Have you recently heard the term DAO? Not DOW or TAO…DAO.
DAO stands for a decentralized autonomous organization.
For many, DAOs represent the evolution in human work where the focus is less on jobs and more on collective value creation.
Why learn about DAOs?
DAOs represent a new form of organization.
Today, maybe you work for a non-profit, corporation, or small business. In the future, most people will work for a DAO.
DAOs are definitely still in their infancy.
Many of the processes and infrastructure are yet to be figured out, however they are rapidly evolving.
Already, there are over a million decentralized workers in over a thousand DAOs with billions in assets. These DAOs focus on everything from climate control to education to city planning in the metaverse.
This article will share the background and context for DAOs, multiple DAO definitions, and ways that DAOs differ from traditional organizations.
As one of the co-founders of Ethereum, Vitalik Buterin, put it in 2014, DAOs have automation and the center, humans at the edges.
Why haven’t I heard of this before?
The short answer is that DAOs could not have existed before the invention of blockchain technology.
Over the past few years, you have likely heard about cryptocurrencies like Bitcoin or Ethereum. Recently, 2020 was a breakout year for decentralized finance (DeFi) and 2021 brought the terms non-fungible tokens (NFTs) and the metaverse into our everyday lives.
Each of these innovations serve as stepping stones to DAOs and were created using blockchain technology.
What is blockchain technology?
Before centralized banks, people exchanged value, like goods or coins, and had to keep their own record of their transactions. This was their ledger. As people traded, problems arose regarding trust and reliability, so centralized institutions, like banks and governments, became the brokers to solve for this.
Fast forward to today.
Data breaches, power abuse, disengagement, lack of transparency, job departures, along with the internet dictated by a handful of companies, prompt a desire for new, more decentralized solutions.
These modern problems of mistrust in centralized systems demand a more trustworthy and reliable way for people to exchange value with one another.
Blockchain technology is this solution.
It is essentially a database of record keeping, often referred to as a distributed ledger of entries spread across many computers, or nodes, that back each other up. This new ledger is powered by the users of its network, uncensorable, and fully transparent.
Although blockchain technology still has limitations to overcome (e.g. cost, accessibility, scalability) it holds the promise of a more trustworthy, inclusive, and global internet and serves as the cornerstone to what is referred to as Web3.
What is Web3?
There are three main eras to the internet beginning with Web1 in the 1990s, then Web2 with the advent of social media, and now Web3.
The third era of the internet includes many concepts like virtual reality, augmented reality, artificial intelligence, cryptocurrencies and the metaverse, however it is really blockchain technology that underpins how humans will exchange in Web3.
Where do DAOs come in?
A classic DAO example:
Today, you take an Uber or Lyft.
Tomorrow, a driverless vehicle is programmed to pick you up, drop you off, and refuel.
Unlike your Uber or Lyft there are no 3rd party processing or associated fees, which allow for lower transaction costs.
This is possible because the DAO uses smart contracts, or digital contracts stored on a blockchain, to automatically process your payment and divide funds between fuel, maintenance, insurance and the DAO.
Because all of this is processed on the blockchain, it is transparent, immutable (meaning the record cannot be changed), and cryptographically secure.
Technically, Bitcoin might be considered the first DAO, however at the onset it was not referred to this way.
The first DAO many people heard about was called The DAO and it quickly dropped jaws and stomachs in 2016 when it raised $150M from roughly 11,000 people, only to be hacked a month later for an estimated $50M.
Now, with the DAO ecosystem at roughly 5 years old, there are major investments being made in DAOs. BitDAO having one of the largest treasuries has secured over $2.5 billion.
How do you define a DAO?
DAOs will continue to evolve and yet reviewing the following definitions will hopefully give you a greater sense for the nature of DAOs according to authors and institutions in the DAO ecosystem.
These definitions have informed my own synthesized definition, which I will expand upon below.
DAOs are…
For additional context and discussion, I offer the following expanded definition:
Let’s break this down.
It is important to situate DAOs in a known context since it is such a new concept. DAOs, in a very basic sense, are another form of organization that is newer than the others (e.g. non-profits, corporations, small businesses) and likely still very new to most people.
