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DAO-The Next Big Thing?
2022-01-28 09:11:35

The decentralized feature of blockchain technology empowers revolutionary ways of decision-making, which results in the birth of DAOs, Decentralized Autonomous Organization. As its name implies, a DAO is running on an open-source ledger and the governance is coded in smart contracts, with which every move of a DAO is automatically-executed, transparent and trackable that guarantees no stakeholder can hold absolute power over others.


A group of crypto lovers founded IT online to bid for a copy of the US constitution, Ethereum founder Vitalik Buterin called IT creating new and better ways for people to coordinate and some analysts called IT the future concept of how a company should be run.


What is a DAO?


We are familiar with the hierarchy of traditional organizations, typically with a leader or CEO who takes charge of the overall management and holds the power to make decisions.


The decentralized feature of blockchain technology empowers revolutionary ways of decision-making, which results in the birth of DAOs, Decentralized Autonomous Organization. As its name implies, a DAO is running on an open-source ledger and the governance is coded in smart contracts, with which every move of a DAO is automatically-executed, transparent and trackable that guarantees no stakeholder can hold absolute power over others.


Advantages of a DAO


The “principal-agent” issue is a typical problem in a hierarchical bureaucracy. While acting on behalf of the principal, the agents could have their self-interest to perform and this dilemma is what a DAO to address. 


A DAO is a bottom-up organization which is collectively owned by the members who are incentivized and bound by a universal objective. A typical way to join a DAO is to own the network’s token, through which members own the right to vote in deciding any changes of the ecosystem. Since there is no hierarchy in a DAO, any stakeholder can propose innovative ideas that the whole community can decide on through a voting system encoded in the smart contract. In addition, a DAO can be seen as a solution to internal argument or human errors which may diminish the efficiency. 


A DAO is launched through three steps, smart contract creation, funding and then deployment.


Foreseeable Obstacles 


While some optimists believe DAOs will replace LLCs in near future, legality is the most imminent issue coming up. A limited liability company (LLC) should abide by the regulations issued by governments while the world seems not ready to embrace the new type of organization and that would further add the uncertainty vibes to its development. 


Second, some may enjoy the untraditional and decentralized aspects of DAOs but here comes the double-edged sword. The nature of DAOs also introduces potential risks such as “coordinated attacks” on the network that may not occur in LLCs or traditional organizations.


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