In 2013, Vitalik Buterin gave the first description of DAO in Ethereum Whitepaper. In 2016, The DAO emerged and was hacked. Till now, new DAO projects are springing up. DAO, a form of organization, has been permeating all fields. Some even go beyond cryptocurrency to become a way for real-world organizations.

#What is DAO

DAO is a distributed autonomous organization where the computer code in the smart contract automatically executes the decisions made by organizations and firms or voted by token holders; it reaches its goals in a decentralized manner, free of any centralization or hierarchy. Its financial transactions and rules are recorded on the blockchain and need no involvement from other third parties; the stable DAO is built on the code of smart contract which defines the rules of the organization and holds the organizational content stored.

DAO has a democratic organization, compared with traditional firms. Depending on the corporate structure, all members, rather than any individual, vote for any changes to be implemented. The DAO gets money by issuing tokens for crowdfunding and is subject to governance by the community, while traditional firms are mainly governed by executives, boards of directors, and major investors. Conventional firms are operated privately and what happened inside is only limited to the organization. On the contrary, DAO is operated transparently and globally in every way.

#The Changes in Organizational Structure

Before the industrial revolution, only a few waged people worked for organizations, and the vast majority of individuals were engaged in their own products and businesses. The industrial revolution rapidly changed the situation. Industrialization brought many opportunities to access more wealth. The huge capacity of business demanded a vast labor force. These changes integrated workers into large organizations featuring centralized command systems, so firms have gradually become a common form of cooperation and management.

Ronald Coase explains the reasons for the existence of firms and the factors to define scale with transaction cost theory and organization cost theory in The Nature of Firms. Oliver Williamson developed and deepened that theory, and introduced this method into the firms. He analyzed the hierarchical structure of the firm, especially the functions of the headquarters. He probed into the impact of U-form (unitary form), H-form (holding company), and M-form (multidivisional) organizational structures on the costs of coordination in the firm, thus revealing the relationship between transaction characteristics and transaction structure. Here, we will elaborate and compare the U-form and M-form organizational structures to understand the structural changes of firms.

#U-form Organizational Structures

At the end of the 19th century and the beginning of the 20th century, large firms generally adopt the U-form structure, a vertically integrated functional structure that classifies departments by functional lines. This highly centralized U-form organizational structure remained the mainstream form of organizations until the 1960s.

Top-down management is the unique feature of the U-form organizational structure. Under the linear functional structure, the production and operation activities of the firms are divided into several functional departments by their functional lines. Each department has a top-down system too. The less independent departments are controlled centrally. Every department or system is directly managed by the senior leaders. The U-form structure was initiated by General Electric and became pervasive among 80% out of 236 manufacturers in the US by 1917. The U-form structure can increase certain scale and efficiency for the firms, so it is applied in a stable market there are few product varieties and large price elasticity of demand.

#M-form Organizational Structures

Multidivisional structure, also known as a divisional system or multi-department structure, is an organizational structure composed of independent units or divisions. The organization is divided into departments by regions or products and divisions it operates. Under the design, each unit or division has greater independence, and the general manager of divisions, who is responsible for the performance of the unit, has the right to make business decisions. Each business division conducts independent accounting and assumes sole responsibility for its own profits and losses. The headquarters usually acts as an external supervisor of the business by coordinating and controlling the activities of each business division, as well as providing support in finance and law services. The M-form organizational structure is mainly applicable to organizations engaged in product and operational diversity, as well as large firms and giants facing complex volatile market environments or located at scattered geographical places.

#From U-form to M-form Organization

As globalization closely connects the world economy, firms need to competitively diversify and expand products to grow increasingly complicated businesses and enter the global market. However, the firms with a diversification strategy have a wide variety of products and branches, so the centralized U-form structure is no longer able to manage the expanding complicated administrative decisions; the continuous expansion to the new market and fields also requires larger decentralized organizations, which drives the firms to delegate the lower-level departments who supervise different products or geographical locations to make decisions. Therefore, U-form firms began to innovate and decentralize themselves into a multi-department M-form structure.

