- the new type of human organization

Emergence of a DAO

It has been already around six years since the first major decentralized autonomous organization (DAO), called simply The DAO, was launched on the Ethereum blockchain platform. Excitement was so high it created at the time the biggest crowdfunding campaign, raising over USD 150 million.

The concept behind The DAO was to create a decentralized organization using a tool called smart contracts. Smart contracts enable automated governance and day-to-day decision-execution or even decision-making (especially through the system of oracles) using computer code, mostly free from traditional human interactions and typical corporate structures.

The DAO aimed to offer complete transparency, total stakeholder control, unprecedented flexibility, and autonomous governance. Power was held by stakeholders, who would establish the general direction and mission of the organization and vote to reach a consensus on important decisions. Here lies the essence of decentralization - there is no central body or authority to exercise the decision making throughout the life of the organization. In theory, this should operate more efficiently than a normal company due to the lack of corporate hierarchy, politics, and bureaucracy, where personal and hidden agendas create obstacles and delays. This structure has the added benefit of lower operational costs and little scope for corruption. 

Even by the fast-paced fintech development, The DAO’s spectacular rise and fall to be consigned to a chapter of blockchain history was extraordinary. This ambitious project met its demise almost immediately after its initial coin offering when over USD 50 million disappeared from The DAO’s funds. This was due to a successful hack of The DAO exploiting a weakness in their code. The eventual fallout caused, among other things, a split of the second most popular cryptocurrency token Ether. 

Although The DAO ended in scandal and disappointment, the principle aims and potential of what decentralized organizations could achieve wasn’t abandoned by the Fintech community.

What is a DAO

To summarize, a DAO generally means an organization with the following attributes:

D for decentralized – While the level of decentralization may vary, this is generally understood as that the decisions are made collectively rather than by a central authority (CEO or a corporate body). Guilds may be created under the common structure to deal with specific issues. These are based on common interest and passion and are therefore built naturally rather than on artificial corporate structures. Guilds are to an organization like specialized cells are to an organism – they specialize on certain tasks and cooperate to reach solutions.

A for autonomous – This means that the organization is self-governing and self-sufficient in the sense of its own maintenance and progress. It does not rely on external resources and is resilient to external pressures. Autonomy lies also with the participants of the organization. They participate on the basis of their own passion and self-motivated right action. They create their own art and share it with others within the organizational web. Like this, natural connections within organization are made and co-creation may occur. Natural leaders are born from this environment as the ones who take care of others and support them in their passions.

O for organization – Organization is a certain environment where cooperation and collaboration occur and is supported and empowered. It is based on common interest, purpose and goals, creativity and passion of its participants and stakeholders. It is an expression of personal preference in a collaborative context.  

In the current web3 scene, I see many projects using different DAO structures, depending on what they are trying to achieve and what kind of activity they are engaging in.

The common traits of all of them, however, is that as a basis, they are using blockchain technology and tokenomics to ensure decentralized governance and transparency. In other words, they are using tokens as means of stakeholder participation (voting rights), blockchain to ensure that the interactions between stakeholders are transparent and built on trust (decisions and its execution are recorded on a transparent and immutable blockchain so they cannot be tampered with) and smart contracts to automatically execute the decisions that were collectively made.

However, even though the blockchain technology may certainly help to govern DAOs which are global and the network of its participants do not know each other in person (and so the blockchain then is a tool how to establish trust between them), DAOs do not need to use any kind of technology to be fully functional. A good example are communities (say eco-villages) which are using sociocracy rules to govern themselves, i.e., they are decentralized because they make collective decisions. They are also autonomous because of their self-sufficiency and independence on external influences. And they organize themselves, cooperate and collaborate around a common goal. Trust and transparency here is based on common principles, ethics and personal relationships rather than on a computer code. Where blockchain-based DAOs use technology to assure automated governance, personal DAOs use personal relationships and responsibility to assure something we can call natural governance. It is, of course, not a problem to combine these two approaches. It will always depend on the character of the DAO in question.

Philosophy of a DAO

The future of human organizations and their evolutionary next step lies in the fact that people want to reconnect with their inner nature and work in soulful organizations that enhance life. To enhance life means to support people in that which is natural to them, to support their true purpose, passion and life calling. Like this organizations may be seen as and develop into true living organisms, which can tap into both individual and collective intelligence in its purest form.

Natural governance is then based on the following principles and ethics.

Equivalence and personal accountability

Participants relate to one another in the way that no one is ignored and everyone is heard with the same amount of importance. 

Everyone’s priority is to take care of themselves first, in order to be able to help the organization. Everyone is personally responsible for their behaviour and the way they act with others.

Leadership is based on service to others, not on an exercise of power towards others.

Everyone may express themselves freely as long as the boundaries of others are retained.

Decision-making

Decisions are based on planning, observing and evaluating the results. Effective and sustainable solutions and learning from the mistakes are the results.

Organizational decisions are based on consent, transparency and trust. 

Consent means the absence of objections. Consent urges the group to accept a “good enough” solution for everyone. After a formal decision-making process, a decision is ratified when there are no meaningful or “paramount” objections by anyone. 

Transparency is key in a decision-making process as it directly influences the willingness to trust the results. 

Rules

It must be assured that those affected by the rules of the organization can participate in modifying the rules. 

A system should be developed, carried out by the participants in the organization, for monitoring participants’ behaviours.

Graduated sanctions for rule violators and effective means for dispute resolution must be in place.

Open-source and knowledge sharing

All efforts to create or develop any products, knowledge, tools, practices or systems that result in learnings that could benefit the organization as a whole should be made available by knowledge sharing and open-source approaches.

Relationships with others

Kind relationships towards all other organizations and communities for creating functioning cooperative mechanisms are encouraged.

Resiliency

Strong and independent organization is built on mutual help and personal resiliency. The more sustainable, self-dependent and resilient the organization will be, the less it will depend on external financial or other resources, thus creating a place of free expression and personal authenticity.

Structure of a DAO

Even though DAOs are the next evolutionary step in human organizations, it is equally important to create a bridge with the existing organizational structures. For example, in certain cases it may be more functional if only certain parts of an organization would build as a DAO, while the rest, for the time being, would retain the original setup. This may help for easier transition into the new organizational paradigm. As an example of such structure may be an association, foundation, partnership, LLC or similar classic corporation (depending on a given jurisdiction) with its typical corporate bodies, but having also an extra body in the form of a DAO, with a decision-making role. Other example may be that the organization retains an ordinary corporate structure, but internally is based either partly or completely on DAO principles.

Any kind of combination of the old with the new is possible and depends on the needs of the organization. To have such combinations of typical corporate structures and DAO-like configurations may bring huge benefits as the legal protection, regulatory compliance and easiness of relations towards governmental agencies will be assured, while at the same time the company may also enjoy the opportunity to move towards new internal governance, which is more in line with the values and natural tendencies of the organization and its contributors.

Depending on the tasks at hand a certain combination of centralized and decentralized decision-making may also be an option, because central decision-making (if approved by all the stakeholders) may provide for faster completion of given responsibilities. Leaders of organizational subgroups and guilds should naturally emerge and if they are given the power to make centralized decisions, they should also be fully responsible towards the ones who voted for them.

Depending on the size of the DAO, organizationally it may be divided into smaller DAOs or groups, typically called guilds, based on specialization and passion of their members. Guilds have the power to organize themselves and work within the provided powers and responsibilities autonomously. DAOs then resemble and mimic natural organisms where each cell (guild) is independent and autonomous, providing its specialized output, while cooperating and collaborating with others and co-creating a fully functional and healthy organization.