What is a Dao? The main principles of new autonomous organizations

After the inception of blockchain technology, organizations basing their solutions on decentralized principles started popping up. In these organizations, decisions are made not by a board of directors but by the users of the project. These companies are known as DAOs — Decentralized Autonomous Organizations. The capitalization of DAOs has already reached $10 billion, and the tokens of eight such projects have already entered the top 100 cryptocurrencies. Creative producer of blockchain projects, Egor Lapshov, in a column for Forbes, discusses who creates DAOs, what they are for, and why this technology is still controversial from a legal perspective.

What is DAO?

A DAO, or Decentralized Autonomous Organization, is an organization that is based on a blockchain through smart contracts. A DAO can issue tokens that provide interoperability between group management and rewards. Tokens allow individuals to pay for the work of contractors or employees, vote on decisions using control protocols or internal logic, and much more.

DAO is a framework that enables the creation of revamped corporate, non-profit, government, or other partially or fully automated organizations. They introduce new forms of collaboration and decision-making.

The most famous example of the technology at work is The DAO project, which was launched in 2016 by the German startup Slock.it as a new model for corporate financing and governance. It was created as a smart contract on the Ethereum blockchain, which was only a year old at the time. The DAO has raised over $160M (12.7M ETH) from around 20,000 people. The project investors collectively vote with DAO tokens (they were given in exchange for ETH) on where to spend the funding. It was assumed that they would be invested in new startups, the ideas of which could be proposed by any person. If the startups became successful, The DAO investors would receive their share. In case of failure, the money would simply be “written off.”

What makes DAO so popular

Since then, hundreds of DAOs have appeared, and many of them have become successful and have gone beyond the crypto world. The capitalization of all DAOs is $10 billion, and the tokens of eight projects have already entered the top 100 cryptocurrencies.

Last year, Jenny DAO bought the rights to an NFT track by DJ Steve Aoki for $1 million. Today, other investors have contributed another $7 million to this organization.

Another DAO — Metafactory — creates craft clothing brands: any designer can send them their sketches and, if successful when voting, receive money for production (beginning with the creation of digital clothing). These clothing mockups are then sold in the form of NFT tokens, adding the actual clothing as a bonus. The company said that it intends to connect the real and virtual worlds. Their DAO allows aspiring designers to become popular without becoming involved in the complexities and obstacles of the fashion industry.

Assange DAO united 10,000 people who want to free the creator of Wikileaks. They raised $53 million in February 2022 and are now thinking about how to help Julian Assange with this money.

All DAOs are based on smart contracts — action algorithms recorded on the blockchain. The developer creates something like a computer program into which dozens of tasks can be invested: for example, a money withdrawal scheme or payroll automation. In theory, with its help, the entire bureaucracy can be replaced with one file. This way, both time and money are saved.

Classic DAOs democratize decision-making — all token holders have the right to vote. If we transfer this principle to a company, then each of its employees will have the opportunity to make a proposal that cannot be ignored.

The ideal DAO does not have a central authority, and all rules are either created by the community or have already been created and published. Changes to the “digital law” are not implied or are taken by vote.

What innovations and benefits can DAO deliver to existing organizational structures?

• Incentives: New business models will encourage large groups of employees to work together. DAO allows you to create massive collaborative structures. This can be achieved by issuing tokens on the public blockchain. In addition, transferring these tokens is much faster and more efficient, allowing you to store small and short-term assets.
• Decisions: In a corporation, decisions are largely limited to board members and corporate executives. This limits both the number and frequency of decision-making and the variety of information that can guide those decisions. In a DAO framework, decisions can be made based on information from any conceivable group, with much more flexibility around configuration.
• Collaborators: As mentioned, DAO tokens can be owned by a diverse group of participants. This means that new roles can be included, especially small and temporary ones. In addition, the speed and efficiency of blockchain payments make small tasks much easier. In a DAO, the difference between a CEO and a task executor is much more fluid, and both can be properly motivated to work in the interests of the DAO.
• Processes: In existing organizational models, financial, legal, and decision-making operations can be slow and costly — electronic transfers are slow, and legal work involves extensive paper contracts and sometimes lengthy litigation or arbitration proceedings. Decisions also require manual documentation, paperwork, and tending to protocols. DAOs can greatly simplify these processes by writing everything on the blockchain and automating almost anything with smart contracts.

What lies ahead?

“I think DAO is a new LLC (Limited liability company). I think that in 5 years, there will be no more shares. Instead of them, companies will issue tokens and register as a DAO,” says Cooper Turley, investor and creator of several popular DAOs.

Billionaire investor Mark Cuban is also optimistic about them. “The future of corporations could be very different if DAOs take on traditional business,” he tweeted in May 2021.

The recent wave of investment in the sector by institutional players is indicative of the growth of the industry and the potential for greater use of DAOs.

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Join our DAO conversations on Discord to learn all you need to know about the possibilities of Decentralized Autonomous Organizations: https://discord.com/invite/cg6CujW5.