DAO of the Future
Today we will talk about the DAO — Decentralized Autonomous Organization. Decentralized Autonomous Organizations (hereinafter referred to as DAOs) became largely possible thanks to smart contracts and began to gain popularity with the development of the Ethereum blockchain, as well as Polkadot, Solana, Cardano. Typically, DAOs are built around so-called “governance tokens” that can be bought or sold on crypto exchanges or obtained through mining, staking, and providing liquidity. To join DAO Barter Smartplace, you need to stake 100k BRTR in a bot and wait for an invitation.
DAO means primarily a form of organizational structure without centralized control, where participants are coordinated using automatic algorithms. Often the term is misunderstood, meaning the whole project by DAO, but we are talking about a decentralized management infrastructure. Sometimes DAO is also referred to as a project with the same name, which failed due to a vulnerability found in 2016.
Although the idea arose and perhaps the DAO was talking a lot, during the second crypto-hype (autumn 2020-spring 2022), when DeFi was the locomotive of growth in the crypto market. For the most part, DAOs were then used for various crowdfunding platforms for venture capital, according to the principle — the more you invest, the more authority you get in the enterprise. The scope of possible application of the DAO is much wider, it can try to replace not only traditional financial institutions, but even courts, for example.
What challenges do DAOs face?
While most DAOs are still focused on managing financial protocols or managing digital assets, DAOs are gradually finding their place in the arts — ParticleDAO or ArtsDao, for example.
Unfortunately, DAOs are making their way much slower than many crypto enthusiasts would like. When DAOs encounter the real world, they often encounter three widespread problems.
First, if the coordination of participants is carried out exclusively algorithmically, and there are no managers who would motivate the participants, it turns out that purely financial motivation is not enough. That is, in practice it turns out that the desire to earn money alone is not enough to regularly participate in the project.
Second, DAOs in their current form often face high costs of regulation and coordination. Let’s start with the fact that blockchains themselves are demanding in terms of computing power and energy. There is also a phenomenon that Buterin called “vetocracy”. In a nutshell, most DAOs automatically select “no” for all decisions, unless the proposal sponsor gathers sufficient support.
Thirdly, these are errors and exploits in the code, on which the DAO of the same name burned out. The fact is that in a centralized control system it is easier to stop the platform and make the necessary changes than in a decentralized one.
How to make DAO work?
Fortunately, all three problems have solutions:
If we talk about the problem of low involvement of participants, it is possible to make “burning” management tokens — that is, if there were no activities on the part of the participant for a long period of time — he loses privileges. A more complex, but more expensive approach is also possible — a system of reputation metrics in the manner of the one that exists in GitHub, but based on the blockchain and with a greater degree of decentralization. Then the participants will be motivated to work not only for profit, but also to create a reputation among professionals, which can be presented to a potential employer, for example.
The second problem can be solved by technological innovations — that is, more powerful computers and more efficient energy sources. Technologies are developing very quickly now, so new solutions are not far off. It is also worth reconsidering the “vetocracy”.
The third problem is purely technical and is a matter of more carefully written code.
How long it will take for the DAO to overcome all the above difficulties is a tricky question. But when they do overcome the consequences for society can be very significant, because many centralized institutions may be unnecessary.
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