How DAOs Are Helping to Increase Collaboration and Social Cohesion in a Truly Decentralized Digital World
Imagine a world where one can collaborate with people, establish the rules, and make autonomous decisions without even knowing the other people. Decentralized Autonomous Organizations (DAOs) make this a reality by enabling trusted transactions so that individuals can work with like-minded members as a result build a community and achieve pure community-driven goals that benefit all.
Blockchain technology has come a long way in this past decade since its inception with Bitcoin in 2009. It essentially started a digital revolution that is disrupting many industries today, including finance, healthcare, insurance, supply chain, cybersecurity, telecommunications, to name a few. Blockchain technology is revolutionizing these sectors through the inherent qualities it offers, including absolute decentralization, tamper-proof public ledgers, smart contracts, greater transparency, high efficiency, robust security, increased traceability.
In essence, the decentralized nature of Blockchain facilitates power to the user. And once people started to realize this potential, it gave rise to DAOs or Decentralized Autonomous Organizations. This post discusses how DAOs are helping to increase collaboration and social cohesion to create a truly decentralized world and the tools that are aiding in the same.
What are DAOs?
When Vitalik Buterin first wrote about DAO in 2014, he described them as an entity that exists on the internet autonomously. Yet, it relies on individuals to perform specific tasks that cannot get done through automation. DAOs are member-owned communities that do not have a centralized leadership structure and facilitate a safe method to commit funds and work with individuals. DAOs operate through smart contracts that are automatically implemented when specific criteria's are met.
The Current State of DAOs
The explosion of DeFi (Decentralized Finance) in the past few years has piqued people’s interest in DAOs. Today, DAOs are used for a wide range of purposes such as charity, investment, lending, fundraising, buying NFTs and all sorts of financial applications without involving any intermediaries. The number of active DAOs in 2020 stood at 76, up by 660% from the previous year. Currently, there are more than 140 active DAOs at the time of writing, with a total AUM over $7.7 Billion. And this only seems to be the beginning as more prominent players are yet to introduce their products into the market; for instance, Polygon recently announced that it would build a DAO and attract 100 million users for the DeFi (decentralized finance) sector.
The graph above shows that the global spending on Blockchain solutions will reach 19 billion US dollars by 2024.
How DAOs Are Disrupting The (Decentralized) Financial Space
DAOs are at the centre of the IoP (Internet of People) movement that calls for netizens to have absolute control over their PII (Personally Identifiable Information) and eliminate intermediaries as much as possible. This has essentially made it possible for two parties to exchange monetary and even non-monetary digital assets without relying on third-party networks or any intermediary (by utilizing Blockchain technology). DAOs grant control over sensitive financial data, which is otherwise captured centrally and used commercially. Blockchain technology allows DAOs to store sensitive information in a distributed ledger.
DAOs have disrupted the decentralized financial space by augmenting three components of commercial platforms. First, they facilitate seamless supply according to constantly changing demand. Second, DAOs verify the authenticity of the paying and receiving party, and finally, they complete the payment swiftly. Thus, DAOs are helping scale and disrupt the modern financial space through greater transparency, increased efficiency, robust security, and improved traceability.
What Are Some Popular DAO Building Tools?
Below are some of the most popular DAO building platforms and tools.
- Alchemy — Alchemy is a Blockchain development platform that facilitates the creation of new apps and tools. It claims to be relied upon by 70% of the world’s top Ethereum apps.
- Aragon — It enables one to start a DAO in a few minutes. In essence, it serves as an operating system for DAOs and the associated DAO apps.
- Boardroom — It integrated the communications and governance management portal to aid decision-making.
- Collab.Land — It is a system used to create token-gated group chats. It leverages the strength of identity through cryptocurrencies to create a social space that is unique and dedicated to a specific network of people. It allows bots to manage your Telegram group or Discord guild.
- Deep DAO — It offers information-gathering and analytics for DAOs. It lists, ranks in order, and analyses top DAOs across multiple metrics that traders and investors can use.
- Discord — It is a messaging app mainly used for conversations amongst community members where you can collaborate and share messages on chat.
- Discourse — It is a forum heavily used in governance for asynchronous proposals and conversations.
