Author: Paweł Wyszomirski

The Decentralized Autonomous Organization (DAO) is a revolutionary concept that utilizes blockchain technology to enhance the governance of online communities and organizations. DAOs are groups organized by governance rules that are programmed on a blockchain, which enables decentralized decision-making and increased transparency. The potential of DAOs has been widely discussed in the context of traditional stock companies, but their potential for non-profits has been less explored.

Members of a DAO can govern their organization through the use of smart contracts on a blockchain network. These smart contracts can be programmed to automatically execute certain actions based on the outcome of a vote or other decision-making process among members. Members can also interact with the DAO through a user interface, such as a web-based interface, to submit proposals, vote on proposals, and view the status of the DAO. Additionally, members can use their tokens to vote on proposals and make decisions about the direction of the organization.

According to statistics from the DeepDAO website, at the time of writing (20 January 2022), there were 10924 DAOs registered worldwide and their portfolios were worth $11 billion. In the last six months, the number of organisations has more than doubled and the value of portfolios nearly 30 per cent, with more than 1.7 million people actively participating. The largest in terms of financial resources are Uniswap (decentralised exchange - $2.6 billion), BitDAO (DAO asset management - $2.2 billion), ENS (ENS protocol management - $1.1 billion), Gnosis (DAO asset management - $0.75 billion). In terms of active participants, ENS (87,200 people), Arbitrum One (protocol management - 65,400 people), PancakeSwap (decentralised exchange - 49,700 people) lead the way. DAO's top 100 shareholders have combined assets worth $5.6m. 

The value of DAO portfolios is currently equivalent to FIFA's annual budget. Hundreds of thousands of people are involved in this type of organisation, making close to 150,000 directional decisions every week in a collective manner. All this data is openly accessible through the use of the blockchain protocol.

Disruptive examples of DAOs power

One example of a DAO that is attempting to disrupt traditional forms of governance is the MolochDAO, which is focused on funding and governance of open-source Ethereum projects. Members of the MolochDAO can propose and vote on funding proposals for projects that align with the organization's mission. The organization is run on smart contracts, which means that all members have an equal say in how the organization is run and how funds are allocated.

Another example is the Aragon Network, which is a platform that allows anyone to create and manage their own DAO. The Aragon Network aims to provide a decentralized platform for organizations to govern themselves and make decisions collectively, without the need for a central authority. This can include traditional company operations, decentralized communities, and even global non-profit organizations.

This new model of collective governance could be an opportunity for growth in many areas. It can also be a threat if the DAO is perceived similarly to the cryptocurrency market as a whole - as an area of speculation and uncertainty.

False start of DAO?

The first organisation described in the literature using this model was The DAO, which was launched on 30 April 2016 on the Ethereum platform. Its aim was to crowdfund charitable and commercial projects. Investors voted on which idea should receive funding. On 21 May 2016, more than 11,000 investors were involved in The DAO and contributions amounted to more than $0.25 billion. To be precise, at its peak, this amounted to 11,944,260.98 ETH (Ether - the then cryptocurrency of the Ethereum platform) worth $251,665,578. (DuPont 2019) A Call for a Temporary Moratorium on The DAO was published on 27 May, where security vulnerabilities in the Ethereum platform were identified, allowing unauthorised fund transfers. (Dino Mark, Vlad Zamfir, Emin Gün Sirer 2016) On 14 June, a proposed fix was published. Unfortunately, the Ethereum community did not have time to approve them. On 17 June, a hack attack led to the removal of 3.5 million. ETH (approximately $50 million). As a consequence of the disputes concerning the incident, the blockchain was forked (hard fork) and separate platforms were created: the original Ethereum Classic (ETC - the current cryptocurrency symbol) and the new Ethereum (ETH). The new platform started with investors' account balances from before the launch of The DAO, so they did not lose their funds. (Santana 2022)

Still, the main challenge for DAOs is connected with security. The DAO was not able to implement corrections to the code, so the only way to save the whole protocol was a hard fork and creation of ETH. Organisations based on code are vulnerable to hacker’s attack, which can destroy not only its assets but also reputation.

