Decentralized Autonomous Organizations or DAOs are increasing in numbers by the day as people become more interested in the world of Web3. Currently, there are over a thousand DAOs which are used for many purposes like investing, charity, fundraising, and borrowing or buying NFTs.
There are also upcoming ones on the horizon serving a particular purpose such as managing a blockchain-based game using NFTs, or supporting and funding access to abortion. Given the adoption of this new type of organization, is it better than the traditional top-down organizational structure? DAOs are commonly used as governing bodies of Web3 applications such as virtual worlds or metaverse or blockchain-based games, but it can also just be a convergence of a group with a similar purpose or goal.
It is leaning towards a community-based and socially-conscious organization structure. DAOs empower individuals, value their ideas and opinions, as well as give them equal voting rights on the direction of the organization. This is different from the traditional org setting, where the desires of large shareholders often come first. DAO’s rules and operational systems are embedded in codes – also known smart contracts – in the blockchain.
Having decisions enforced through these codes, DAO works well in digital blockchain-based operations where there is room for planning and writing smart contracts in detail before an action is taken. It is less suited for uncertain commercial areas or situations where you sometimes need to make decisions on the spot (which c-suite executives do) when faced by market uncertainties, incomplete data, or crises. So to answer the previous question, which one is better, the answer is: no one is better than the other as there are respective areas in which DAOs and traditional organizations triumph.
But as a new structure, there is more to know about DAOs. In its core, DAO’s main value is enabling individuals and communities to thrive, and enriching human capital development and innovation.
With DAOs, members have the freedom to work however they want, anywhere, and anytime. They are not bound by a 40-hour work week. Instead, they have the choice on what to work on, and control when and how long they will work.
This is opposite from the traditional organization model where you are assigned tasks and required to report to work 8 hours per day which can be counter-productive. Freedom to do work that you like whenever and wherever allows individuals to be more inspired and productive, and this can reflect on the quality of their work.
Full-time office workers reported only being productive for an average of 2 hours and 53 minutes per day, which shows how inefficient and damaging the regular 8-hour workday is for the workers and the organization. DAO is the opposite. Having the discretion on when, where and how you do your work can reduce the instances of unproductivity, bring out the creativity in members, and potentially increase the quality of their work.
Owning a governance token grants voting rights on key decisions. A DAO listens and considers opinions of its members who came from various walks of life. This may improve creativity and innovation inside the organization that can reflect in the actions of the DAO. You can have marketers, social media professionals, program developers and coders, and liaison officers to forge and maintain partnerships as members.
They provide value in coming up with great ideas beneficial for DAOs. One of the top DAOs, DAO Maker, was successful in pushing boundaries for its cause. DAO Maker is a lending platform which acts as a decentralized version of a central bank. Their Maker Protocol application allows users to borrow funds by supplying collateral. They started exploring the idea of bringing in real-world assets into the cryptocurrency sector through tokenization. This is a creative and innovative way in connecting digital and physical, and solving real-world problems through the blockchain technology.
Doing work that can result in a positive impact on the world is more rewarding and fulfilling for an individual. Creating or joining a DAO that supports and stands for the same things that the member believes in will bring meaning into their work. DAOs also foster communities that will embrace members as individuals, and take into account their viewpoints and inputs in decision making.
With automation carrying out and taking over monotonous shallow tasks, individuals – the human capital – can dedicate their hours into meaningful and high-value work that will allow them to grow and improve themselves, advance the DAO forward (by submitting proposals for the members to vote on), and receive compensation and feel a sense of fulfillment.
DAO governance token holders have the power to vote and have a say on the decisions and direction of the organization. Individuals are not confined by the structure, or face limitations from bosses or managers. They are empowered through having voting power, rewards and tradable tokens. A DAO enables every member to shape the direction of the organization rather than setting their ideas and opinions aside.
DAO is relatively a new type of organizational structure, and it has issues that need to be addressed. DAO is automated and operates autonomously through smart contracts, but the codes are as good as the human developer. There can be loopholes which can be exploited by hackers to siphon off money from the organization. There must be extra layers of checks, and edits if needed, to ensure a foolproof code. Security measures also need to be in place such as hiring a firm specializing in the security and auditing of DAOs, and figuring out legal safeguards in case of damages from code vulnerabilities or malicious actors.
DAOs have bought real estate assets and tried to buy a copy of the Constitution before, and these assets acquired must be protected through placing a custodian, insurance and tax accountant to keep the assets safe and secured. Organizations creating DAOs must also understand that it’s possible that you may not see the light of the day for your investment on the governance token, since it will be difficult to give it back due to high conversion fees, complicated codes and other factors.
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