DAOs – A Reality of the Future or Just a Current Fad? 

Decentralized Autonomous Organizations (DAOs) are being perceived as the start of a trend that could be described as “Past Forward”, albeit a tad facetiously. Because there are two ways about it in the world of business. Many entrepreneurs and technocrats consider it impractical while those facing off to them believe it’s the way business will be conducted in the future. 

When the State of Wyoming legally permitted the formation of DAO LLCs some months ago, the whole of the United States, Europe and even India reverberated with anticipation or trepidation, depending on which side of the argument one was. Suddenly, even the opponents felt that DAOs had more to offer than purchasing a rare painting, owning a sporting franchise, or being part of a future cinematic blockbuster.  

What’s more, the proponents were quick to point out that the guiding principles of a DAO aren’t really new. Just that they piggybacked blockchain technology that allowed for more transparency in every business aided by digital contracts. Because these DAOs would be run by code written on a blockchain such as Ethereum and is owned and operated by its users only. 

In many ways, it represented a democratization of the digital world, quite unlike the one we live in now where data ownership is centralized and so are profits. Let us take a cursory look at what a DAO is and how it may become the foundation of all businesses in the future… 

What is a DAO? 

Imagine a group of people coming together for a cause or a single purpose. They set up the organization digitally with no specific hierarchy like the ones we’re currently used to. They pool in resources and function in a manner that reminds us of a Chitty or informal savings club. These clubs saw family / friends contribute a fixed sub on a regular basis with its distribution in a pre-defined manner. 

The plan for distribution could be based on a quarterly disbursement or to one who has the most need or simply a predetermined rotational system. In addition, there could be an option of determining payouts based on how members vote – which incidentally is how the modern day DAO aspires to function. What the digital footprint (Web3) has done is that it has taken the local Chitty-type organization across cities, states and countries. 

How do I benefit from a DAO? 

For starters, it is worthwhile noting that a DAO isn’t easy or free money. In fact, it isn’t even a loan in some ways. The money belongs to others and will remain so always. Which means that the contributors join a DAO for a specific purpose, a cause or a good business opportunity or even all the three. A DAO can be created for just about anything though large projects lend themselves better to this model. 

In case of small enterprises, a DAO could be used for anything from owning physical infrastructure to creating services or solutions. For example, a DAO created to acquire a new building could benefit from the rentals paid by its occupants. Similarly, DAOs can be created to manage not-for-profit companies. A fan club of a movie star can function as a DAO, investing and owning a part of the actor’s next venture. 

All that one needs to do while forming a DAO is to ensure that they’re structured in such a way that the ultimate benefits accrue to the members. This way you attract more members (stakeholders) to the DAO with a high level of transparency whereby the owner (or creator) gets paid for their efforts or simply invests in the idea to reap higher rewards later. 

The only factor to remember is that it is easier for the owner to get voted out in a DAO, given that the voting is digitally completed and there are no proxy votes. Which is probably why established businesses view the DAO concept with a great deal of trepidation. 

What’s the future of DAOs? 

Creating a DAO doesn’t require too much of effort, given that many such communities do exist silently in our day-to-day lives. There is no need to wait for funds, VC sign-offs or even bank loans. Just by enabling friends, family and well-wishers to pool in their resources and enable them to track and exchange funds via the DAO could present the cleanest of interfaces. 

Going forward, things are going to get easier. The decentralized finance focused startup Common recently raised $20 million to develop and further decentralize its platform known as Commonwealth. The platform aims to become the ultimate community management tool for DAOs allowing them to easily deploy governance contracts and crowdfund new initiatives. 

Common CEO Dillon Chen says in the future they plan to launch an app store for DAOs that allows communities to choose features that they want. In a statement, he says Common will make Web3 governance easier due to its multi-chain functionality. Which means the DAOs will only get more interoperable as the days and weeks go by.