Table of Contents

March 12, 2022 5 min read

Decentralized Autonomous Organizations (DAOs) – Redefining Existing Structures of Human Collaborations

Exploring the concept of DAOs and the opportunities it presents for the modern world.

Introduction to DAOs

Decentralized Autonomous Organization (DAO) is an internet-based borderless democratic organization of persons working towards shared goals and funded by a shared treasury to achieve their common objectives.

DAOs are borderless, devoid of central leadership hierarchy, and not affiliated to any nation-state, making it a highly efficient way of working together with like-minded individuals across the globe. DAOs are cropping up in many sectors and are enabling businesses to run like never before. DAOs are also opening up new frontiers for Digital Startups and nurturing internet communities to monetize their collaborations.

DAOs are borderless, devoid of central leadership hierarchy, and not affiliated to any nation-state.

What is a DAO?

A Decentralized Autonomous Organization runs on an open-source blockchain protocol. The organization is governed by a well-defined code decided by its stakeholders.. The code (alternatively, “set of rules”) is encoded into the protocol, and based on the occurrence of the specified conditions for a particular action, the program self-executes.

This eliminates the need for any intermediaries to supervise the organization's functions and limits the need for a centralized structure to run the organization

How do DAOs operate?

DAOs employ smart contracts on open-source protocols to manage and own the organization. The group members collectively decide on various proposals regarding the operations of the organization through voting mechanisms.

DAOs can function autonomously and support a decentralized form of human organization due to “smart contracts”.

What is a “smart contract”?

Smart Contracts are programs that are powered by blockchain that led to the development of Trustless Protocols on which DAOs operate. It is a digital transaction executed based on a set of rules. A computer code enforces the transaction when all the predefined conditions for such a contract are met. Smart Contracts enable people to enter agreements without personally knowing or having “trust” over the other individual because one can be sure that if the predefined conditions are not met, the contract will not execute itself. This allows individuals to transact with ease and without any intermediaries to supervise the performance of the contract.

DAOs employ smart contracts on open-source protocols to manage and own the organization.

What are DAOs made of?

The DAO puts its community first, and each person’s interest and the decision is coordinated at scale using the protocol software.

At the core of any organization of individuals is its deliberation and decision-making process to achieve its goals. A DAO’s structure is a grassroots network spread all across its people and the software.

DAOs typically require a protocol software that houses a wallet for storing native cryptocurrency, which acts as the treasury. The protocol software enables members of the DAO to submit proposals on various aspects of the DAO and the rest of the members to vote, allowing all organization members to play an active role in the development and functioning of the organization. This increases their contribution towards realizing the goals of the organization.

The anatomy of DAO is simple. Typically, there is a treasury, a governance mechanism and tools to facilitate communication among members to make strategic decisions in any DAO.

DAOs are a modern business model made possible by blockchain.

The fundamental notions underlying the DAO Landscape are the sharing of value among the community and not the centralization of wealth and ownership. Even a group chat working towards a unified mission with a pooled fund of 1 ETH can be a DAO.

DAOs are facilitating individuals to collaborate at a scale and level of efficiency that was never seen before owing to the concept of collective ownership

Types of DAOs

There are several types of DAOs based on their purpose. Grants DAOs are organizations wherein members pool funds and use the DAO structure to make decisions on allocation of that capital to various contributors. There are Protocol DAOs wherein the core members of this DAO who are token holders, govern the protocol. Investment DAOs work similar to Grants DAOs wherein members collectively bring in capital and vote on investment decisions on projects where the collective capital can generate good returns. There are Social DAOs and Collector DAOs where communities come together and monetize their social capital i.e., people with similar interests join hands to form digital businesses through shared interests.

This is not an exhaustive list as the DAO Landscape is dynamic and is steadily expanding into new sectors wherein many individuals are breaking away from traditional forms of organization into a more community-centric and ownership-based form of organization.

Distinguishing DAOs from traditional organizational infrastructure

DAOs are the new gene variant in the DNA of present day organizational structures. DAOs are fundamentally distinct from traditional organizations on multiple fronts. Here are a few differences that have resulted in DAOs rising to prominence as more favorable form of organizing a group than a traditional company structure-

1
Legal contracts do not bind members of a DAO.
1
Traditional organizations have employment contracts and other legal contracts which are binding on its employees.
2
All members of a DAO participate in the decision-making through a voting system. Governance is decentralized.
2
Centralized group of persons with a higher veto power make decisions on governance.
3
Members of DAO are not arranged in a top-bottom hierarchy but are arranged in a grassroot network.
3
Traditional organizations have top-bottom hierarchy with diminishing levels of control over the decisions made in the organization.

DAOs are self-regulated autonomous communities that are devoid of central supervision

Future of DAOs

DAOs present more of a forward-facing outlook on the future of societal organizations for the creation of value. DAOs provide higher levels of transparency, efficiency and mainly higher degrees of ownership and accountability to each member of a DAO.

“DAOs can disrupt the current model of the financial ecosystem and bring an era of a digital economy that is founded on transparency, trust and inclusivity.”

As DAOs are an internet-native community, there are lesser barriers to entry making it easy to venture globally without being faced with any geo-political difficulties. DAOs can develop new financial markets and foster the growth of digital economies due to its ease of operation and distributed networks. These Decentralized networks improve the engagement of members in the digital economy due to its incentive mechanisms thereby serving as a catalyst for its growth.

Conclusion

DAOs harbor the potential to re-define and re-shape Human Collaborations from the current company infrastructure to a decentralized community-run framework.

DAOs are still under design and the scope for improvement is manifold. There are several concerns regarding the potential mass adoption of DAOs ranging from legal issues, technical issues, security-related issues and mainly that of its ability to manage massive human capital. Security concerns in DAOs are also significant given the 2016 mishap where hackers attacked a DAO on security vulnerabilities. These concerns can be fixed shortly, leading to DAOs becoming one of the most efficient and omnipotent organizational engines that can run the economy of the modern internet-based society.

Great! Next, complete checkout for full access to Crypto Capable.
Welcome back! You've successfully signed in.
You've successfully subscribed to Crypto Capable.
Success! Your account is fully activated, you now have access to all content.
Success! Your billing info has been updated.
Your billing was not updated.