to withdraw their portion of uninvested funds from the organization; that is currently a major concern for The DAO’s investors.
Probably the most critical innovation of Social Kapital is the two-step decision making system. In order to pass any business decision, the proposal needs to receive both the majority of ‘yes’ shares and ‘yes’ shareholders. That means that no particular group of investors will be able to impose their will on the entire network: major shareholders will lack the numbers, and minor ones won’t have enough assets to do that.
Thus, the community is obliged to make truly common decisions.