1 December 2021: A rising trend within decentralization is that of decentralized autonomous organizations (DAOs). Pitted as a potential replacement for traditional business models, DAOs have been surging in popularity among interested investors. This article will give a brief introduction into what DAOs are, how they operate, and their potential future use cases.
Decentralized Autonomous Organizations
A decentralized autonomous organization or DAO is a form of internet-based organization that utilizes blockchain technology as a trustless ledger. This allows participants within the DAO to pool assets together and come to consensus without the need for a centralized entity, organization, or government. DAOs have been compared to limited liability companies (LLCs) or even venture capital firms within the traditional business world. The exception DAOs are actively leveraging blockchain technology & exist in a digital format.
Some well-known DAOs & DAO hosts include the following:
Some key advantages of DAOs include:
- Active participation and collaboration between interested parties anywhere in the world
- Fully decentralized control away from the influence of outside organizations or institutions
- No requirement for bureaucracy or hierarchial structure
- Integration with emerging blockchain / web3 technologies
How DAOs Actually Work
The formal establishment of a functional DAO requires a few key steps. If created correctly, a DAO will be fully autonomous, transparent, accessible, and democratic.
The necessities to establish a DAO in short include:
- Set of rules encoded on the blockchain
- A way in which the DAO can raise capital
- A protocol for governance of the DAO
When individuals interested in starting a DAO come together, the first step is offically encoding rules of the DAO onto the blockchain via smart contracts. The rules serve as the governing law of the DAO and are transparent and readily accessible to all parties. DAOs also need an appropriate way to raise capital and establish governance - both of which are generally answered through the issuance of a governance token.
A DAO governance token not only provides an asset for potential investors and members to buy into, but it also provides a means for governance, generally through staking. This includes voting on new proposals for the DAO, changing or revising encoded laws, and establishing directional changes.
Why DAOs Could Disrupt Business Structure
Many prominent institutions and investors - including that of billionaire Mark Cuban - have publically made very positive remarks regarding DAOs. What exactly is it about DAOs that has everyone so excited?
Because DAOs leverage blockchain technology, it completely eliminates the need for outside regulation and centralized, hierarchial management. DAOs also have the ability to incorporate collaboration between parties anywhere in the world. For traditional businesses, this is quite the opposite. Most businesses are centralized, undemocratic, lack transparency, and cannot facilitate global collaboration as easily as DAOs.
Instead of future organizations and companies being created through traditional structures, we could see DAOs replacing startups instead.
This could have potentially substantial ramifications for the global economy as it could finally introduce democratic models to the workplace. This creates more economic opportunity for participants and subsequently more growth, wealth, & prosperity within active communities.
DAOs are a very interesting concept that is currently gaining momentum as a legitimate enterprise solution for those looking to start a decentralized organization on the blockchain. In part, utilizing such a model could allow the creation of thousands of startup organizations on L1 smart contract networks like Ethereum, Solana, Algorand, and others.
With an established trend, we could see large portions of the workforce switching positions to join DAOs or even existing companies reorganizing themselves as a DAO on the blockchain.
The introduction of a democratic workplace model has been a long time coming. DAOs share various advantages over traditional business structures and should be viewed as a potentially economy-changing phenomenon.
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