DAO: Not Just a Structure, But a Way of Thinking
Last week, we looked at how traditional organizational structures are changing in the Web3 world, touching on roles, responsibilities, and accountability.
Last week, we looked at how traditional organizational structures are changing in the Web3 world, touching on roles, responsibilities, and accountability.
But we haven’t really dived into DAOs yet, which are at the heart of this transformation.
DAOs, or Decentralized Autonomous Organizations, are among the most talked-about yet misunderstood structures in Web3. In this article, I want to explore what DAOs are, why they came about, and how they work.
What is a DAO? Where Did It Come From?
DAO stands for “Decentralized Autonomous Organization.”
The main goal is to transform the trust and hierarchy-based relationships found in traditional corporate structures into a model managed entirely by code and community.
The first idea of a DAO took shape within the Ethereum community in 2016. “The DAO” project was the first major attempt at decentralized governance. Unfortunately, it was hacked due to a severe security vulnerability, becoming one of the biggest crises in Ethereum’s history. Yet, the experience from this project helped mature the DAO concept and spurred the development of new and different examples.
How DAOs Work
The basic working principle of DAOs is rooted in smart contracts. The organization’s rules are defined by code and activated through community voting. The main components of DAOs are:
- Token Ownership: The decision-making process usually involves token holders. They can vote on any decision point, and the amount of tokens determines their voting power.
- Voting Mechanisms: Decisions presented to the community are voted on using tools like Snapshot.
- Execution: Approved proposals are typically executed through multi-signature wallets (like Gnosis Safe). This means a multi-step approval process is required, needing the consent of multiple people or wallets.
- Communication: This is carried out through tools like Discourse forums, Discord communities, and proposal documents prepared for approval.
This setup aims for more participatory and transparent governance compared to a corporate hierarchy.
Why Are DAOs on the Corporate Radar?
Initially seen as a governance solution for blockchain projects, DAOs have gradually taken on a broader meaning. Today, even corporate structures are watching DAOs with interest. There are a few reasons for this:
- Open Governance: A system where everyone can see the rules and participate in decision-making, which is a bit more democratic compared to existing hierarchical organizations.
- Participation: Users aren’t just customers of the product; they become decision-makers and contributors, which is actually one of the foundational ideas of the Web3 mindset.
- Transparency: Decision-making processes and resource usage are completely open and traceable on the chain.
But it’s not all smooth sailing. Roles, responsibilities, and accountability aren’t always clear, especially in the early DAO versions. There can be gray areas, particularly around accountability.
That’s why some projects prefer to create hybrid structures instead of fully transitioning to a DAO model. For example, a core team might make strategic decisions while the community provides feedback and votes on specific issues. So, the options put to a vote are actually determined by a smaller committee of qualified or expert individuals, but the community decides which option to pursue.
As we mentioned in last week’s article, this setup stands out as a more feasible and less risky transition model for traditional organizations, offering a learning opportunity.
We’re Just Getting Started
I’ve tried to touch on what DAOs are, how they work, and why they matter, but honestly, we’ve only scratched the surface here. Because when we talk about DAOs, we’re not just talking about a single structure; we’re talking about a variety of structures, diverse goals, and varying challenges.
And depending on each structure and goal, there are also very different benefits.
Next week, I want to dig a bit deeper into this topic, looking more closely at different DAO structures, some real-life DAO examples (like Optimism, Gitcoin), and the governance challenges they face. Because even though DAOs still have many problems in their current form, and we must accept that they can’t be applied to every organization or institution, I believe that as a governance method, they are quite transparent and could improve institutions in many ways, even if applied only to certain parts.