Academy Series #4: Decentralized Autonomous Organizations (DAO) — A Brave New World
We all know that crypto moves at the speed of light. Every day we see new projects, ideas, and opportunities popping up in the space. With this fast pace there comes a plethora of new acronyms and terms that for even the most seasoned veteran it’s hard to keep up with. This is also why we keep delivering these educational articles. We keep up with the trends so you don’t have to!
This week we’ll speak about a new revolutionary way of working and bringing people together, powered by blockchain: DAOs (yes, another acronym…).
So, what is a DAO?
DAO stands for Decentralized Autonomous Organization. They have been around since 2016, but we’re at a point where they are on the verge of going mainstream, and effectively becoming the next relevant trend in the space. Web3 technologies are becoming more mature–and possibly due to the pandemic–we’re seeing a bigger crowd of people looking for new ways of working. For example, people are looking for work environments where they can be freer, more independent, and more connected with causes and teams they believe in. We are seeing less and less connection with typical hierarchies, corporations, and rat-race-like environments.
And if this trend continues, there’s a big chance we’ll be hearing more and more about DAOs in the upcoming months and years.
Why? Imagine a place where people from around the world gather to work in an independent manner, where there’s no central authority or boss, and where rules and decisions are all autonomously managed in a 100% independent fashion encoded by an algorithm? Crazy, right?
Well, DAOs are taking a big leap towards making that a reality.
Our goal with this article is to provide you with a brief overview of what DAOs are, and hopefully to spark your curiosity to know more and dig into it further!
Understanding DAOs
Let’s start by breaking down the name. It’s always a good way to understand the core behind the concept:
- First, it’s an Organization. This is clear for everyone. We can easily refer to an organization as a group of people or entities that gather and work together with a common set of goals. Organizations have established rules and protocols used to define how members work together towards the goals they set themselves to;
- Second, it’s Decentralized. And with this, we’re referring to the fact that the organization doesn’t have a central entity, individual, or shareholder that governs it. Also, it doesn’t have a typical hierarchical structure. Decentralized organizations can be found in a lot of places already, mostly in the form of communities, or more forward-thinking enterprises adopting work models such as Holacracy and Self-Management. There are no rules enforcing direct hierarchical structures, and people come together with a purpose. There might be different roles, but they’re all part of a flat structure, and information and decision-making are distributed among the members of the organization.
- Third, and this is where it gets interesting, it’s Autonomous! And by being autonomous means that the organization is fully independent in and of itself, doesn’t necessarily belong to anyone, and is able to self-govern. That is, in a typical organization (even decentralized ones) humans are the owners of the organization and bearers and enforcers of decisions. A DAO is something that, in some fashion, makes and executes decisions for itself. How? Because DAOs are created and deployed on blockchains, which is a technology that enables the organization to be fully autonomous. The organization and the rules that establish it are all written in smart contracts in a distributed blockchain, and the participants and entities that participate in the governance of the organization are also part of that blockchain.
Automating activities, decisions, and work
In its purest sense, a DAO is an organization that is effectively run and owned by code.
You can automate many core functions of an organization like treasury and payments, but you can also automate decision-making.
This is usually achieved by a group of crypto wallets that executes all its movements and decisions through code, and that code or rule book is written, deployed, and lives on the blockchain. The DAO effectively exists from the moment its Smart Contract is deployed.
Membership in a DAO is also a very different concept compared to traditional organizations. Most of the participation in DAOs is made in a form of Token holding or NFT ownership (if you own a set of tokens or specific NFTs) and those tokens are then used to participate in democratic decision-making among all holders/wallets. It is a very fluid participation where you can join and leave anytime you want.
Yes, humans are still part of the process, and Vitalik Buterin has a good definition for this: DAOs are actually organizations that have automation at the center and humans at the edges. In the end, a DAO still relies heavily on humans to perform all the tasks that it cannot do, but at the same time, because it’s decentralized and autonomous, all decisions are stored and are built around the Smart Contract that governs the organization, and not around specific individuals or organizations.
DAO as an Ethos
All of this is mind-boggling, and hard to grasp. At one end we’re speaking about a totally autonomous organization, almost sounding like a sci-fi dystopia, and on the other end, we’re still speaking about how humans play a part. The truth is: true decentralization and autonomy might never be fully reached! However, a very interesting take on DAOs can be found in this Annika Lewis article: the DAO as an ethos.
