Wednesday W.O.W - DAOs (Decentralised Autonomous Organisations) 🔗🌐🗳️
[7 min read] Your mid-week bite sized treat on emerging tech on our journey to the Metaverse. Learn about how DAOs shape the direction of organisations in a decentralised, transparent manner.
A nibble of knowledge in your inbox every Wednesday with a simple format:
🇼 What the technology is
🇴 Objective(s) - what is it trying to achieve, with some examples
🇼 Why it is important to users as well as businesses & brands.
This is week 40 of the 520 weeks of writing I have committed to, a decade of documenting our physical and digital lives converge.
In Western society, most conventional organisations and societies function with a top-down approach, wherein a select group of (sometimes elected) individuals dictate the trajectory of the entire group. However, there are inherent flaws in this centralised power structure, including opacity in decision-making and bureaucratic bottlenecks. The bigger the organisation, the more these become an issue.
Enter DAOs, an innovative governance model that seeks to address these issues by embracing decentralisation and transparency. DAOs, or Decentralised Autonomous Organisations, represent an emerging paradigm where a diverse community of participants collectively holds decision-making authority, facilitated by blockchain technology and smart contracts. In this article, we will dive into the intricacies of DAOs, explore their objectives and applications, and consider their potential to reshape the future of our society.
🇼 What is a DAO?
Understanding DAOs becomes simpler by dissecting the name:
Decentralised: These organisations exemplify communal ownership. While developers might construct the necessary technologies, decision-making power is shared collectively by all members.
Autonomous: The framework is self-regulating. Rules, finances, and more are encoded and enforced through smart contracts.
Organisations: Groups of people united by specific goals or purposes.
Basically, DAOs are entities that operate within the framework of a blockchain, utilising smart contracts and token-based governance to enable members to actively participate in decision-making processes, all without the need for a central authority. Instead of relying on a small group of leaders, DAOs entrust their members to propose and vote on initiatives, steering the organisation towards common objectives. The voting power of each member is proportionate to their ownership of the DAO's native tokens. This innovative model has its roots in the 1990s, but it was only with the launch of Ethereum in 2015 that DAOs gained real-world traction.
“a DAO is an internet community with a shared bank account,” - Cooper Turley, investor and builder of several popular DAOs
Key aspects of DAOs include:
Trustless Systems: DAOs operate on the foundation of trustless interactions. The reliance on smart contracts and code obviates the need for trust in any individual or centralised entity.
Contribution-led Model: DAOs measure the value of contributions and participation more than titles or previous experience. This approach helps cultivate an on-chain reputation.
Reputation Economics: Participants who contribute positively to a DAO are rewarded with incentives, including voting rights. Conversely, bad actors face penalties. The maintenance of on-chain reputation is vital for the integrity of DAOs.
🇴 Objectives and Use Cases of Culture Tokenisation
DAOs have proven a multitude of possibilities across various sectors. Here are five prominent types of DAOs, each with an example if you want to deep dive:
Protocol DAOs: These DAOs facilitate the democratic decision-making process for platforms such as decentralised exchanges (DEX) and lending protocols. For instance, the ENS DAO governs the Ethereum Naming Service protocol, allowing members to propose and fund modifications.
Investment DAOs: These platforms function as decentralised venture capital funds. One example is The LAO, an Ethereum-based fund that supports multiple startups by funding their projects.
Service DAOs: Similar to consulting firms, these DAOs source web3 talent, conduct trustless audits, and develop tools. IndieDAO is a great example, enabling seamless collaboration between clients and service providers.
Media DAOs: These community-operated media platforms empower creators to take control of their content and revenue generation. BanklessDAO serves as a hub for media professionals to foster cryptocurrency and DeFi adoption.
Social DAOs: These virtual communities of like-minded individuals aim to drive positive changes in specific sectors. Friends with Benefits (FWB) unites creators, thinkers, and builders to advance the web3 thesis.
Some more well-known DAOs and their outcomes, more optional deep diving:
Objective: Operate as a venture capital fund for the crypto market, allowing community members to propose and fund projects.
Outcome: Ended in controversy due to a hacking incident in 2016, which led to a hard fork in Ethereum to recover stolen funds. Not considered a success, but a pioneer for sure.
Objective: Provide decentralized trading and automated liquidity provision on the Ethereum network.
Outcome: A resounding success, becoming one of the most popular decentralized exchanges with over $4 billion Total Value Locked (TVL).
Objective: Raise funds to purchase an original copy of the United States Constitution.
Outcome: Raised over $47 million in ETH, narrowly missing out on the auction bid. Dissolved and refunded members due to insufficient funds for insurance.
Objective: Govern the Maker Protocol and issuance of stablecoin DAI, deciding on policy issues and collateral acceptance.
Outcome: Governs the popular DAI stablecoin and is a significant player in the DeFi ecosystem.
🇼 Why DAOs Have a Role in the Future of Society
The potential of DAOs extends beyond just technological innovation. By removing the concentration of power and encouraging collective ownership, DAOs have the potential to democratise decision-making, facilitate global collaboration, and enhance transparency. This holds implications not only for businesses but also for governments and communities. Looking ahead, the adoption of DAOs is expected to grow. With advancements in blockchain technology and increasing recognition of DAOs by legal systems, their integration into mainstream governance structures becomes plausible.
However, regulatory uncertainties remain. Just last Sept, a federal judge ruled in favour of the Commodity Futures Trading Commission (CFTC) in a civil enforcement action against Ooki DAO, which had significant implications for DAOs. The court deemed DAOs as "persons" under the Commodity Exchange Act. The CFTC accused Ooki DAO of operating an illegal trading platform and transferred control of it from its founders. Despite the concerns about DAOs' legal status, this ruling establishes their accountability. Ooki DAO faced a $250,000 fine and a cease and desist. The decision could shape the legal landscape for DAOs, which won’t necessarily be offered the same “limited liability” as an incorporated company.
In conclusion, DAOs are paving the way for a new era of governance. By leveraging blockchain and smart contracts, DAOs empower members to shape the direction of organisations in a decentralised, transparent manner. As they become more prevalent, they hold the promise of revolutionising not only businesses but also societal structures, making the “web3 vision” of a participatory, equitable future more attainable.
Bonus Example: Rooftop
Rooftop is a community and investment collective for women in, or interested in, emerging tech. It’s essentially a DAO, but without any of the jargon that could be a put-off.
Sally Hodges, a Kiwi, DAO expert, fellow BlockchainNZ member and Substack writer is one half of the team behind the project, which you can read about here:
Rooftop is all about ‘No ceilings’ (glass or any other kind), only endless sky and possibilities. We spend less time talking about ‘inequity' and ‘lack of gender diversity' in tech (yes we know it’s real) and more time getting us all up to the 'Top level' expanding our horizons and leveraging emerging tech opportunities.
A core part of Rooftop is using the new tools that tech like Blockchain provides to bring women together, pooling their wealth, time and experience to back women-led projects and share in the financial success. Together we will create 'inclusive capital', ways of funding that nurture founders while creating accessible opportunities for women to make investments.
If you’ve ever thought you’ve ‘missed’ your chance to enter tech, or that the sector is only for those under 30, or you need to ‘understand coding’ - think again. A combination of your curiosity, your existing skills and some support are all you need.
That’s all for this week! If you have any organisations in mind that could benefit from learning about emerging technology, be sure to reach out. Educational workshops are one of many consulting services I offer.
Great breakdown, thanks for including Rooftop Ryan.