A shared community with shared purpose is the foundation of human organizing throughout all of time. There is nothing new here and that is precisely why it is important to include. Part of understanding the evolution of DAOs is what is different, but also clarifying what is not.
Many of the definitions use the word community very intentionally. What elevates this word or makes it different than traditional organizations is that the shared community, self-organizes and evolves the organization through decentralized decision-making or voting.
Shared capital is a unique aspect of DAOs. Instead of a select few making decisions about funds, or decisions at all, this is all decentralized and owned by the community.
I particularly like the word capital as it goes beyond money or a currency and denotes a value or a benefit to its holder. In DAOs, capital is often exchanged in the form of digital tokens, which can be used for compensation, but have a variety of other uses like voting or decision rights.
Simply put. Before blockchain technology, DAOs did not exist.
Right now, there are many people who do not really understand how their organization works behind the scenes or what the underpinning technology is that helps their company run.
The same is and will be true for people who work in DAOs.
However, as DAOs are poised for a truly breakout year in 2022, it is important to understand that so many of the core tenets of a DAO are only possible because of blockchain technology.
Words from the definitions, like “uncensorable”, “a shared set of rules enforced on a blockchain”, “collective ownership” and “self-governing are points of differentiation from traditional organizations, or companies, and are enabled through this technological innovation.
For example, let’s revisit the hypothetical DAO with driverless vehicles.
What are the main differences between DAOs and traditional organizations?
Here is a summarized overview of the differences between DAOs and traditional organizations based on the definitions and their referenced articles:
Want to learn more?
For additional information on DAOs, check out the references below.
Great progress is being made to help people bridge into Web3 and advance the brave new work. I look forward to learning with you in the future.
Lisa Wocken, PhD is an educator in the DAO ecosystem and a founding member of talentDAO, which conducts scientific research within the DAO community to support its acceleration and advancement.
Feel free to connect and DM me at:
Twitter: @lisawocken
LinkedIn: linkedin.com/in/lisawocken
Thanks to k3nn.eth, Blockpusher_J, and saulthorin for your review of this work.
References
(listed in chronological order)
Buterin, V. (May 6, 2014). DAOs, DACs, DAs and more: An incomplete terminology guide [Web log post]. Retrieved from https://blog.ethereum.org/2014/05/06/daos-dacs-das-and-more-an-incomplete-terminology-guide/
Pruden, A. & Chokshi, S. (November, 2019). Crypto glossary: Cryptocurrencies and blockchain [Web log post]. Retrieved from https://a16z.com/2019/11/08/crypto-glossary/
Kerpelman, A. (February 8, 2021). What is a DAO and what is it for? [Web log post]. Retrieved from https://daohaus.substack.com/p/-what-is-a-dao-and-what-is-it-for
Xie, L. (March 12, 2021). A beginner’s guide to DAOs [Web log post]. Retrieved from https://linda.mirror.xyz/Vh8K4leCGEO06_qSGx-vS5lvgUqhqkCz9ut81WwCP2o
Oxjim. (June 19, 2021). DAOs are better than companies [Web log post]. Retrieved from https://medium.com/coinmonks/daos-are-better-than-companies-2ab3e6e50a14
Aragon. (August 27, 2021). A DAO defined: The big picture [Web log post]. Retrieved from https://blog.aragon.org/a-dao-defined-the-big-picture/
Aragon. (September 27, 2021). What is a DAO? [Web log post]. Retrieved from https://blog.aragon.org/what-is-a-dao/
Coopahtroopa. (June 24, 2021). DAOs landscape [Web log post]. Retrieved from https://coopahtroopa.mirror.xyz/_EDyn4cs9tDoOxNGZLfKL7JjLo5rGkkEfRa_a-6VEWw
frogmonkee & Peaster, W. M. (October 6, 2021). WTF are DAOs? [Web log post]. Retrieved from https://banklessdao.substack.com/p/state-of-the-daos-0-oct-6th-2021
Elliott, S. & Kelly, L. J. (December 21, 2021). 11 most interesting DAOs of 2021 [Web log post]. Retrieved from https://decrypt.co/88894/11-most-interesting-daos-of-2021
Ethereum.org (n.d.). Decentralized autonomous organizations (DAOs). Retrieved from https://ethereum.org/sw/dao