Rise of DAOs: How Decentralized Autonomous Organizations are Changing the Governance of Communities
Introduction
People are drawn to Decentralized Autonomous Organizations (DAOs) because they foster faster decision-making. If you have ever been in a business or a community where you grew to regret decisions that took weeks, you get the idea. In some sense, DAOs are the new, almost revolutionary way for people to coexist online, placing the power of the crowd in front of any kind of authority.
DAOs give entrepreneurs interested in the future of crypto something new and practical: a public, grassroots plan for decision-making. DAOs facilitate collaboration around the world, make payback practical within seconds, and enable the pace of innovation all other forms of organization can not get close to. Finally, DAOs are the method the internet learns to self-govern in a just and effective manner.
What are DAOs?
DAOs are groups led by code rather than a person in charge. They are run by smart contracts, which are pieces of code on a blockchain that perform actions based on choices made when the community votes on them.
But do not confuse the term "autonomous." DAOs are not autonomous robots. They still rely on people to talk, practice, and vote. The blockchain simply serves as a platform for everyone to follow the same rules.
DAOs are transparent, clear and around the world, compared to traditional organizations where hierarchy is more defined, and decisions happen behind closed doors. Anyone can see where funds are directed, how votes are counted, or what the rules are for governance. This isn't just governance; it's governance without the curtains.
How DAOs Really Work
The governing token of a DAO is the heart of the DAO. The members can vote with the token and, thus, feel ownership. Proposals can be as simple as asking for some funds for an idea or writing the rules of the community. The vote is executed on the blockchain with a smart contract immediately upon the vote finishing my absence of all intermediation.
For example, MakerDAO manages DAI, the stablecoin, which is collateralized by digital assets. Members propose changes to something like interest rates or collateral type. Then they vote. Most people agree and the code executes. This is democracy but the judge is the blockchain.
Yet the most successful DAOs have also acknowledged the limits of all technology, including the limits of human judgment. People will grow and evolve but it is the blockchain that provides trust of one to another.
Various Types of DAOs
DAOs mean different things to different people. They can take multiple forms, but they all have the same end goals:
Protocol DAOs oversee Decentralized Finance (DeFi) protocols like Uniswap.
- DAOs are investment communities that pool capital to help fund potentially high-growth businesses and/or assets.
- Collector DAOs, like PleasrDAO collect NFTs and digital art.
- Service DAOs pull together independent people to complete various work, like RaidGuild.
- Grant DAOs are other forms of DAOs that concentrate on funding open-source projects, like Gitcoin Grants.
Even though each individual plays a different unique role, they are all unified around shared beliefs or values: co-ownership, transparency, and automation.
The Positive Aspects of DAOs
DAOs offer a unique and promising form of governance because individuals are empowered through participation. Everyone can have a voice as transparency is paramount in all communications.
They break insignificance or barriers of authority, replacing managers and gatekeepers with the collective judgment of the member participants. The members can bring forward productive ideas without pre-approval from bosses. The members have the flexibility to decide how they would like to put those ideas to practice.
DAOs run on the speed of the internet. Projects are proposed, voted on, and funded not in months, but in days. Funding and voting happen automatically. And, everything is recorded on the blockchain for an easy and irrefutable level of transparency.
Just imagine an artist collective where the members propose projects, vote on those projects immediately, and collectively fund tiny amounts without any forms. No committee meetings and no group texts just momentum and trust. That's the upside of the DAO.
How DAOs Keep Individuals Going
DAOs are effective in turning the energy of the community into the outcome in the real world. They incentivize everyone in the membership to be aligned with the goal by rewarding members for any value they bring by rewarding members for any value they bring by means of tokens, not just for showing up to the DAO.
For example, developers may receive tokens for coding, designers for graphic work, and authors for promoting the initiative. Not only do they receive tokens for having a voice in the organization, they are also rewarded for their efforts.
Some DAOs have successfully created a reputation system to earn incentives for the value they contribute and more tokens than token holders. This creates a decision-making power not to the one merely has capital, but rather those who are truly dedicated to moving the DAO forward.
What we have created is essentially a sort of loop that runs itself and the more time and value you give the more you have value to offer.
DAOs and Regular Groups
This example illustrates the distinction:
A traditional organization is structured like a pyramid, with its members organized with a top-down lens and overwhelmed by layers of red tape. A DAO is not structured like a pyramid, it is instead a network. Each member is a node that connects directly to each other to reach the same conclusion together.
