Is DAO a New Type of Organization or a Huge Trend for the Coming Years?
This very year 2020 was announced as the year of the DAO in the FinTech industry. Still, most people who heard about the word have a hard job defining the concept.
What is DAO?
“DAO”, or Decentralized Autonomous Organization is clearly broader than the typical definition of “organization,” a social group that brings people together to achieve a common goal.
Listing.Help’s analysts propose to use the original definition of Vitalik Buterin, who defines a DAO as “an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do.”
He suggests that the edges of such an organization might still rely on human effort. At the same time, most of the complex coordination nexus that sits at its center may run autonomously and use its internal capital to reward workers. According to this view, the software offers a way to replace traditional economic and social coordination mechanisms.
Beyond sheer diversity of DAOs, they display a similar key feature: the ability to facilitate the collective management of common goods, including cultural and intangible works, natural resources, economic and industrial production, and social systems.
DAOs are autonomous in the sense that they are immune to third parties’ actions. Thanks to the public blockchain networks they run on, DAOs control their own capital and allocate it according to self-enforcing rules written down in smart contracts.
The Modern state of DAO
Since the fall of The DAO in 2016, decentralized autonomous organizations have strayed from the spotlight. However, developments and experiments in this area never stopped. Since 2019, support for DAOs has been gaining momentum, as illustrated by:
- Availability of multiple systems for creating DAOs on mainnet: Aragon, DAOstack, Colony, Moloch
- New initiatives for governing crypto protocols with DAOs, following that of Maker: DeversiFi, PolkaDAO (Polkadot), dxDAO (Gnosis)
- The creation of jurisdictions for DAOs, either as decentralized jurisdictions (Kleros, Aragon Court) or as traditional territory-based ones offering legal vehicles for DAOs (Vermont, Malta, United Kingdom, etc.).
Nowadays, we have to acknowledge the fact that most DAOs are actually associated with firms or foundations. Moreover, it is possible to “daoify” organizations, firms, markets, and protocols, i.e., to use blockchain technologies to transform these entities into transparent, rent-free networks owned by their members.
There is now ample evidence that decentralization can be introduced progressively. Melon started as a company and dissolved into a DAO once their protocol reached the production stage. DeversiFi started as a spin-off of a centralized exchange and is making great strides towards a DEX fully governed by a DAO. The venture-backed startup Compound introduced its governance token in 2020, once its protocol already had several hundred million USD under management.
It’s worth noting that this path can be walked in both directions. MakerDAO’s story is one of such contradictions: Initiated as one of the first DAOs, with a strong ethos of decentralization, it has been through multiple twists and turns, from control taken back by its founder last year to a new plan for giving the full authority over the protocol to its community. Another case is the takeover of Steemit by Justin Sun’s Tron, with the notable use of STEEM tokens stored on centralized exchanges. The response of the community forking itself out as a new blockchain called Hive.
So what can we do with a DAO in 2020? Listing.Help’s analysts don’t think that we’re close to seeing mass adoption. DAOs are still a weird name for an obscure concept, only known by a tiny group of people, even compared to the number of people interested in cryptocurrencies and blockchain technologies in general.
DAOs are poised to succeed once “crypto” itself becomes mainstream. DAOs suffer from the same plague as Dapps in general: user experience is simply unbearable to people unfamiliar with crypto. We appreciate the efforts made by Aragon, Colony, Abridged, and others to make things prettier, faster, and simpler. We’re just not on par yet with Web 2 applications. As long as this is the case, there will only be a handful of people willing to use DAOs.
That’s why 2020 is still not the year of DAO. But when the year of the DAOs eventually happens, it will be because they serve the common good, rather than the limited interests of the crypto community. And the strongest signal that the advent of DAOs is the fact that we’re seeing them enter into the “non-crypto” world.