In the U-form structure, the information is processed in a linear manner, and decisions are made from the top; however, in the M-form structure, the information is processed in a parallel manner and people in each node can share their suggestions. Seen from the transformation, it is concluded that the M-form structure becomes the dominant form to organize the firms in replace of the U-form structure. The DAO is exactly changing the M-form organization toward better decentralization. M-form organization has replaced U-form organization amid globalization in the way as firms have gradually become a common form of organization for cooperation and management after the second industrial revolution; with the advent of Web3, DAO will also replace M-form organization as a new form of organization in human history.

#Advantages of DAO

The reason why DAO will be the next type of organization is that it not only realizes mass collaboration on a large scale but also address current problems in firms with solutions to continuous optimization and upgrading. This native structure based on Internet and encryption is designed to decentralize governance and ownership and enable contributors to determine the project and benefit from its success.

DAO is more transparent than traditional firms. Anyone can view all behaviors and funds in DAO, which greatly reduces the risk of corruption and censorship. Listed companies must provide independently audited financial statements, but shareholders only have a timely knowledge of their financial situation; the balance sheet of DAO is written on the public blockchain, 100% transparent at all times. Besides, DAOcan flexibly connects every global participant, with lower barriers; DAO can effectively expand collaboration, and eliminate transaction costs in the market through smart contracts and incentive systems, so larger groups and organizations are operated in this market of increased trust.

In addition, one of the prospects led by DAO is to build collective intelligence on a large scale. The incentive provided by smart contracts coordinates individuals without any leadership and each participant can make decisions in their own interests. If guided by the proper incentives, the decisions of each member are pooled as the collective intelligence which is far beyond the capacity of any traditional decision-making mechanism. If the access and information within the organization are open rather than closed, the whole economic paradigm will change from competition to cooperation. Since the operation of smart contracts needs to be checked by others before they can be trusted, the only way out is to keep moving and innovating, rather than building the moat. In an open environment, instead of accumulating any innovation as the exclusive advantage in a single project, every innovation can be immediately available to the market and fairly improve the quality and speed of decision-making.

So how does DAO motivate participants while ensuring fairness? veDAO provides a wonderful solution for decentralized community governance.

#Fairness and Incentive: the Key to Decentralized Community Governance

veDAO is built on the governance of DAO and decentralized smart contracts. Whether the project can be funded on the platform is entirely decided by veDAO community governance; Voting for governance, fund-raising process, token distribution, and income distribution are all completed in a decentralized manner through smart contracts — a truly decentralized IDO in all processes. veDAO ensures fairness and offers reasonable incentives — the key to decentralized community governance.

Fairness

With a sound operation mechanism, veDAO builds an open, transparent, unmanaged, unlicensed investing and financing market with a multi-chain ecosystem and develops a professional, efficient, and autonomous community with mass collaboration.

Financing

Both the project providers and referees can initiate financing proposals. veDAO allows an easy process for fast application free of permission and KYC/KYB and a customized price and amount. It also supports diversified financing such as IDO/INO. Compared with other financing platforms, veDAO has lower barriers to more flexible financing applications. Its rules of pledge encourage more quality investment proposals and prevent too many low-quality proposals to ensure fairness during financing proposals.

Voting by Voters

Voters sign and authorize their wallet address to vote. The results are uploaded to the blockchain for decentralized storage and cannot be tampered with; the reasonable lottery winning mechanism on veDAO enables more people to acquire investment quotas. Whether voting for or against, users can receive income from the governance by the proportion of votes to ensure the quota is distributed fairly.

Reward and Punishment Mechanism for Voting

veDAO effectively runs vote-based governance by setting up a reward and punishment mechanism. The vote is determined by the number of veDAO and the weight (vote = number of veDAO * weight). The weight, bound to voters’ wallet address, cannot be transferred.