- Gnosis Safe — It is a multi-signature wallet used for pooling and managing funds.
- Llama — A treasury data provider for asset allocation, financial reporting, fiscal policy and budget planning.
- Mirror — A publishing platform with many crypto-native tools
- Rabbithole — An application that lets you earn rewards for using crypto applications.
- Sablier Finance — An autonomous and continuous payroll management platform.
- Snapshot — It is a token-based voting platform that makes off-chain governance decisions.
- Tally — A dashboard that analyses and tracks the on-chain governance information.
The Importance of DAO Tools, Applications, and Solutions in The Overall Ecosystem
DAOs are fundamentally changing the methods and methodologies of getting things done, enabling the continental shift from a centralized, hierarchical environment to a decentralized one, where everyone has an equal say. For example, DAO tools contribute towards enhancing the efficiency of agency relationships. They also work towards reducing agency costs by a large magnitude.
DAO applications offer a mechanism to bridge market dynamics and organizational dynamics by reducing transactional costs and enabling individuals from any corner of the globe to participate in community-oriented activities and projects. These were not-so straightforward processes in a centralized environment. However, DAOs have enabled talent pooling and capital pooling of these activities that can be carried out instantaneously from anywhere globally.
Obstacles in The Way of DAOs That Require Smart Tackling
There are a few challenges that have to be tackled first before DAOs can realize their full potential; some of the most significant ones include:
- The dilemma to go for complete decentralization:
There are two extremes in the spectrum of managing an organization. One side involves complete decentralization, while the other side and the other is a centralized structure, with some having more power than other members. At times, it is challenging to coordinate DAOs due to the number of decisions to be made initially (comparatively, decision-making is less challenging in the initial stages in a centralized structure, where only the power-vested authorities/individuals make the decisions).
However, once a community is formed, the number of decisions reduces over time, which allows for progressive decentralization. Many DAOs cannot move towards progressive decentralization, which is a growing pain in community management and project governance.
2. Managing the risk of distributed governance and accountability:
There have been evident governance conflicts among company managers, shareholders and creditors. There have also been accountability conflicts as to the entrustment of work from one party to the other. The existing legal framework cannot resolve these conflicts known as agency conflicts which are caused due to the separation of control and ownership.
3. The scalability of Blockchain:
One of the essential attributes that make Blockchain successful is scalability. However, there is always a trade-off involved between decentralization, security and scalability. A simple example is a low throughput engaged with Bitcoin. Many DAOs face the same obstacle, which calls for adequate research before making any critical decisions.
4. Vulnerability in security and economy:
Security and economics have been perceived and established as crucial obstacles for DAOs. Anonymity could turn out to be a major security failure and can lead to the downfall of a DAO. A combined software attack and economic attack can prove irreparable, and this continues to be a concerning matter for DAOs.
5. Addressing limitations of liability:
DAOs lack legal recognition and are isolated from traditional systems, creating potential liabilities for members. Creating a legal entity ensures that the members’ assets are protected from creditors or in case of a third-party injury. Legally, DAOs may not have any significant ground (for instance, in the USA, they may only be deemed general partnerships); hence, the ability to shield a member’s asset(s) is absent because of this lack of assigned liability. Besides, liability is a major obstacle in attracting institutional players having behemoth investments to make as no member would consent to risk their assets.
DAO Tools, Applications and Systems That Are Helping Overcome The Challenges of Centralization
Here are some tools that are helping address the challenges associated with DAOs:
- Discourse: Discourse is a forum to engage in discussions with customers, fans and team members. Moreover, these discussions are searchable and help developers create communities with fruitful conversations.
- Snapshot: Snapshot is a token-based decentralized voting system. It has flexible voting strategies to vote with any contract, including NFTs and ERC20s. It is user friendly, open-source and does not cost any gas.
- Tally: Tally is a platform that creates governance infrastructure for DAOs. The platform offers voting structures, governance tools, analytics and is already used by protocols such as Ampleforth, FEI, and Gitcoin.
- Sybil: Sybil supports Ethereum governance initiatives and finds potential delegates, and tracks their votes. It simplifies identity verification and reviewing of representatives to vote on governance proposals.
- DAOhaus: DAOhaus is a platform that allows developers to launch their DAOs. Additionally, it also enables users to run their DAOs. DAOhaus is owned and run by the community.
