The latest idea to create a buzz in the world of blockchain innovation is the decentralized autonomous organization (DAO). In simple terms, it is a cooperative internet community with a shared bank account. With the power and speed of internet communications, combined with the immutability of blockchain, DAO’s could just be the future of progressive business.
In the last couple of weeks, a DAO was formed to buy a rare copy of the American Constitution, which had come up for auction at Sotheby’s. Within just a few days $20 million was raised and the collective put together an organisation with members taking on a range of roles, including marketing, treasury management and so on. ConstitutionDAO, as it called itself, just missed out on the purchase and they are now in the process of refunding all of the contributions. It was a one-off, an experiment. And while it failed in its mission to return the rare copy of the American constitution to public ownership, it did succeed in illustrating the power of this new organisational structure.
It’s a business structure that many see as a potential alternative to LLC or partnership. Wyoming, in the United States, has become the first state to recognise DAO’s as a legal entity.
DAO’s utilise blockchain technology and smart contracts. The blockchain is used to keep track of both the finances and the rules of the organisation.
The name ‘decentralized autonomous organization’ tells you everything about the core function and philosophy of DAOs. They are decentralised, which means that decision-making is through the consensus of members and not dependent on central leadership or officers. Autonomous means that the organisation is independent of individuals either internally or externally. It is an entity in itself and operates in an organic rather than a hierarchical manner. Billionaire investor Mark Cuban has called DAOs “the ultimate combination of capitalism and progressivism.”
How DAO’s work
DAOs usually emerge from communities. Those may be on internet forums or from conversations between like minds on social media. ConstitutionDAO took off as a discussion on Twitter.
To join a DAO potential members purchase tokens. Or they can also accrue them by working for the DAO. Those give them voting rights and a share of the organisation’s equity. The equity is not always financial. Rights can be stakeholder as well as shareholder-based. For example, if ConstitutionDAO had succeeded in purchasing its copy of the American constitution and returning it to public ownership in a museum, the members of ConstitutionDAO would have owned part of the scroll. But DAO members had used their voting rights to ensure that the artifact was not to be sold on. So it was a public-spirited rather than a financially motivated endeavor.
What is the Scope of the DAO structure?
DAOs can be used to map collaboration in a variety of settings. It can be a collaborative venture between individuals or between businesses. The DAO model can be used for asset investment or to invest in and support new ventures or initiatives, see the BitDAO guide for more on this. It can also be used to manage the sharing of common resources and coordination of the delivery of collaborative services.
The decentralized autonomous organization model is still very new. It could open up yet more innovative approaches to business organisation. But it remains complex and evolving. It’s good to see blockchain technology enable more progressive cooperative approaches, but it’s worth bearing in mind that cooperation and consensus don’t always need the might and carbon footprint of the blockchain to be effective. ConstitutionDAO could have been just as effective with a crowdfunder and a poll.