Every voter has the same initial weight. veDAO will increase the weight of the voters who make every correct vote and will reduce the weight of the voters who make every incorrect vote. Any application will be approved if over 80% of voters vote for approval; If approved, veDAO will determine whether the fundraising is successful according to whether the actual fund raised exceeds 70% of the fund proposed: if the project is regarded as a successful fund-raising, those who vote for it will be deemed to have made the right vote, and those who vote against it will be deemed to have made the incorrect vote, and vice versa.

#Free for All and Elites’ Insight

veDAO fully pools the crowd wisdom and the insight of elites into a part of DAO to build real collective intelligence. The setting drives users to have a neutral, objective, and professional judgment on projects and creates a new paradigm of investing and financing really exclusive to Web3, thus making more fair and reliable decisions.

Encouraged by the reward and punishment mechanism, elites can stand out and get better incomes from governance. As more and more elites are in the running, veDAO will allow voters to delegate their vote to proxies in the future. Voters’ proxies are Damocleser who exercise the right to vote on behalf of voters. In this way, veDAO can fully combine and fairly balance the free-to-all engagement and elites’ insights to make optimal decisions and maximize the interests of each participant.

Incentives

The incentive is the core of DAO. How to attract more participants and beat other competitors is positively related to incentives. veDAO gives a variety of identities to members, reducing blindness and herd mentality. Members can give full play to their own advantages and get rewards and the potential and advantages of DAO in organizational structure will be maximized.

Diverse Identities

veDAO is completely owned and governed by DAO members from the beginning so that everyone can gain fair returns by their capacities. The highlight is to distribute the maximum incomes in a most equitable manner. The platform divides the members into six kinds of identities, which defines the detailed roles in a flexible DAO. Therefore, DAO members can choose one or more identities according to their abilities and needs and get the due returns for each contribution.

Financing Application

The financing applicants, usually financiers and referees, can apply for financing application from two perspectives: the project providers and individuals, broadening the possibilities. They can dig out potential projects at the earliest stage, gather resources from multiple parties, and continue to provide high-quality projects. This combination can supply veDAO with high-quality project applications from multiple perspectives.

Investment and Governance

Investors and pledging users mainly benefit from the investment. At veDAO, a high-quality, efficient lottery winning mechanism ensures that DAO members in these two roles can maximize their income and positively facilitate the investing and financing process; voters can pledge DAO or LP to obtain the right to govern veDAO on behalf of users, from which members can also get incomes. Users can adjust their identity at any time as they learn more about veDAO and have different knowledge of the financing projects applied for, so as to engage more in the activities for more income.

Business Managers

Any user with negotiation skills and project resources can become a business manager on veDAO. To get additional incentives, business managers should find and match-make the projects in need of financing, and help the projects raise funds on veDAO. Business managers, acting like a catalyst, bring a closer relationship between the projects and veDAO community and facilitate close cooperation through communications. What they do is bring more suitable and much-needed support to the projects, which expands and enhances their value and prospects; that coordination also fully familiarizes every user in veDAO community with the projects, from which the latter can choose an identity and investing proportion to maximize benefits.

As a newer, more efficient, and more transparent form of organization, DAO is bound to become the most significant and most widely-used organization form in the future. veDAO aspires to find and invest in the most potential projects under the voting mechanism, and establish a community full of financiers, investors, and DAO members. Moreover, stimulated by the incentive of smart contract, each veDAO member coordinates with other users without any leadership, and each participant can make decisions in their interests.

It is based on such membership and rewards planning that veDAO establishes a fully automated, community-governed, and unmanaged investing and financing platform. The multiple identities maximize the potential at DAO. Different roles gather together on veDAO. Members only need to act in their own interests, so the decisions of each member make a collective intelligence. The model redefines the pattern of production, and distributes the incomes equally; thus every member can contribute to the future success of encryption projects.