- Colony: Colony is a network consisting of suites of smart contracts, and it provides DAOs with frameworks for essential organizational functions. It is secured by economic incentives and guaranteed by cryptography, all on a public Blockchain.
- Dash: Dash was one of the initial DAOs and is a project based on the Bitcoin codebase. It is now a comprehensive online payment system with advanced speed and privacy features.
How The Future Looks Like for DAO Tools, Applications, and Solutions
An entirely decentralized system without any intermediaries seemed like a far-fetched dream only a few years back. However, DAOs have genuinely changed this; as people have started to realize the importance of moving away from a centralized system, the forthcoming future will undoubtedly see the adoption of DAOs in more mainstream environments. These will help communities do away with central players and intermediaries and give power to the hands of community members.
As mentioned earlier, some obstacles need to be addressed first. However, these obstacles have merely put a dent in the rise and growth of DAOs. Stakeholders involved continue to experiment with new scalability, security, and decentralization models to bring more transparency and boost development and economic activities.
The major obstacles that DAOs are running into are legal issues and the inability to make legal agreements. However, platforms like OpenLaw put all those issues to rest by tying legal contracts with smart contracts that can manage digital assets.
In a nutshell, here is how the future of DAOs may look like:
- Many DAO tools and projects are built to help other developers create DAOs and hit the ball rolling. DAOs have boosted the crowdsourcing of capital for projects that advance Blockchain. Several non-profit DAOs also help build organizations in an economical and decentralized infrastructure.
- Furthermore, automation that is independent of human involvement to further the community’s wellbeing will empower DAOs. Such automation will increase scalability and reduce the need for governance.
- Incentives and economic rewards to attract developers and enhance participation will help cultivate a community. Enabling experimentation with various applications, tools, and ideas to reward developers and community members will secure an excellent future for DAOs.
Decentralized finance is still in its initial stages, and the idea of DAOs is yet in its infancy. As more significant and large-scale players enter the DeFi industry, DAOs will see more remarkable emergence and evolution. As seen from current novel experimentations, the future may not be far before DAO influences traditional organizations and structures.
The accentuation of native attributes of Blockchain, such as autonomous automation, transparency, etc., will scale it to higher levels. Lastly, as the shortcomings of DAOs continue to get resolved with upcoming projects, they will attract more participation, handing the decision-making power to the hands of the people, away from any intermediaries or central authorities, wherein people would be able to build and shape communities to their likings.
- B. Vitalek. (2014). DAOs, DACs, DAs and More: An Incomplete Terminology Guide. https://blog.ethereum.org/2014/05/06/daos-dacs-das-and-more-an-incomplete-terminology-guide/
- H. Samuel. (2020). The number of active DAOs has been up 660% since 2019. https://cointelegraph.com/news/the-number-of-active-daos-is-up-660-since-2019
- DeepDAO. (2021). DAO Ecosystem Overview. https://deepdao.io/#/deepdao/dashboard
- C. Jamie. (2021). Polygon to Form Decentralized Autonomous Organization. https://www.nasdaq.com/articles/polygon-to-form-decentralized-autonomous-organization-2021-08-19
- L. Shanhong. (2021). Global Blockchain solutions are spending 2017–2024. https://www.statista.com/statistics/800426/worldwide-Blockchain-solutions-spending/
- Aragon. (2021). Introducing Aragon Fundraising. https://blog.aragon.org/introducing-aragon-fundraising/
- M. Fabio, N. N. Chan, N. Jing, V. Daniele, W. Julian. (2016). The economics (security-economics) vulnerabilities of Decentralized Autonomous Organizations. https://dro.dur.ac.uk/24014/1/24014.pdf
- W. Aaron. (2021). The Rise of Decentralized Autonomous Organizations: Opportunities and Challenges.https://stanford-jblp.pubpub.org/pub/rise-of-daos/release/1#iii-legal-issues-for-daos-under-us-law
- Taylor Locke (Jun 14 2021), “Mark Cuban says ‘banks should be scared’ of cryptocurrency-based DeFi.” https://www.cnbc.com/2021/06/14/mark-cuban-banks-should-be-scared-of-defi.html