What is a Decentralised Autonomous Organisation: What Makes DAO So Important?
Nothing is hidden under the sun when it comes to DAO. This makes Decentralised Autonomous Organisation an interesting concept that is rapidly gaining traction. While trust is required between two parties in a traditional setup, you only need to trust the code with DAOs.
DAOs are viewed as the Web3 ecosystem’s next significant development because it aligns with the core criteria for web3 organisations including transparency, decentralisation, accessibility and security.
Ethereum co-founder, Vitalik Buterin believes that DAOs are necessary, citing that the decentralised world needs to “distribute decision-making power among more deciders, so that each individual decider has less power, and so collusions are more likely to be whistleblown on and revealed.”
DAOs are governed by the code (smart contract), which means that it is not controlled by any single person. It also means that there will be no more need for human managers and executives to take decisions on behalf of the community.
The DAO can be built on any blockchain, but Ethereum seems to have the most support from developers at this point as it was the first to create an organisation of such nature in 2016 that later failed, named — The DAO.
DAO can also be coded to only accept proposals from certain people or organisations, meaning that some people will have more power than others in the community.
Members of a DAO own a token of the DAO and the token gives them the right to vote for initiatives for the entity. The number of DAO tokens of an investor would determine their voting power in the organisation.
What is a DAO?
A Decentralised Autonomous Organisation (DAO) is a community of like-minded people who come together to form a new type of organisation.
A DAO is a decentralised, autonomous (self-governing) organisation that is run through smart contracts on the Ethereum blockchain. This means that no person or group controls the DAO and everyone involved has an equal say in what happens.
The Importance of Decentralised Autonomous Organisation (DAO)
(i) DAOs Improves the Traditional Management Structure: The main reason DAO seems to thrive is that it helps to adjust or even eliminate some of the lapses of the traditional management system. As a community-led entity, DAO removes the need for a central authority, making it fully autonomous and transparent. A DAO aims to provide each member with a voice, a vote, and the chance to suggest projects rather than relying on a single person or small group of people to decide the path of the business.
(ii) DAOs Can Be Publicly Audited: All financial transactions are recorded on the blockchain, so any user can audit their built-in treasuries. They are built on open-source blockchains which allow anyone to view their code. Etherscan, for example, allows anyone to see where payments have been sent and received.
(iii) No Hierarchical Structure: With DAOs, tasks can still be accomplished without central authorities. Stakeholders are rather the people who control, decide and put forward an innovative idea, which is then considered by the entire community and easily decided through the voting system.
(iv)DAO Can Facilitate a New Wave of Projects: DAOs could allow a group of developers to pool their resources and easily build a new set of organisations and platforms that are owned by their users, governed in fair and transparent ways, and native to the internet.
Disadvantages of Decentralised Autonomous Organisation
(i) There are still legal gray areas around DAOs.
(ii) To execute transactions entirely collectively, significant technical hurdles must be overcome.
(iii)DAOs’ voting arrangements are vulnerable to hostile takeovers or coups, particularly if the voting power is determined by the number of tokens a person holds.
(iv) In DAOs, inactive or non-voting shareholders frequently obstruct the organisation’s potential operations.
(v) the voting mechanisms require time, and you might have to wait for quite a sizable amount of time for every transaction on the DAO.
DAOs are the future of organisation and work. Corporations could completely change their governance model with the introduction of DAOs. More and more organisations will likely adopt a DAO model as the concept matures and a clearer legal framework is established.
Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.