Companies place trust in their executives whereas a DAO places trust in its code and the community consensus. Traditional modes of organization often produce opacity regarding who decides what and why; a DAO removes this opacity and provides transparency for all.
DAOs flatten hierarchies but they also replace trust with transparency.
The Challenges Facing DAOs
There are issues present in any system. DAOs have serious issues that we might not address, even if there are individual members all pointing towards some common anchor of being a member of a DAO. If there aren't enough members acting, power returns to centralization and the goals of decentralization cannot be achieved.
Some individuals are not enthusiastic about joining in any way, but especially for members who are less worried about technology. Onboarding and walking someone through connecting a wallet shouldn't be too complicated.
Another issue is information, which combining information and too much information might make it even more difficult to formulate a decision.
And then also, the legal grey areas in most jurisdictions there is no easy resolution on how to classify DAOs.
DAOs, then, have a longer view. They are still looking forward to a better user experience in the future.
How DAOs Are Evolving
DAOs are learning quickly, even while they are having issues. There's no need to stress over voting; it's as easy as clicking a button with tools like Snapshot, and Tally now has introduced delegated voting where members provide their ballots to someone they trust.
To balance things out, and avoid burnout, some DAOs now also have facilitators that switch off some of the time.
Development is happening on the legal aspect of DAOs. Wyoming, like some of the states, has recognized DAOs as a legitimate business by giving DAOs "DAO LLC" status, which gives them the same legal rights as other LLCs.
So, here's the TL;DR on DAOs: they are getting more sophisticated, not by getting rid of decentralization, but by streamlining the way people and lines of code interact.
DAO Success Stories
Some DAOs have already shown what's possible:
- MakerDAO created the most reliable DeFi stablecoins.
- Millions in community voting has gone to open source projects through GitCoin Grants.
- Friends with Benefits (FWB) has taken social networking to a cultural phenomenon with a DAO.
- In just a few days, thousands were crowdsourced to take out a bid on a copy of the United States constitution.
These examples show that DAOs are not just conceptual; they are real communities living, breathing and giving back.
The Human Element of DAOs
DAOs have that fundamentally human idea at the heart of its existence, even though it's so connected at the same time to code and automation: shared purpose.
People, creative beings, builders, and dreamers are the soul that brings the blockchain to life. Without people, a DAO is simply a few lines of text tied together on a chain. But once people get together, talk, and collaborate, an amazing thing happens: trust develops through understanding.
It is the balance between structure and improvised, and between efficiency and concern that represents DAOs.
Where Does the Future of DAOs Lie?
DAOs have the potential to become "pop-up" organizations of the future ad-hoc groups that come together temporarily for a purpose and then disperse immediately afterwards. This extreme flexibility means we could change how communities respond to disasters, how we fund campaigns or even run campaigns.
DAOs are likely to represent the dominant mode of governance in the future beyond the world of cryptocurrency for all types of organizations as long as they produce a better user experience, a clearer legal concept, and a smoother integration with AI technology. A future where organizations, new businesses, or even cities are run transparently through DAO mechanisms is easy to imagine.
It was the simple idea of fewer rules and regulations and more people.
How Business Owners Can Use DAOs
DAOs are not simply theorization to the builders and planners, they are indeed a new mechanism to organize your project. You will:
- Invite individuals you meet to assist your project by raising funds through the tokens.
- Implement transparent, automated payments to authors as awards.
- Encourage members to support each other by participating in making decisions.
- Expand your business anywhere in the globe without the standard business limitations.
Start with a clear goal, create a community engagement experience and then let the governance develop, rather than take control. It is this that is so powerful for entrepreneurs, when everything is legitimized through the DAOs.
Conclusion
DAOs demonstrate a new way of cooperating, rather than being the latest techno-fad. They show the capacity of people to come together to make decisions, run a process, and generate value free of central authority.
It is not the blockchain that provides the value it is people, and it is the people that provide meaning. The code ensures people are treated justly, but it is people that provide meaning.
When people join or start a DAO it is not only an entrepreneurial way to get into cryptocurrency but also an opportunity for them to consider the leadership, collaboration, and ownership of the digital environment.
The future of government has arrived. It is open, shareable, and beautifully coded.
This article is contributed by an external writer: Razel Jade Hijastro.
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