The idea of a DAO (or Decentralized Autonomous Organization) is closely linked to the history of the evolution of the Internet itself.
The internet began in the 1980s with a set of open protocols defined by the early community of users. For sake of reference, we now call this era, that lasted till the early 2000s, Web 1.0
The usage of the internet exploded fairly quickly, and along with it grew the need for more user-friendly and sophisticated services.
The rising demand quickly went outside the purview of open protocols. This led to the birth of centralized services and gave rise to what is now known as Web 2.0, led by firms like Google, Facebook, Twitter, and Snapchat – that quickly became powerhouses of the internet.
The era of Web 2.0, starting from the 2000s and prevalent till today, sure has had its benefits – it provided access to bleeding-edge technology tools and rapid innovations to masses, seemingly for free.
However, as there is no such thing called a free lunch, the jarring limitations of a centralized internet soon became manifest to people – the prominent issue being that of a lack of ownership, privacy and incentive for contributing time and effort to these platforms.
This led to a stifling of the creative expression of the most important stakeholder of the internet: the user-creator. A need for a more open, private and inclusive internet was felt strongly and an undercurrent of rebellion kept growing.
While the stage was set for a major disruption, in another part of the world, a germ of the idea of an open, creator-centric internet, now commonly called Web 3.0, had been slowing coming to life, seeing it’s first set of activity in the rise of Peer to Peer sharing networks like BitTorrent.
Infact, a major unlock for the transformation can be traced way back in the seminal and highly celebrated Bitcoin Whitepaper published in 2008 by Satoshi Nakamoto which brought into fore a technology which solves the essential problem of trustless governance.
It has taken more than a decade for the idea of Web 3.0 to gain currency, but we are in 2022 now, and if there’s a buzzword in town, Web 3.0 it is!
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And now that we have understood Web 3.0, it’s time to talk about DAOs! DAOs are the platforms in which Web 3.0 - the open, community-based creator’s internet manifests itself. Another way to look at DAOs are an evolved form of organization where there is no central authority calling the shots – but a self-governing unit of members working together towards a common goal.
A simple, informal yet powerful ‘degen’ definition of DAO is:
“A DAO is a group chat with a shared bank account.”
To put a more formal touch, let us borrow the definition put forward by Aragon, an open-source DAO infrastructure provider.
They define DAO as “an internet-native entity with no central management which is regulated by a set of automatically enforceable rules on a public blockchain, and whose goal is to take on a life of its own and incentivize people to achieve a shared common mission.”
Every DAO necessarily includes the following attributes:
• Decentralization – There is no central authority in a DAO
• Autonomy – It functions automatically, without the involvement of people in every single step of its working
• Organization – A DAO is a coordinated, well-governed group of people
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To answer this question, we will have to ask an even more fundamental question: Why do organizations exist in the first place?
Every organization, whether in the traditional space or in Web 3.0, exist for a simple reason: to solve problems.
Why are organizations interested in solving problems, you ask?
Well, for two core reasons:
The desire to solve problems and make things simpler and more efficient is hard coded in the very DNA of human beings. Organizations are just an organized form of meeting this primal need.
Human Beings love getting rewarded for solving problems. Organizations make the entire process of such rewards simple and streamlined for all stakeholders of an organizations.
Now that the basics have been addressed, let’s understand why setting up the Governance is a necessary part of running an organization (or a DAO, for that matter!)
Typically, the problems that organizations take up to solve are complex in nature – in fact, the more complex the problem an organization is trying to solve, the more is the reward it gets from the marketplace.
Complex problems require the engagement of a group of people with diverse skillsets, all working towards the common goal of finding a solution to the problem.
Now, managing a large set of people, each with their own area of expertise and making them work together in harmony is no easy task.
That’s the reason why, in a traditional set-up, shareholders of a company appoint a group of people called the ‘Board of Directors’ to design a Governance structure for the organization.
In fact, the shareholders also appoint a group of people called the ‘Auditors’ to monitor the quality of work being done by the Board of Directors!