Governance tools

Governance of a DAO is the process of making decisions and managing the operations of the organization. It is typically achieved through a combination of the following tools.

• Token-weighted voting: Members use their tokens to vote on proposals, with the number of tokens held by a member determining their voting power.

• Delegative voting: Members can delegate their voting power to another member, allowing them to vote on their behalf.

• Quadratic voting: Members use their tokens to vote on proposals, but the cost of voting increases as the number of tokens used increases. This can discourage members from using all their tokens to vote for a single proposal, and instead encourage them to spread their vote among multiple proposals.

• Liquid democracy: Members can vote on proposals directly or delegate their voting power to another member.

• Reputation-based systems: Members earn reputation points by participating in the DAO, and the number of reputation points held by a member determines their voting power.

• Multi-signature: Proposals require a certain number of members to sign off on them before they can be enacted.

DAOs can also use a combination of these tools in order to balance the decision making power and ensure more democracy in the organization.

Dissensus and Consensus of DAOs

For non-profit sector the key aspects of DAOs are transparency of finance and governance, participatory governance by diverse stakeholders, and equity and inclusiveness of the consensus mechanism. 

In (Brekke 2021) authors introduce the concept of "dissensus" from political theory and apply it to debates about peer governance in online communities. Dissensus describes the emergence of incompatible differences and highlights that there might not always be consensus about a consensus algorithm. The authors propose dissensus as a "protocol" for foregrounding the often sidelined yet productive aspects of incompatible differences. 

(Saito 2023) presents a proof-of-concept implementation of a DAO governance framework for non-profits. The framework incorporates a reputation-based decision-making system, a peer evaluation system, and a transparent, real-time accounting system for the Ethereum blockchain. 

The authors conducted several exemplar demonstrations to evaluate the key functionalities of the application and found that it enabled transparency and efficiency to NGOs operational process and that DAOs enhance global cooperation across stakeholders. They concluded that DAOs can be used as a tool to improve the quality of life of nonprofits.

Framework of DAO establishment for Non-profit sector

This framework is a general model for implementation of DAO in non-profit sector. The key part is not in technology, but in the mission to be accomplished. Firstly, you should identify the problem or issue that the DAO will address and determine the specific objectives and milestones that the DAO hopes to achieve. Check and identify the target beneficiaries or stakeholders. A crucial part of development is setting up metrics for measuring and evaluating the success.

The following table outlines the key steps and considerations for establishing a DAO for non-profit sector. It includes a description of each step, as well as example software or apps that can be used to facilitate the process.

Conclusion

In conclusion, the disruptive power of DAOs lies in its ability to enhance transparency, participation, and equity in online communities and organizations. The concept of dissensus highlights that governance is not a problem to be solved through universal mechanisms, but a historically and culturally specific practice. The proof-of-concept implementation of a reputation-based DAO governance framework for non-profits demonstrates the potential of blockchain technology to enhance good governance in this sector. However, more research is needed to fully understand the potential and limitations of DAOs as a new organizational form, as well as its impact on different industries and sectors.

Bibliography

• DeepDAO. Organizations.

• Dino Mark, Vlad Zamfir, Emin Gün Sirer. (2016, May 27). A Call for a Temporary Moratorium on The DAO. Hacking, Distributed.

• Santana, C., & Albareda, L. (2022). Blockchain and the emergence of Decentralized Autonomous Organizations (DAOs): An integrative model and research agenda. Technological Forecasting and Social Change, 182, 121806.

• Brekke, J. K., Beecroft, K., & Pick, F. (2021). The Dissensus Protocol: Governing Differences in Online Peer Communities. Frontiers in Human Dynamics.

• Saito, Y., & Rose, J. A. (2023). Reputation-based Decentralized Autonomous Organization for the non-profit sector: Leveraging blockchain to enhance good governance. Frontiers in Blockchain.