Following decentralized finance (DeFi), nonfungible tokens (NFTs) and the Metaverse, decentralized autonomous organizations (DAOs), are the most recent trend in crypto. This community-owned type of business model legitimizes the ideals of Web3 and has the potential to revolutionize the governance of corporations and smaller businesses by improving the way we organize.
DAOs are blockchain-based entities founded on rules established by a supportive community that shares incentives and common interests. Such rules are encoded in computer programs known as smart contracts that manage proposals and business decisions like inventory control, cash management, pricing, hiring and everything that makes an organization functional and “smart.”
Sharing economies are an early example of DAOs or community-driven entities. However, while the sharing economy business models are distributed and peer-to-peer, they still need a central authority to mediate and coordinate operations; and the authority ends up draining most of the profits.
Ultimately, sharing economies turn into unfair businesses when the main actors — service providers — are the pillars of the economy and, at the same time, those who enjoy fewer profits from the DAO than other actors.
DAOs are supposed to disrupt the governance model of traditional businesses; however, they come with their challenges. This article goes through DAOs as community-focused institutions, their benefits and drawbacks to determine if their proposition as a new business model can be widely applied and if so, how it can be supported.
DAOs encourage a focus on community
The focus of a DAO shifts from a hierarchical and vertical structure to a community-led organization that doesn’t recognize the role of managers while being in favor of encoding rules that allow the organization to perform independently from its members.
This type of management is called “decentralized governance” and contrasts with a centralized entity where shareholders and executives often hold too much power and control.
Due to this distinctive type of system, DAOs promise to encourage a focus on a community in which individuals grow collectively rather than focusing on profit and allowing just a few shareholders to divvy up the earnings.
The road ahead for DAOs
Like cryptocurrencies, DAOs are relatively new and face inevitable challenges. In their current state, they are merely projects that have enormous potential to improve the way we organize, but they might not be ready for widespread adoption.
For instance, early-stage entrepreneurs want more than money; they want experience on their team to help them thrive, and opponents are not convinced that the DAO model can provide both finance and expertise in growing businesses. However, new projects that are emerging and possibly failing can help address technological and systematic issues that every innovation requires.