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Democratising the web: DAOs, governance tokens, and collective ownership

Making predictions about the crypto space is notoriously risky. There is consensus over what to expect in 2022 — the rise of decentralised autonomous organisations. As Messari’s Crypto Theses for 2022 put it: “If 2020 was all about DeFi, and 2021 was about NFTs, 2022 will be the year of the DAO.”

And just four months into the year, data from the analytics platform DeepDAO seems to justify this outlook. The total treasury holdings of DAOs now total $10.4bn — a tenfold increase from May 2021.

As money has flooded into DAO treasuries, the potential use-cases have also continued to develop. Recent projects have moved beyond investment and crowdfunding vehicles to explore more far-reaching possibilities, using the DAO model to build protocols, platforms, and social organisations. While many of these use-cases remain in the early experimental stage, their implications are far-reaching. They hint at a future in which we will work, interact, and collaborate largely through DAOs.

In this sense, DAOs are not simply another attention-grabbing innovation within the crypto space — they represent the possibility of democratising the web.

In this post, we’ll look at the place of DAOs in the broader Web3 ecosystem and their potential to radically transform the way we organise our lives. We’ll also consider some of the technical hurdles that will stand in the way, and how Cudos is working to solve them.

DAOs sit at the heart of Web3

While DAOs may be a key focus for trend forecasters within the crypto space — people whose livelihoods rely on understanding some of the thornier technical details — the mainstream emphasis has been slightly different. DAOs, much like NFTs, are inherently complex; they are reliant on both the specific mechanics of blockchain networks and some challenging conceptual issues around digital ownership, scarcity, and marketisation. Almost inevitably, attention has turned instead to a catcher and more immediately compelling idea: Web3.

Explainers and overviews of Web3 have become a prominent mainstream focus for discussing the crypto space. And Web3’s vision of a radically different future for the web has found a receptive audience. Over the past two decades, the web has been dominated by centralised platforms that have excelled at seizing people’s attention, extracting their data, and selling them advertising. For many, it’s long past time for a change. Billed as a decentralised, user-centred reconfiguration of the web, the idea of Web3 has attracted significant support.

But the promise of Web3 will require infrastructure to enable it and organisations to help make it a reality. As we’ve discussed elsewhere, the core imperatives of Web2 — data extraction, for instance — are inseparable from the platforms it has centred on. Similarly, the opaque decision-making behind Web2 platforms is tied to corporate governance models that vest power in a small number of individuals. It should be no surprise that Web2 is indissociable from the figures of Mark Zuckerberg and Jeff Bezos, avatars of centralised control and immense wealth.

To offer a truly decentralised future for the web, Web3 will need to provide powerful alternatives to the existing modes of organisation, ownership and oversight. And this is why the concept of the DAO has flourished in recent years. By offering tokenised investment, collective decision-making, and on-chain governance strategies, DAOs can provide a maximally transparent and non-hierarchical model for digital organisations.

What is a DAO, exactly?

Unfortunately, as with many of the core terms related to crypto, there is no definitive consensus over what a DAO actually is. The law professor and blockchain expert Aaron Wright has described them, with a glibness characteristic of the crypto space, as “subreddits with bank accounts and governance”. The Generalist’s more in-depth account is wary of this type of description, arguing that “DAOs are […] a lot more than just a Discord channel with a native token,” while also acknowledging that “every person to define a DAO is likely to give you a subtly or meaningfully different response.”

Nevertheless, we can identify a basic outline, even if this is an oversimplification. In simple terms, DAOs are blockchain-based organisations that use native tokens for financial and governance purposes and whose terms of operation are defined and executed through smart contracts. This means that the organisation’s rules are displayed transparently on the blockchain and are enforced through automation. Changes can only be made through the collective agreement of token holders rather than through any centralised authority.

Of course, this underlying model can be implemented in varying ways. For instance, a DAO’s native token can be distributed through open sale, which is a great way to raise initial capital but means that those with the deepest pockets can potentially exert outsized influence. Alternatively, tokens can be awarded based on a user’s contribution to the project. However, measuring this in a way that can be captured in the automated code of a smart contract can be challenging.

Similarly, the relationship between tokens and governance rights can vary. In many cases, voting power is proportional to the number of tokens owned — one token is equal to one vote. However, other options — including so-called quadratic voting — have been proposed to prevent the concentration of power in the hands of the wealthiest investors. Broadly speaking, the question of how to ensure that governance within a DAO is truly democratic has yet to receive a clear answer.

Despite these unresolved issues, the potential of the DAO is massive. As a way to coordinate mass-scale projects without centralising power through a top-down hierarchy, DAOs represent a historically unprecedented innovation. But how will this potential translate into the concrete issues facing Web3?

