For all practical purposes, a DAO (Decentralized Autonomous Organization) is “a group chat with a shared bank account.” So why are so many people (myself included) so excited about DAOs? Because, objectively speaking, the best organized groups are the most successful, and DAOs enhance and accelerate the ability to organize at scale. Let’s go over the basics.
What Is a DAO?
Aragon, an open-source DAO infrastructure provider, defines a DAO as “an internet-native entity with no central management which is regulated by a set of automatically enforceable rules on a public blockchain, and whose goal is to take on a life of its own and incentivize people to achieve a shared common mission.”
Said differently, a DAO will include the following attributes:
- Decentralization – no central authority
- Autonomy – functions automatically (sort of)
- Organization – a coordinated, well-governed group
There are plenty of wonderful writings all over the web that describe different types of DAOs. You can find some useful links on our Crypto & Web 3 Resources page.
To better understand the underlying ideas, let’s look at some attributes that most DAOs share.
A Shared Goal
The reason the cliché “a group chat with a shared bank account” evolved is that DAOs are almost always based on a shared goal. A DAO may be a group of people who wish to invest in NFTs, a group of people excited about blockchain-based identity, a group of art collectors, metaverse lovers, sports fans, gamblers, speculators, Broadway producers, movie lovers, etc. There are no limitations on creativity here. If you are a group of people with shared economic interest, a DAO is a way to pool your resources.
Democratic Governance
While each DAO is different and there is no “one right way” to organize the governance of a DAO, all DAOs have some kind of endemic voting mechanism. The governance rules are written into the smart contracts that define the DAO.
Trustless
One of the benefits of all blockchain-based organizations is that you do not need to trust (or even know) anyone else in the organization – or anyone the DAO does business with.
Shared Bank Account
The “shared bank account” for a DAO is usually created using one or more multi-sig wallets. As the name suggests, unlike your personal crypto wallet, a multi-sig wallet requires a certain number of people to approve a transaction. There are many multi-sig wallets available. I’ve had very good experiences using Gnosis Safe.
DAO Membership
Some DAOs ask you to buy in, and others allow you to earn your way in. The membership requirements and schemas are as varied as the DAOs themselves. The most popular DAOs require you to contribute tokens or NFTs or cash. And, not surprisingly, your voting rights are often tied to the amount of resources you have contributed or earned.
Participation Is Key
Most DAOs are highly participatory, and you are rewarded (with tokens, NFTs, or some other store of economic value) for your contributions. Sometimes voting rights are based on how hard you work for the DAO.
You are right to wonder about just how “decentralized” or “democratic” an organization based on relative wealth can be. Our observed reality is that the rich get richer. This seems like an immutable law of ecosystems. In theory, DAO structures make egalitarian governance possible.
Autonomous Rules
The rules for each DAO are written (hard-coded) into the smart contracts that make the DAO autonomous. This comforting level of transparency is both a strength and a weakness. It is a strength because everyone knows exactly what to expect from the DAO. Smart contracts execute when their conditions are met and everyone can easily see a record of every transaction on the blockchain.
It is a weakness because any changes to the operating principles or workflow and processes need to be voted on and approved by the DAO. There’s no single person who can make a decision for the entire organization.
Decisions by Everyone
Any decisions that impact the entire DAO or any changes to the business logic of the smart contracts are submitted by proposals, and the DAO votes on them. In most DAOs any stakeholder can propose an idea. That’s the awesome part. On the other hand, as Winston Churchill said, “democracy is the worst form of government, except for all the others.” Decision-making in a DAO can be very inefficient. To solve for this, many DAOs have subcommittees, and some even have paid employees. Again, there are as many different DAO structures as there are DAOs.
Immortality
In theory, DAOs are forever. In practice, many have already come and gone. But, unlike a corporation or a government-approved legal business entity, DAOs are distributed across the internet. As long as people are interested in and participating, the DAO will be alive and thrive.
Here’s a list of DAOs that have been created using Aragon’s open-source tools. While there are many other toolsets and hundreds of other DAOs, clicking around here will give you a good sense of how and why you might think about creating your own DAO.
- Developer Collectives
- Worker Collectives
- Art Collectives
- Community Collectives
- Social Media
- Metaverses / Virtual Worlds
- Asset Management
- Venture Capital
- Insurance
- Trust Funds
- Company / Project Fundraising
- Fan Ownership
- Freeholder / Co-Living / Nomad Communities
- Media / Entertainment
- Politics
There’s So Much More!
One thing is certain: you will be hearing much more about DAOs over the next few years. There will be combination DAO/metaverses, DACs (decentralized autonomous corporations), and all kinds of variations on this theme. Like so many new technologies, the best way to learn about DAOs is to start exploring on your own. If you need help picking a place to start, just reach out to us, and we’ll do our best to point you in the right direction.
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Author’s note: This is not a sponsored post. I am the author of this article and it expresses my own opinions. I am not, nor is my company, receiving compensation for it. I am not a financial advisor. Nothing contained herein should be considered financial advice. If you are considering any type of investment you should conduct your own research and, if necessary, seek the advice of a licensed financial advisor.