Graceful Exit BOND market

Under DGF, primary DAOs are encouraged to be maximally open. This means anyone willing to follow a DAO's protocols may join or leave at will. In order to facilitate the ability to leave a DAO, the value of any member's contributions should be fairly compensated at any point when the member chooses to leave. A Graceful Exit BOND market allows a member to cash out, by converting their REP tokens to BOND tokens then sell the BONDs at market.

Overview

In most cases, when someone wishes to retire from a DAO, they would presumably stop participating and earning REP tokens, but continue enjoying the REP salary for the tenure of their remaining REP tokens.

However, any DAO has the option to give their members the further option of a Graceful Exit through a BOND market. When someone wishes to exit a DAO and immediately cash out, instead of using the annuity function of the REP salary, they can convert their REP into a BOND with the same claim on the REP salary. However, a BOND typically has none of the powers of voting, or availability signalling. The point of converting is that the members can then sell those BONDs on the BOND market. This allows them to achieve an immediate gain of cash, if desired.

Security

This mechanism inhibits the natural market for REP tokens, since its existence ethically justifies the slashing of any REP tokens that can be proven to have been sold. Therefore the BOND market should, under most circumstances, prevent the existence of any REP market. The reason is that REP tokens sold at market are then not as valuable as BONDs, if the threat of slashing is supported by active policing.

This inhibits the everpresent threat of 51% attacks in any DAO. Without a Graceful Exit BOND market, the desire to cash out would give the incentive to sell REP tokens. Whenever REP tokens can be purchased, there is an opportunity to accumulate a majority of the power in a DAO merely by purchasing them. Given the weighted democratic nature of a primary DAO, once someone has 51% of the power, they can pass any legislation desired. Regardless of safeguards, eventually, a patient adversary of the DAO can create new standards and strip the DAO of value – for 51% of the value of a DAO, a wealthy and patient adversary can gain 100% of the value of the DAO. With the Graceful Exit BOND market in place, this attack is inhibited, because then, the only way to aquire 51% of the power in the DAO is to outcompete the rest of the DAO by working. Using the availability smart contract's random selection of workers according to existing REP, a probability argument shows this is only possible when more than 50% of the DAO is not using their REP to capacity. Even then it will take a significant period of time to achieve, and at the same time the attacker would enrich existing REP holders by an absolute minimum of twice their existing value.

However, DAOs which choose to institute a Graceful Exit are opening an attack vector: pseudonymous members in uncertain legal jurisdictions who cash out their REP immediately in trade for BONDs which are sold at market for cash cannot subsequently be slashed. This diminishes one of the strengths of REP tokens, their future orientation, since a Graceful Exit prevents the DAO from reviewing the actions that led to the minting of the REP tokens.

See Also

• BOND tokens
  • iBONDs
  • fciBONDs
  • fREP
  • BOND Markets
• REP tokens
  • Reputation tokenomics
• DAOs