Decentralized Autonomous Organizations or DAOs are part of a new wave of online communities stemming from the world of crypto.
From Non-fungible tokens (NFTs) to Blockchain-based finance, Decentralized Autonomous Organizations are part of a wave of technological innovation moving at a rapid pace and impacting every aspect of our lives.
We’ve already investigated Decentralized Finance and how this has the potential to go beyond the criticism associated with bitcoin mining’s impact on the climate and in fact enhance our sustainable ambitions.
In our latest blog, we’ll explore the concept of DAOs, the challenges and opportunities this creates and what the future of this world might look like.
What is a DAO?
Decentralized Autonomous Organizations are digital entities which function without any central leadership.
This means that any decisions are made from the bottom-up, governed by a community organized around a specific set of rules enforced on a blockchain. DAOs operate using smart contracts that are essentially chunks of code capable of automatically executing whenever a set of criteria are met.
DAOs are internet-native organizations collectively owned and managed by their members. They have built-in treasuries that are only accessible with the approval of this community. Decisions are made via proposals the group votes on during a specified period. This means a DAO works without hierarchical management and can have a large number of applications and purposes. They include:
- Freelance networks where contracts pool their funds to pay for software subscriptions,
- Charitable organizations where members approve donations
- Venture capital firms owned by a group
DAOs can come in all shapes and sizes with different infrastructures. Some of the leading DAOs are:
Why is a DAO so important for the future of work and creative projects?
Greater transparency and hierachies collapsed
Firstly, DAOs remove hierarchy and instead are based on the premise of founder alignment and vision. By coding the DAO requirements, objectives and metrics into smart contracts, DAOs are transparent and allow for significant efficiencies and trust-less governance.
By replacing many intermediaries, the DAOs themselves act as digital intermediaries that provide transparency and scale, giving them the stature of an organization without the traditional organizational constructs of entities, groups, management, charters and other forms of collective action.
Driving global collaboration
While the traditional centralized organizational structure is being challenged, the key organizational elements that remain are fuelling a new economic revolution giving birth to a new creator economy. This has the potential to bring artists, lawyers, developers and creators together from all around the globe to create ideas and monetize them at global scale in permissionless crypto economic systems built upon blockchain and Web3 technologies – and essentially redefine the future of work.
With a focus on innovation from these decentralized, transparent token models, end-users and employees will benefit while organizations will see cost savings and competitive benefits.
What is the future role of DAOs?
Many DAOs will emerge that represent the collaboration of a global talent pool, digital natives, and the ingenuity of a community that shares a common belief system – it will bring the term “organization” to life and ensure it goes beyond location and become a global concept.
DAOs provide a unique structure that naturally supports a creator economy. This economic model supports a structure through which you rent your talent and time, obtain flexibility and earnings, and leverage it to facilitate fractional ownership in the system supported and governed by the community. Blockchain and, by association, DAOs, embody a natural governance structure for borderless online collaboration on crypto-native projects by digital natives. This, incidentally, can be leveraged by Web3 as a technology paradigm aiming to provide rails for creation, tokenization and movement of value and assets.
The Web3 aim to solve content ownership and provide portability of digital assets by tokenizing them paves the way to trade this tokenized value for other fungible tokenized assets, thereby enabling creators to monetize their work effort. These work efforts may include (but are not limited to) mining and the creation of content.
Challenges and unknowns of DAOs
Despite their growing popularity, DAOs have a long way to go before reaching full mainstream adoption. Not all DAOs work out. In fact, most DAOs won’t work out over the long-term. It’s always possible that the governance token value for a DAO may hit zero.
Other issues include potential legal uncertainty surrounding their operations and aspects of their work such as treasury management and taxation. These will need to be reviewed constantly as new relationships and arrangements are created that exist without any legal precedent. Many stakeholders also have questions around liabilities and the best ways to limit these in this environment.
Managing a global workforce
Alongside any legal questions around the recruitment and onboarding of creatives, there are also questions to be answered on how talent is managed, particularly with a global workforce in place. Each country has different employment and taxation rules which could lead to some potential headaches for organizations.
Despite the unknowns, those in the space think that DAOs will be a disruptive force for good to traditional structures of business. The adoption of a new technology or process can always be seen as daunting to begin with. But the potential to totally change how organizations work is a huge opportunity for us all.