DAOs Are Better Than Companies
Why DAOs are superior businesses and investments than traditional companies
If you’ve been following my blog for the past few months, you know that I’m incredibly bullish on Decentralized Autonomous Organizations, DAOs for short.
These organizations are formed by groups that have a common mission/objective that actively choose to be governed by logic that is coded into the blockchain.
So instead of having rules that live in centralized systems like the bylaws of a corporation stored in a municipality’s file cabinet (or cloud storage if they’re part of the 21st century), DAOs have its rules immutably minted on-chain.
I’m “bullish” not in the traditional investment sense, but rather I’m very confident that this organizational structure introduces a brand new way of working that is better than the structure of a traditional company.
While I don’t think that every company will become a DAO, I think that many organizations will seriously consider it when officially forming — they’ll deliberate between forming a traditional LLC or S-Corp vs. a DAO.
Bitcoin Miami really opened my eyes to the power of DAOs. Yes, some DAOs like $FWB threw insane parties, but the real magic came from talking to the DAO members and hearing the excitement in their voices about the mission that they’re working on and the community that they’ve built along the way.
Many DAO members were meeting for the first time IRL, and it was amazing to see the bonds solidify between them.
In a way, DAOs are equal parts company, social group, guild, and mission-driven community. It’s an experiment to build an organization from first principles, focusing on Web3 values like openness, decentralization, and permissionlessness.
And even if we put the blended value proposition of DAOs aside, DAOs (especially the ones governing DeFi protocols) are incredibly businesses.
- Uniswap processing the same volume as Coinbase
- Yearn.finance earning $100M+ annual revenue despite launching in summer 2020
There’s a reason why Uniswap processes the same of volume as Coinbase with only 10% of the workforce… DAOs enable an unprecedented amount of coordination and put even the economics of software companies to shame.
And why is that?
DAOs are essentially decentralized communities, where members are incentivized to collaborate with one another to drive value.
As a result, the operations are streamlined, and there’s little administrative bloat. SG&A is low because there are no people managers; everyone is a high performing IC that — at times — work for incredibly cheap.
The craziest part is that a lot of DAO members will happily contribute for a modest sum or even for free. That’s because they’re already incentivized to contribute to the DAO in two ways: (1) the financial incentive of holding the DAO’s token. They rationalize investing time into improving the DAO because it has a direct financial reward for the individual.
And (2) as signaling to the rest of the community that they are a contributing member of the DAO. This gives them clout and in turn builds up a reputation for the individual in the DAO.
Moreover, DAOs make better decisions and make less mistakes than a company. That’s because it can leverage it’s decentralized work force in order to scale the brain power behind decision making.
As a PM, I’m constantly asking my team, “Are we being exhaustive?” when finding solutions to a problem.
“Did we leave no stone unturned?”
But my team of 6 people can only be so exhaustive.
In QA, that’s why dev teams put out a bug bounty — they will pay people to find bugs that the core dev team could not find.
DAOs scale the brain power behind those activities. With DAOs, thousands of people are employed to think through these decisions. Finally, teams can be truly exhaustive when thinking through a problem to solve or a decision to make.
Instead of 1 product manager thinking through the user requirements, it’s hundreds of product managers leaving no stone unturned. Thousands of devs doing QA before a feature is live.
As a result, the product is better — more attuned to user requirements because hundreds of PMs chime in on their user research, and less buggy.
DAOs may also permanently alter the way we view venture capital.
What’s better: a firm of 40 “professional” investors, or a DAO of hundreds of subject matter experts?
Wisdom of the crowd tells me to bet on the latter.
More bright minds for sourcing, diligencing projects, and ultimately deploying capital. Less bias and less missed opportunities because hundreds of boots are on the ground listening to users and seeing trends unfold — not from an ivory tower.
As a result, more female founders. More projects funded that benefited underrepresented communities. Decentralized investing may turn out to be the superior investment vehicle.
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