Explore the challenges and potential of decentralized autonomous organizations in transforming traditional corporate structures.
Over the past few years, blockchain technology has paved the way for a new governance model known as a Decentralized Autonomous Organization (DAO). The idea behind DAOs is to abolish centralized hierarchies that completely control all decisions within a particular company. DAOs upend traditional corporate structures by giving shareholders the power to vote on future proposals for the organization.
Unfortunately, this hasn’t worked very well in practice. Early attempts were fraught with problems, many of which boiled down to the fact that these systems weren’t as decentralized as they seemed. Fortunately, DAOs are being built in a way that can deliver on the promise of their predecessors, and now is the time to see this transformation in action.
An Honest Look at First Generation DAOs
DAOs seem to be an idea whose time has come. At first glance, the concept of an organization that grants voting rights to each member seems very fair. It also fits in with the general sentiment behind the creation of blockchain technology. However, just because these organizations are designed to be decentralized doesn’t mean that’s how they operate in the field. In fact, the term DAO is often used casually, and the actual situation of specific organizations is far less decentralized than they advertise.
In many cases, a relatively small number of governance token holders actually control a large portion of voting power. This can happen because they have deep pockets or, in the case of exchanges, because they control a large amount of user funds. Sometimes, the DAO community only has superficial control over smaller aspects of the project, making the entire practice more or less a hollow gesture.
Even worse, sometimes centralized development teams make decisions regardless of the community’s vote, because the DAO has no tangible means to enforce their will. When users begin to see their voices diminished by issues like these, it can lead to “voter apathy,” which reduces participation and further exacerbates the centralization problem.
The bottom line is that in some cases, architectures that are advertised as decentralized are not actually effective in eliminating the main benefits that DAOs can bring. However, there are ways to address these issues.
What a DAO needs to be
Moving to purely decentralized DAO governance is one of the first changes every DAO should implement. This means that no core group of developers has the majority of minted tokens or unrestricted power to go against the will of the community. Any contributor should be allowed to submit upgrade proposals and vote on them. These proposals should be forwarded to the entire community, independent of any other entity, giving all participants a say. Additionally, infrastructure needs to be built to enforce these decisions, removing the power of developers over the community.
Of course, delegating roles and tasks will still be necessary, but the DAO community can decide this as well. Work can be posted publicly and anyone can volunteer to take on the task. Ultimately, other members can vote for the most suitable candidates, distributing the work in a meritocratic manner.
Another key element of a functional DAO framework is transparency. This is not to say that how individuals voted should be completely public, but there needs to be clear access to voting results and verifiable steps to implement those decisions. There also needs to be clear communication channels that allow all members, developers, and other stakeholders to get the latest news and information about the project, as well as all the rules that define the DAO itself. Building this level of transparency from the ground up is essential to building trust and loyalty among members, making it difficult for any actor on the network to abuse their power.
Continuous Evolution
In order for community-controlled governance to truly be effective, there needs to be an ongoing dialogue regarding the evaluation and ongoing enhancement of the DAO’s performance. These structures should never truly be “done” as future extenuating circumstances may always prompt the need for evolution and change. New risks may emerge, or economic conditions may present unforeseen circumstances. However, this is precisely what makes truly decentralized governance so powerful. When the community is informed and has a voice, it can organically respond to new challenges and demands.
The DAO model can bring this technology to a global audience. Any business or project can be run in this manner, and it will finally free these systems from the hierarchical approach that leads to failure and corruption. Giving true democratic power to the entire community and promoting transparent practices is the future of DAOs, and now is the time for these organizations to make the shift.
