In this first of a series of articles on the untapped potential of blockchain technologies, we will take a closer look at Decentralized Autonomous Organizations (DAOs), which are slowly making an impact on how the world thinks of business processes.
The possibilities of using crypto assets other than for trading are not at all obvious, yet they display some oddly appealing development potential. As blockchain technology offers far more than grounds for creating digital money, the other ways to use crypto and blockchain-backed products are in the process of discovering their widest usability destinations. As more and more of them keep their trial-and-error developments they are definitely headed for a brilliant future. Let’s review, in this cycle of articles, those other possibilities and specify markets that blockchain technology can change or disrupt.
A headless body, or pure democracy?
Let’s break down the definition of DAO. First of all, DAOs are Decentralized. Since DAOs operate without borders, they might be subject to different legal jurisdictions. Why is a DAO decentralized? It’s decentralized because none of the entities has the authority to make and enforce final decisions.
DAOs are also Autonomous. They are represented by rules encoded as a set of smart contracts that enable decision-making by means of algorithmic software operations. In other words, there is no individual who can make arbitrary decisions regarding the future of such an organization. All decisions, after voting, are processed by computers which are programmed according to very strict guidelines. A DAOs financial transaction records and programmed rules are maintained on a blockchain.
Finally, a DAO is an Organization – a company, project, initiative, foundation, or NGO – aimed at organizing a certain group of interests who share a desire to achieve a common goal. DAOs are sometimes referred to as software-defined organizations, or resource coordination protocols. Some are better described as crypto-enabled startups. Some common traits that most DAOs exhibit is they are automated and operate on a blockchain, and many emit native tokens used to represent the voting power and/or sold to gather a crowdfunding fund.
Confused? In very simple terms, imagine a future-generation soda vending machine. The machine, which stands on a street corner, is programmed to sell drinks at a particular price. If someone puts in more than the price of the soda, it will give back the exact change – that’s the rule now, what is special about this machine is that it can analyze the sales data – how many people are buying one brand against another – and restock accordingly. It will send an order to the wholesaler to restock it with the updated offering, and pay for the invoice from the money it has gathered. In theory, as long as the machine is connected to a source of power, some sort of market data, and has a Wi-Fi connection, it can operate without significant human input for many years. Human interaction is still essential – thirsty clients who purchase the soda and the warehouse employee who refills the machine – but everything else is automated based on very specific predefined algorithms.
DAO to the rescue
DAOs are community-based decision-makers instead of relying on one person. They are transparent as every decision is recorded on a public ledger. Once a standard set of rules is in place, most decisions can be automated.
DAOs can make instant and transparent decisions based on logic and facts to our favor as a society. They allow expert members to make a decision as a community. Instead of allowing people who are skilled in one area, any variety of people with different expertise can be part of the decision making.
How far are DAOs from the world of crypto trading? DAOs are the best solution when it comes to providing online communities with new tools to harness their collaborative energy. The opportunity is to move beyond the classical firm, towards internet-native startups that default to stakeholder inclusion.
DAOs can create ecosystems: Aragon Network supports the creation of hundreds of DAOs by delivering a platform for running them, and applications they can be equipped with.
In France, there’s a project developed that seems as distant from the urban and virtual character of the crypto universe as one can be. La Suite du Monde is a communalist movement that supports the creation of local, self-organizing communities through the purchase of agricultural land, the provision of legal, governance, technological, and accounting resources, and the generation of a federative network.
A DAO can be a form of mutual insurance: Nexus Mutual is a cooperative offering the services of mutual insurance to its members, without needing a firm to handle administrative tasks. Premium management and claims processing are automated through smart contracts that directly coordinate interactions with and between policyholders.
MakerDAO is a protocol for the creation of a synthetic stablecoin (the DAI), whose parameters are controlled by the holders of a network governance token (the MKR).
Like any organization, DAOs are tools for coordinating human activity. Beyond their diversity, they display a key similar feature: the ability to facilitate the collective management of common goods, including cultural and intangible works, natural resources, economic and industrial production, and social systems.