A Decentralized Autonomous Entity, or DAO, is an organization that is governed by a code rather than leaders. This is the case with projects like Axie Infinity, The Sandbox and Descentraland. This means that the community decides the direction of the development of the platform through votes and referendums, eliminating intermediaries in financial operations.
It is a form of blockchain-based entity or company that is often governed by a native cryptographic token. Anyone who buys and holds these tokens gets the ability to vote on important issues directly related to the DAO. They typically use smart contracts instead of traditional corporate structures to coordinate the efforts and resources of many to achieve common goals. These are self-executing computer programs that perform a specific function when certain conditions are met.
The idea is that if Bitcoin can cut out the middlemen in online payments, can the same technology do the same for middlemen in business? What if entire organizations could exist without a central leader or CEO at the helm?
Proponents argue that the inherent advantage of these decentralized institutions is that they allow the construction of organizations that are more equitable than human-owned ones. Most companies today have leaders who sometimes make unilateral decisions that affect the entire company. The DAO can make this type of decision making impossible; Stakeholders (ie investors in the company) have more direct control over how the company operates.
DAOs are seen by many as a means to ensure a more rigorous democracy. Interested parties can vote to change or add new rules and even expel a member, for example. And the institution simply cannot change unless the necessary number of people vote for the change.
Decentralized institutions allow the construction of organizations that are more equitable than those of human property.
Some of the suggested features of DAO include:
- No Hierarchy: There is often no hierarchical management. Stakeholders often make decisions instead of leaders or managers.
- Transparent: It’s open source, which means anyone can see it. On the blockchain, anyone can look at history to see how decisions were made.
- Open Access: Anyone with the internet can own or buy DAO tokens, giving them decision-making power.
- Democratic Changes: Investors can change the rules of the decentralized organization by voting on new proposals.
- Recruitment: In theory, the DAO can recruit outside talent, as there are still tasks that only humans can perform. For example: an Uber self-driving car.
Unlike what happens in centralized companies, which have models called “walled gardens” (as in Facebook), which have their own system of government with defined borders. It turns out that these organizations are asking a question: “How much freedom will users have within these platforms?” Some cases from the past, such as those described by the Cambridge Analitica episode, give us a wake-up call about the true commitment of these companies to the security of their users.
Faults and Criticism
Unstoppable code can cause a security issue. It is difficult to change the rules of the DAO once they are implemented on the Ethereum blockchain. The very structure that prevents one person or entity from changing the organization without community consensus can also cause problems if some gaps in the structure are not easily closed. This can lead to possible theft, loss of money, or other serious consequences.
The MIT Technology Review considers the idea of entrusting major financial decisions to a large group to be a bad idea and not likely to produce a good result. In their article, they say that some things need to change in the world for DAO-related projects to be successful. It is still a conservative sentiment that the masses cannot be held accountable for investments.
Also, since the investor will spend a certain amount of money, this makes him evaluate his decisions and not waste time on ineffective solutions. Everyone who owns tokens will always want the best in the company. As the trade increases, the value of the tokens automatically increases. This means that the people involved in the elections that will follow the path of the startup always make decisions that are as firm as possible.
It is undeniable that the concept is very exciting and disruptive and seeks to solve everything that is wrong with the way modern organizations are run. It does not have a hierarchical structure, which means that all innovative ideas can be submitted by anyone and considered by the entire organization.