The Spirit of the DAO

Welcome to the age of the DAO or the Decentralized Autonomous Organization. Quite the mouthful, these DAOs. Lets break down what exactly are these exciting new clubs for crypto enthusiasts.

Broadly speaking, DAOs are organizations of individuals who establish their own governing rules and make decisions executed by pre-programmed smart contracts on a blockchain. DAOs remove the need for any central entity or single point of control. Their core objective is to bring together a community of like-minded users with similar interests to work together toward a common goal. 

Being internet organizations, DAOs have several advantages over traditional organizations. One significant advantage of DAOs is the lack of trust needed between two parties. While a traditional organization requires a lot of trust in the people behind it, especially on behalf of investors, with DAOs, only the code needs to be trusted.

Trusting that code is easier to do as it’s publicly available and can be extensively tested before launch. Every action a DAO takes after being launched has to be approved by the community and is completely transparent and verifiable.

DAOs also have no hierarchical structure. Yet, it can still accomplish tasks and grow while being controlled by stakeholders via their native token. The lack of a hierarchy means any stakeholder can put forward an innovative idea that the entire group will consider and improve upon. Internal disputes are often easily resolved through the voting system, in line with the pre-set rules in the smart contract.

By allowing investors to pool funds, DAOs also give them a chance to invest in early-stage startups and decentralized projects while sharing the risk or any profits that may come out of them. They can function like a Kickstarter in the emerging digital marketplace.

As mentioned above, a DAO is an organization where decisions get made from the bottom-up; a collective of members owns the organization. A crypto co-op if you will.

DAOs operate using smart contracts, which are essentially chunks of code that automatically execute whenever a set of criteria are met. Smart contracts of these types are deployed on numerous blockchains nowadays, though Ethereum was the first to use them.

These smart contracts establish the DAO's rules. Those with a stake in a DAO then get voting rights and may influence how the organization operates by deciding on or creating new governing proposals.

This model prevents DAOs from being spammed with proposals: A proposal can only pass once the majority of stakeholders approve it. How that majority is determined varies from DAO to DAO and is specified within the programming of the smart contracts.

What are the future of DAOs? Look at DAOs as a pilot program. Pilot programs are tested with small numbers of participants, and if successful, they can be scaled up to include ever greater numbers, with the less successful models phasing out. As of May 2022, there were close to 5000 DAOs in existence. Will they all thrive? We hope so, for their sake. But realistically, they will not. Some will grow, some will go.

For example, the TRON DAO, started in 2017 with an initial outlay of 70 million dollars has grown to a market cap of 1.6 billion dollars and 12 million members. Start locally, dream globally.

Once formed, a DAO is run by its members, often through the use of crypto tokens which come with certain rights attached, such as the ability to manage a common treasury or vote on certain decisions.

An example of an active successful DAO would be PleasrDAO, a group of dozens of crypto artists, entrepreneurs and investors that was formed to bid on work by high-profile digital artists. The group spent $5.4 million on an NFT affiliated with the whistleblower and activist Edward Snowden. Once theses works were purchased, they became the property of the DAO’s members, who can manage them as they see fit. They can vote to exhibit them somewhere, or break them into 1,000 NFTs and sell the pieces to the public, or simply keep them locked away in a physical or virtual vault. In a classic DAO model, all of these decisions would be made through a system of token-based voting.

Another high profile successful DAO is Friends With Benefits, which has been compared to a decentralized Soho House. It works somewhat like an online country club. Members have to buy a certain number of so-called $FWB tokens to get in. (Currently, a full membership costs 75 $FWB tokens, or about $4,000.) Once they’re in, they get invited to a Discord chat room where members chat about crypto, trade job leads and investing tips, and hold town halls to talk about the group’s future plans. The group hosts members-only parties at major crypto conferences, and members organize local meet-ups in their home cities. 

So the scope of current and future DAOs are as diverse as they are eclectic.

Generally, DAOs can be more transparent than traditional organizations, because the group’s important decisions get made “on-chain,” using governance tokens and votes that appear on the permanent blockchain ledger.

DAOs can also be more democratic than traditional organizations because every participant can vote on group decisions, not just boards or executives.

DAOs are attractive for they can be more nimble and fast-moving than traditional companies, because they’re often project-specific and you can set them up and wind them down quickly, with significantly less red tape than forming a traditional start-up venture.

Right now, most people don’t encounter DAOs on a daily basis. But I’d argue that it’s important to know what kinds of problems technologists are trying to solve. And a lot of well-funded technologists are looking for ways to turn all kinds of organizations, including ones you might belong to or care deeply about, into DAOs.

As with any crypto project, DAOs have attracted people for all kinds of reasons: speculative gambling, trend-chasing and utopian true belief among them.

Among the more serious-minded DAO advocates, a common theme is collective ownership.

DAO's more zealous proponents believe that we need a radically different ownership model for the next phase of the internet. DAOs, they argue, could allow us to build a new set of organizations and platforms that are owned by their users, governed in fair and transparent ways, and native strictly to the internet.

They argue DAOs "can help course correct the internet back to its original, idealistic vision: power and money pushed to the edges, networks growing and flourishing together, a level playing field for talent anywhere in the world, a thriving creative middle class, and a generally diverse and interesting place."

Charitable organizations are a prime example of businesses that stand to benefit greatly from the DAO structure. Often, the amount of money and time that is spent on administrative tasks and decisions on fund allocations surpasses the amount of time spent completing charitable activities. Through DAO implementations, funds can be distributed to the proper channels quickly and effectively. The result: charities unlocking higher impact of their end causes

But, of course, the DAO movement could also become an expensive, unruly mess, as DAOs confront the challenges involved in corralling any group of people toward a common goal, regardless of whether crypto is involved or not.

But in its most basic form, a DAO is a new way for a group of people to aim a large amount of money and organizing energy at a project, whether it’s buying the Constitution, building a new social network, or influencing an election, bold transformative ideas that would be wise to pay attention to while they take shape.