Decentralized Autonomous Organizations (DAOs)

DAOs are the modern manifestation of the democratic ideal, “for the people, by the people,” on steroids.

On one side of the governance spectrum is complete centralization. A small group of people make all the decisions, and everyone underneath can either go along or get out.

On the other side is complete decentralization: decision-making outsourced to forces outside the control of the few, primarily through individual participation.

How DAOs Make Decisions

These organizations function through one or more Smart Contracts that handle the entire process. Anyone can submit a proposal, and discussing proposals with the Telegram/Discord community is recommended before voting.

Different projects have different participation criteria. Some, like 1inch, require you to stake 100 units of their governance token to vote on functional parameters like swap fees and governance rewards.

1Inch is a single example. The conditions surrounding your participation differ from project to project, but all cases of organizing on-chain involve sending tokens to a designated voting contract to grant access to the voting dapp.

Every system of governance comes with pros and cons. At this stage of the game, DAOs are trying to split the difference by including the global community in the decision-making process without sacrificing the efficiency of informed and (hopefully) well-intentioned figureheads. Eventually, all the admin tasks will be automated, the DAO will run itself, and humans will supervise and be present for inevitable errors and disagreements.

And at the end of the day, your local bank doesn’t give a f*ck if you think they should lower their fees.

The Pros

Empowering Individuals

Generally, the internet has made it easier to connect and collaborate with others who align with our own perspectives. Still, it’s an uphill battle organizing more than few people to do the work beyond group chats and guerrilla marketing.

Let’s help the unbanked, for example.

Syndicate Protocol collaborates globally to connect people with capital and connections to those who need the resources to push crypto further. The platform functions as a DAO where users can start an investment fund and others can join if the cause resonates with them.

This isn’t just about moving money. An accessible and autonomous way to organize amongst ourselves and affect real human progress in overlooked parts of the world can alter the future of civilization.

Fixing a Broken System

DAOs create a fully global, transparent, trustless, and bureaucracy-less environment for everyone.

The crypto-native use case should be obvious to us. DAOs let market participants vote on the monetary policies they abide by and give a user-first platform for collaboration between developers and end users.

But that’s one niche use case! Imagine school boards, condo committees, political parties. DAOs have a place wherever more than 1 person lives by the result of a decision…

Let’s imagine the condo committee representing a few hundred owners. They have a limited budget for the year and can only commit to one improvement/repair. For the most part, condo boards have a different agenda from the owners — they often want to protect their preferences, not everyone else’s. With a condo DAO in place, owners can speak up and hold the board responsible without attending every meeting or being ignored.

DAOs offer enormous utility to the world outside crypto by letting us audit companies, hold governments accountable, prevent fraud and large-scale theft, and reallocate capital to the neglected areas of society. It’s already cheap and frictionless for anyone. Frankly, it feels inevitable.

The Cons

Emergency Action

Let’s first address emergency situations. If we learn a DAO was hacked, can we really afford to spend a week collecting votes to decide whether assets should be frozen? I don’t have a concrete answer, but I like the idea of having well-intentioned actors with the power to override the democratic process for everyone’s benefit in emergencies.

Manipulation & Coercion

In many protocols, the more tokens someone has, the greater their voting power — their voice outweighs all the others.

Yes, if the ten largest holders collaborate, they can control every outcome. Yes, if a protocol’s biggest delegator grows too large, they can control every outcome. Yes, DAOs can still be hacked. Yes, people can find ways to steal.

No system has 0 points of failure, but DAOs are proving to have far fewer vulnerabilities than our analog governance model. The only way to overrule the majority is by collecting most of a limited supply of tokens, which, with enough decentralization, is often impossible without off-chain coercion.

This isn’t a downside to DAOs, but a feature of all new systems and technologies: we don’t know what we don’t know. Data science can’t predict it all, and people are sure to find ways to game the system.

Inevitability

After fire, tools became inevitable. After the wheel, motors became inevitable. After motorized transportation, flight became inevitable. After the Internet, social media became inevitable. After a debt-backed dollar, crypto became inevitable. After the DAO, global consensus is inevitable. We’ve been iterating our strategies for 10,000 years. The rise of the DAO is a question of when, not if.

In a world where the only 2 candidates on a ballot who actually stand a chance at winning are both colossal assholes, a citizen can either abstain or migrate to a consensus protocol that vets candidates from the ground up instead of living with someone else’s selfish decision.

You can tell who’s hiding information based on their aversion to transparency. Those against implementing DAOs in their corner of society for no discernible reason are more likely to be malicious actors. The mere possibility of this tech already makes for better decisions.

Adoption of the DAO is as inevitable as technological growth because the pros outweigh the cons. Should we use the blockchain for regional-to-global consensus? I vote “yes.”

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I hope you’ve enjoyed this more conceptual angle to our research. Understanding the broader context in which the tech sits is as important to our understanding of valuable investments as the details of how it all works.

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*This content is for educational and entertainment purposes and should not be considered financial advice.