Conceptually, DAOs are totally autonomous and self-governed. This means that in its purest form the algorithm takes care of everything, as long as the consensus mechanism between the wallets and token holders works.
However, the reality is different and we know that this is never the case. As we said: a DAO still relies heavily on humans to perform all the tasks that it cannot do. You need to build things, develop code, create UX/UIs, interact with external partners, etc, etc.
These people can be hired or mandated by the DAO, but as soon as humans enter into the field subjectivity comes into play.
That’s why it’s probably a good approach to admit from the start that DAOs are neither totally decentralized, nor are totally autonomous. And that’s because a DAO is more of an Ethos than a specific construct.
As Annika says there is a shared culture, a shared set of cultural norms amongst DAOs, that holds true regardless of where exactly a specific DAO sits on the decentralization/autonomy spectrums. Being part of a DAO feels familiar after you have participated in a couple of them.
The ethos is, by and large, one of the individuals collectivizing to create something bigger, together, but absent of a highly prescribed and fixed structure.
On top of that blockchain puts the technology in place to create a fully trustless system to allow this so-called Ethos in a fully decentralized manner, and by bringing together a group of people to work together in a format that they all agree on, and without the enforcement of any specific stakeholder, owner, investor, manager or boss. This can then establish a way of working via radical openness and collaboration.
DAOs will become a game-changer for how knowledge work will happen in the future, and we firmly believe that the best talent and best professionals will slowly gravitate to work in and for a DAO.
Some examples of DAOs, and their goals
DAOs have been used and can be applied to multiple scenarios, whether they are building and deploying protocols, building software products, managing investments, and so on. Many other use cases are popping up now, and we’re confident we’ll see an expansion of those too.
Here are a few examples of existing and successful DAOs:
- MakerDAO: Focused on building and maintaining DAI, a fully decentralized stable coin. MKR holders are responsible for governing the Maker Protocol, which includes adjusting policy for the DAI stablecoin, choosing new collateral types, and improving governance itself. Anyone can be an MKR holder and participate in the governance of the protocol.
- Compound: Compound Finance is a decentralized protocol where all the decisions regarding the direction of the protocol are made by owning COMP tokens. Your ownership weight is your voting weight. One interesting thing is that in Compound all proposals must be executable code already. They are not suggestions for a team or foundation to implement later on.
- BarnBridge: Barnbridge DAO is building a set of different products focused on allowing better risk management across multiple investments. BarnBridge DAO is governed by the BOND tokens, and all the decisions regarding the future and roadmap of the products are decided by the DAO and token holders.
- API3: API3 is building two Web3 Solutions (Airnode & dAPIs). It started as a centralized organization and now they are slowly transitioning to a DAO, where API3 token holders will be responsible to decide the strategy, hiring, and future steps of the organization;
- FlamingoDAO: FlamingoDAO is a for-profit DAO, focused on making investments in blockchain-based assets like NFTs. The community decides how and where to apply the money.
- MolochDAO: MolochDAO is focused on developing and growing the Ecosystem, and provides grants and awards to teams and projects across the globe.
- Yield Guild Games: Yield Guild Games is an interesting case too. We spoke in our last article about Axie Infinity, which was greatly propelled by YGG. YGG is a play-to-earn DAO focused on making and managing investments in Blockchain & NFT games like Axie Infinity, League of Kingdoms, and The Sandbox.
Conclusion
DAOs, or DAPs (Decentralized Autonomous Protocols) can exist with or without voting abilities to create environments with predictable actions where token holders provide stability by curation within the DAO or DAP via voting or other actions.
The future holds greater levels of decentralization where community autonomy represents a vital role in its long-term success.
But in the meantime, can I start now?
Of course you can! At BEPRO Network we build tools for builders and help ambitious individuals and teams speed up their idea development. We recently released our NFT Factory into our codebase which allows you to easily build NFT-based applications. Start here: http://docs.bepro.network
If you have questions or ideas around the topic feel free to reach out directly to us and I’ll be happy to help! Just ping me directly at filipe@bepro.network !
About BEPRO Network
BEPRO Network is a codebase for DeFi, Gaming, Prediction Markets & More. We are a Code-as-a-Service protocol providing technology and support for blockchain-based applications.