Toward an ownership economy

Understandably, many of the initial uses of the DAO concept were investment vehicles of varying kinds. Given the underlying structure of the blockchain, distributing funds was essentially the simplest operation that could be achieved using an on-chain governance process. As we’ve discussed previously, this has made the use of DAOs for crowdfunding initiatives particularly compelling.

But given the bold ambitions of Web3, these relatively limited examples can only act as a basic sketch of the wider possibilities. In recent years, more radical concepts have begun to emerge across various sectors, potentially challenging some of the most ingrained and destructive aspects of the Web2 ecosystem.

In the creator economy, for instance, the impact of Web2’s highly centralised model is increasingly apparent. Powerful platforms such as YouTube and Twitch (owned by Google and Amazon, respectively) gatekeep access to their sizable audiences through opaque and restrictive monetisation policies. The result is creators losing control of their work and failing to achieve fair rewards, while fans, for their part, remain passive consumers.

The DAO model can fundamentally transform the creator economy toward what has been described as an “ownership economy”. A DAO-operated social media platform would offer transparent rules for how content is distributed instead of the proprietary and ever-evolving algorithms of existing platforms. It would also allow creators and users to exert direct control over the platform’s development. Most importantly, it would provide a model of collective ownership in which creators and their supporters both have a stake in the success of specific content. By tokenising content — through fractionating it as NFTs, for instance — creators could earn automated royalties while their supporters would be able to invest in the content they enjoy.

However significant the implications may be for creators, the potential for DAO adoption in the wider economy is even more radical. With employee engagement on the decline and many workers seeking greater autonomy, even prominent institutions like Harvard Business Review are beginning to suggest that DAOs could be the future of work. Not only would the absence of a top-down corporate structure allow for greater flexibility and cooperation, but tokenised forms of remuneration would also allow employees to benefit from the success of a given venture directly. In a world that is increasingly shifting toward remote work and struggling with mass resignations, DAOs would have an advantage in attracting and retaining workers who want to feel they have actual ownership over the projects they are involved with.

Solving the technical challenges

These far-reaching possibilities for the DAO form are only now beginning to be explored and generally attract fewer headlines than more ephemeral, meme-driven projects such as ConstitutionDAO or Spice DAO. This is in part because of the inevitably experimental nature of DAOs. However, it cannot be overemphasised that this global-scale, non-hierarchical social organisation has no equivalent in history. Even the most fundamental elements of the DAO form remain in flux, with most existing implementations functioning more as proof-of-concept than as viable long-term solutions. Unfortunately, much of the negative press drawn to DAOs fails to register this fact.

For DAOs to indeed form the foundation for Web3, significant technical challenges need to be solved. DAOs are still primarily built on Ethereum, which leads to a range of limitations. From throughput issues to spiralling transaction fees and questions around sustainability, Ethereum is not fit-for-purpose to support DAOs. And while the chain’s 2.0 upgrade has the potential to solve some of its problems, its release continues to be delayed.

DAOs will require not only a secure, sustainable, and efficient blockchain network on which to build but also significant cloud computing resources to power their activities. While a decentralised YouTube, for example, might be an exciting prospect, the reality is that hosting and streaming large quantities of video will require significant computing resources. Turning to a centralised provider such as AWS for this purpose may risk compromising the project’s autonomy and compounding the environmental implications of centralised cloud computing.

That’s why Cudos is committed to building the infrastructure that DAOs and other Web3 use-cases will rely on. Our blockchain network is scalable, sustainable and interoperable, offering a secure and stable foundation for developers to build on. And with the forthcoming launch of Cudo Compute, we’ll be able to provide a decentralised source of cloud computing to help power DAOs, dApps, metaverses, and many other essential features of Web3.

Help Cudos to lay the groundwork for Web3

The highly anticipated mainnet launch of the Cudos network is approaching in the coming weeks. And like any decentralised project, we need your support to ensure its success! So, please join our vibrant community in Discord and Telegram to find out how you can help.

About Cudos

Cudos is powering the metaverse bringing together DeFi, NFTs, and gaming experiences to realise the vision of a decentralised Web3, enabling all users to benefit from the growth of the network. We’re an interoperable, open platform launchpad that will provide the infrastructure required to meet the 1000x higher computing needs for the creation of fully immersive, gamified digital realities. Cudos is a Layer 1 blockchain and Layer 2 community-governed compute network, designed to ensure decentralised, permissionless access to high-performance computing at scale. Our native utility token CUDOS is the lifeblood of our network and offers an attractive annual yield and liquidity for stakers and holders.

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Originally published at https://www.cudos.org.

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