The Board of Director, once appointed, go about setting in place the following for the organization:
The vision and mission of the organization
The long- & short-term goal for the organization
A plan of action to put these goals into action
Supervising the management of the business
Reporting back on their actions to the Auditors and the Shareholders
All those tasks listed above come under the broad scope of the ‘Governance’ of the organization.
As can be plainly seen, in absence of such concrete steps, the core purpose of an organization – solving the difficult problems it set out to solve – is unlikely to ever happen.
If one were to zoom out and look closely at what the Governance mechanism does, it becomes apparent that all of it is to put in place sense of accountability, trust, and transparency into the organization, in order to reduce the chaos that can naturally result from putting different set of people on a common task.
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If you were to carefully notice the concept of a Board of Directors in traditional organizations which I elaborated above, it becomes apparent that the core idea here is that a set of people, due to their knowledge/experience, are considered qualified to decide the core aspects of how an organization will function.
While this mode offers a sense of structure and formal way for organizations to function, it’s not fool proof and perfect – else, every organization would have been a roaring success and been the happiest place to work at.
As we all know, it’s not. The problem with a small set of people calling the shot in every critical aspect of an organization is, the people working on solving the core problems feel cut off from the larger purpose that’s conveyed to them from the top
In traditional organization, despite this inefficiency, life goes on as there is no possibility for an alternative arrangement.
DAOs, on the other hand is built by, for and of the community.
That makes it uniquely suited to do away entirely with the need for having a Board of Directors.
But can it also do away with the need to have a governance structure in place? Not really.
While working in a decentralized model, DAOs, likely other organization, exist for the same simple purpose: solving of problems.
DAOs, like other organizations, consists of a group of people who coordinate with each other for one common goal.
To make the coordination smooth and productive, a governance structure is as necessary in a DAO as in any other form of organization.
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DAOs are special because they set the stage for a new way of working which doesn’t stifle the creative freedom of the creator as well as the user.
In a very elegant way, it brings the two together, linking them in a unique bond of ‘co-creation’ – a structure where the user as well as the creator gets the reward and is therefore, invested in mutual growth and benefit.
Is this a radically new concept never tried before? Of course not. Co-operatives, a type of organization where members decide the scope and future of the organization, has existed for long and have the same basic structure as that of a DAO.
However, while cooperatives aimed to reward every member equally, they have historically struggled on same due to lack of the proper technology to ensure its goals are met.
DAO, from that perspective, is a more evolved version of cooperatives as DAOs have the benefit of being born in the ecosystem of a much superior technology that we call blockchain - which inherently solves the problem of trust and accountability.
With the use of smart contracts, a major application of blockchains, the core processes of an DAO can be automated, with future changes decided by a fair voting mechanism.
This frees people from focusing on just solving the core problems, and not worrying about day-to-day administration around managing the members.
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You bet!
While the initial hurdles of any innovation adoption apply in the cases of DAOs as well, but as an idea, there’s no stopping the explosion of DAOs anymore.
DAOs are likely to be the primary way in which people will approach work because the very nature of work in the 21st century is witnessing a massive change.
We are moving from a structure where everyone had to ‘work-to-earn’ to a model where we “x-to-earn”, which could mean anything from play to earn, learn to earn, create to earn or work to earn.
This new paradigm of income generation is not possible in the older set-up, and this is something that makes DAOs inevitable.
There’s a sense of freedom, inclusion, and equitable reward which DAOs bring to the ecosystem and that’s a refreshing change that the knowledge workers across the globe are slowly recognising and rushing towards.
The exodus is unlikely to stop anytime soon.
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The below chart by one of the DAO OGs @Coopahtroopa presents an easy to navigate pathway to discover the world of DAOs and is worth checking out:
As they say, the taste of the pudding is in the eating.
Thankfully, when it comes to the crypto world and DAOs, we are all still early.
Getting exposure to a DAO’s working is as easy as joining the Discord server of the DAO, start as a lurker (or a passive witness to all the madness), greet the community with an occasional gm and once the DAO passes your vibe check, start contributing to areas where your strength aligns with the DAOs requirements!
One necessary requirement, while you go down the DAO rabbit hole, is to ensure you have some solid fun – else what’s even the point?
Fin.
References & Further Readings: