A DAO (decentralized autonomous organization) is a new organizational form that allows resources to be coordinated through decentralized mechanisms. DAOs exist to coordinate people around a common goal and generate public goods, similar to traditional organizations such as corporations, governments, and cooperatives. DAOs are a great organizational form that allows coordination with less overhead and more aligned incentives. That’s why some of the most amazing products we see today came about because of DAOs.
Advantages of DAO
DAO is a distributed, rule-based, self-perpetuating system. It has a well-defined public process for changing its code base. It has no single point of failure or control. The DAO codebase can be improved with built-in decision-making methods.
The foundation of FAO is open source. Everything here is fair and transparent, each of the participants has the right to read the terms of the algorithm and decide on the involvement. Open voting also increases trust. Along with this, the value of each participant grows, because his vote counts. The size of the DAO doesn’t matter either. You can form a team of 2 people, or more than 100, it depends on the desired goal.
In DAO, the main goal is to obtain mutual benefit (win-win) of all stakeholders. The common interest of users and investors serves as a great motivator for growth and development. In my opinion it is the cohesion of people that makes DAO a very effective form of organization. I think it can be compared to people who hold shares of the company in which they work, only in a more modern form — there is no boss or director, everyone is on an equal footing. Investors, on the other hand, can pool funds, DAOs also give them the opportunity to invest in startups and early-stage decentralized projects while sharing the risk and any profits that may come from them. Plus, you can participate in several DAOs at once and have different roles — choose whatever you like, that’s one of the benefits.
For example, in the project Covalent already formed interesting guilds in different areas, there is even a guild Esports, Mental Health and Fitness. Modern, isn’t it?
Disadvantages of DAOs
Decentralized autonomous organizations are not ideal. People often don’t trust new things, and this is a very new technology, and it raises a lot of criticism because of concerns about its legality, security, and structure.
DAO participants may be in different jurisdictions, so there is no common legal framework for them. Any legal issues that may arise will likely require participants to wrestle with multiple regional laws in a complex legal battle. There are many nuances and they are difficult to describe legally, as the composition of the DAO can change monthly, or even more frequently.
One 2017 example : “In July 2017, the SEC issued a report determining that The DAO was selling securities in the form of Ethereum blockchain tokens without authorization, violating parts of the country’s securities laws.”
DAOs and Security
The rules governing DAOs can be very complex and difficult to change once they take effect, as any changes require new code to be written and approved by the network by consensus. To avoid this you need to be conscientious about how you write the code, check it and test it. In the cryptocurrency world, projects have the means to do this, but as in any business, there is a human factor.
Each participant works in a specific area — marketing, infrastructure, product, security, and so on. The managers of these areas streamline the work, so that the participants understand what they need to do to achieve the desired result. DAO participants can remain anonymous and at the same time provide evidence of their competence to vote on a particular topic.
Participants gain real skills, develop, build a network of acquaintances, launch products and businesses, and do important things for the community. There is no need to go to the office, no bureaucracy, no dress code, and no other social requirements. DAO emphasizes your competence.
DAO in 2021. Conclusions.
COVID has made significant changes in our lives. A worldwide trend to move employees to remote work has begun. Of course, this has its advantages, many things are moving to the digital world, some to blockchain. People are spending more and more time in front of a computer and increasing their computer skills. All of the above contributes to the development of DAO and its components.
Today we have a huge list of DAO projects. Over time, the concept has become obvious and is gaining momentum — after all, there are more advantages than disadvantages. Most of today’s projects are still striving to achieve full decentralization with the DAO model, and they have it all ahead of them.
I think DAOs have tremendous potential to change corporate governance and attitudes towards governance in general. As the concept develops and the legal issues they operate in are eliminated, more and more organizations may adopt the FAO model to manage their operations.
In my opinion we are at the very beginning of the DAO development trend and undoubtedly it has a great future.
