The idea of a decentralized autonomous organization has vast implications for the future of business and society. With the advent of blockchain technology, a new type of organization has emerged called decentralized autonomous organizations (DAOs). These organizations are governed by a set of rules and principles rather than by a person or entity.

One of the most important parts of the DAO is governance. Before we explain the governance processes, let us dive back into the basics of what a DAO is and where these new organizational structures come from. Choosing the right governance model for your project depends on many different factors, including scope, team size, organizational structure, risk tolerance, legal framework in which you are working, and more. In this blog, you’ll explore some important considerations for choosing the right governance model for your own project.

What is a DAO?

Decentralized decision-making is an extension of decentralized governance. In a DAO, the members themselves are the controllers of the project. They are invited to vote on proposals and make decisions about the direction of the project. DAO governance is driven by proposals. Any member of the DAO can make a proposal that provides the desired direction and any member can vote on these proposals. This is verified and done through tools like Snapshot, although Qvrse will also offer its own governance tools.

How does this work in practice? Well, it depends on the DAO and how open it is to proposals. Basically, anyone who is a member of the DAO can potentially initiate a vote. Usually, this is done first by a discussion in Discord suggesting the need for a vote. This way you can also check the pulse of how other members feel about the decision. Once the proposal has been discussed, a member can post their proposal in a tool like Snapshot. After that, the other members can connect their wallets and cast their votes.

The image below represents a random vote conducted via Snapshot that was a request to fund a specific workstream by drawing resources from the DAO treasury. As the example shows, members of the DAO can vote if they want to pull resources from the DAO and spend them in a certain way. This allows for transparency and collective decision-making. Members of the DAO can collectively decide whether it makes sense to spend X amount of money on marketing, event organization, etc.

It’s not so easy in practice

There are some challenges with current DAO governance models. One challenge is that there is no clear leader or decision maker. This can lead to stagnation or gridlock when it comes to making decisions. Another challenge is that the voting process can be complicated and convoluted, making it difficult for people to participate. This sometimes happens when members’ proposals are not clear enough. In addition, current models often depend on a small group of people who have a lot of power and influence. This can lead to nepotism and corruption.

There is also the part about people just not voting. Some communities encourage voting by rewarding members with their tokens. However, I believe that members who are consciously engaged in the community will also vote because they have a say and want to influence the community’s decisions.

Allowing more innovation

In contrast to centralized organizations, a decentralized organization is one in which the control, governance and operation of the organization are decentralized. The decentralization of power can allow for more innovation and experimentation within the organization — ultimately leading to a better organization and better products.

The risk is that members of the DAO may come to a disagreement and change views about the organization. However, this is a potential risk that should be carefully weighed. The advantage of DAOs is that they eliminate most organizational inefficiencies and the members themselves have an incentive to act responsibly and not seek to maximize profits, which is the motivator for most companies. The most important thing to remember when building a DAO is that the community members are stakeholders and deserve as much say as possible in how the organization is run.