The Way of the DAO
Part 1 — Blockchain 101
Crypto moves at a lightning-fast pace, and most of the time, the wonders of the progress of this technology are matched only by the brilliant minds of their developers and users.
But stop for second and think…
Can you imagine a way of organizing with other people around the world, without knowing each other and establishing your own rules, and making your own decisions autonomously, all encoded on a Blockchain?
Well, DECENTRALIZED AUTONOMOUS ORGANIZATIONS or ‘DAOs’ are making this real.
The Role of Online Communities
Online communities have changed how we live.
Every day, people share and discuss world-changing ideas within those communities.
The growth of social media has recently led to greater access to information and to its transparency. Consumers now have the power to search for business and brands before making a decision and pass on their opinion to those around them.
This has translated into a more key central role of both customers and brand followers, who have gained exponential power in influencing the lives and opinions of friends and families.
This has caused companies to change their marketing strategy.
Communication has shifted from a ‘monologue,’ where people blindly accept the message, to a more inclusive and broad ‘dialogue.’
This interaction and dialogue are easily achieved by building an online community around a business or brand.
Communities are important to foster positive connections and lead community members to interact with each other and with the brand/ business meaningfully.
Why building a community?
The main goal in the creation of communities is to drive or increase the engagement between people/ customers and the brand.
Building a community around a brand or business mainly brings an advantage in terms of competitiveness, as well as in terms of adaptability, as communities bring valuable feedback from customers to the company.
If people within a company do not understand the needs of their customers, the risk of developing products or services of no value to their target audience is enormous.
Thus, a community allows companies to increase their range of products and services based on their customer’s needs, as well as to quickly identify changes in consumer behavior, leading to adjustments in products and offers in order to create value which in return promotes the retention and loyalty of customers towards the particular brand/company.
The Way of the DAO
Inspired by the decentralization of cryptocurrencies, DAOs are entities without a central leadership and are essentially companies where its bylaws are written in code that automatically execute whenever a set of criteria are met. This promotes reliability, security, and trust in the system.
Smart contracts are the core of the DAO, which assure the transparency and security which DAOs base themselves on.
Blockchain and smart contracts are governance technologies that have the potential to provide higher levels of transparency while reducing bureaucracy with self-enforcing code.
(more about smart contract on this article — https://medium.com/@mirev89/trust-and-security-in-the-blockchain-part-3-blockchain-101-ad67784b2cd6)
Decisions get made from the bottom-up, governed by a community organized around a specific set of rules enforced on a blockchain hence making their functioning fully autonomous and transparent.
As they are built on open-source blockchains, anyone can view their code, and anyone can also audit their built-in treasuries, as the blockchain records all financial transactions.
The Principal-agent dilemma
DAOs tackle an age-old problem of governance, which political scientists and economists refer to as the principal-agent dilemma.
This occurs when the agent of an organization has the power to make decisions on behalf of, or impacting, the principal — another person or entity in the organization.
Functional DAOs
DAOs need the following elements for being fully functional:
- a set of rules to which will operate,
- a funding like tokens that the organization can spend to reward certain activities to their members, and also to provide voting rights for establishing the operation rules.
Tokens of distributed networks hereby provide incentives to automatically align interests in the absence of third parties. Also, and most important, DAO is a well and secure structure that allows every investor to configure the organization.
DAOs allow holders to simultaneously be an investor, operators, and users of the protocol.
To some, the BITCOIN (BTC) network is the earliest example of a DAO there is. The network scales via community agreement, even though most network participants have never met each other.
It also does not have an organized governance mechanism, and instead, miners and nodes have to signal support.
By more current measures, DASH would could be considered the first true DAO, as the project has a governance mechanism that allows stakeholders to vote on the use of its treasury.
Dash is a digital currency that offers fast, cheap payments anywhere in the world with its scalable digital payment system.
Other, more advanced DAOs, including decentralized networks built on top of the ETHEREUM (ETH) blockchain, are responsible for launching cryptocurrency-backed stablecoins.
The LAW of CODE
Why make an organization like the DAO?
The developers of the DAO believed they could eliminate human error or manipulation of investor funds by placing decision-making power into the hands of an automated system and a crowdsourced process.
So far, DAOs are being used for many purposes such as investment, charity, fundraising, borrowing, or buying NFTs, all without intermediaries.
So you can have a better idea, for example, a DAO can accept donations from anyone around the world, and the members can decide how to spend donations.
Those marvelous creations also prevent any bad actors or malicious entity/ies to corrupt and/or damage the nature of the DAO itself: there’s no way for a member to run away with the DAO’s money — at least not the extent that we’ve seen in traditional startup structures.
Because the code is law.
