Can companies run without a CEO? : How DAOs are redefining business organizations in 2022.
Decentralized autonomous organizations (DAOs) are the up and coming thing on the blockchain and Web 3.0.
DAOs can be used for a variety of different things, from streamlining your business to the attempted purchase of a copy of the U.S. Constitution in November 2021.
DAOs are redefining how businesses are organising themselves. While traditional companies rely on a hierarchical structure, DOAs are a collaboration between people and are governed by a pre-agreed set of rules which are maintained and executed on a blockchain through the use of smart contracts. As a result, a DAO can function on an independent level with no central authority or decision makers required.
DAOs are not controlled by a single entity or person as all governance is done as part of a collective. DAOs are on course to become a popular business model for 2022 and the Web 3.0 era, but could they become a viable complete replacement for traditional business structures?
How do DAOs work?
“In traditional organisations, people are at the core and automation is at the edge; whereas in DAOs, automation is the core and people are at the edge.” – Vitalik Buterin
The very first DAOs were used as a source of crowdfunding, however, DAOs are now beginning to expand into other industries. DAOs offer a new business model that is particularly attractive to those looking for an alternative to the traditional top-down hierarchies. DASH was arguably the first successful DAO because of the way it is governed and the way its budgeting system is structured.
DAOs are designed to operate by themselves, using code, without needing anyone in charge to make decisions. Once a DAO has been configured it can be used to maintain an organization’s operations solely through smart contracts stored on the blockchain. As a result tasks such as hiring, pay raises and other essential functions to an operation can be performed automatically, without the need for human intervention.
What are the advantages of using a DAO?
DAOs are an attractive alternative the traditional business structures currently on offer and come with the following advantages:
Any actions executed on a DAO are recorded on the blockchain and can be viewed by anyone. The rules of the DAO also can’t be changed without editing the blockchain ledger, however doing so alters all the members. This means that any changes can only be made after an agreement has been reached between the members. The DAOs computer program automatically records whatever action the members decide to take on the blockchain. This encourages trust and confidence in the operations undertaken by the DAO.
All services and operations are decentralized and fully automated. This completely reduces the need for human involvement and therefore, removes any opportunity for human manipulation.
DAOs operate under a flat organizational structure in which each individual investor has a vote. Please note that the weight of each voter’s vote is dependent on how many tokens they hold. The greater the number of tokens held, the greater the weight of their vote. This encourages community participation to achieve the desired outcome of the DAO.
When a DAO is established, the desired form of governance and rules are encoded into the smart contract. Any changes to the DAO must be voted on by the DAO shareholders. This type of governance ensures all shareholders are aware of the rules up front and have a vote in operations and their outcome.
What do DAOs mean for traditional organizational structures?
Recently there has been a dramatic shift in the way many businesses are operated and organizations are now starting to look for a way to operate with more flexibility. DAOs appear to be the solution that companies are looking for. DAOs offer many operational advantages when compared to other structures. The key benefit being eliminating the bureaucracy of modern-day businesses, allowing much more efficiency and transparency. DAOs have the potential to transform corporate governance, and it is a distinct possibility that companies could be overseen by DAOs rather than a traditional company structure.
However, while a DAO is a completely new form of organizational structure, it could still act like a regular corporation in many other ways. Using smart contracts, a DAO can essentially do everything a traditional organization could. However, since smart contracts are executed on the blockchain, it is difficult to change the agreements, mission statements, corporate values, or operating principles of the smart contracts without consent from the other stakeholders.
A DAO also offers perfect transparency. All of the company’s finances and actions are visible on the blockchain to anyone. The company’s corporate charter is handwritten into the code for all to see. The transparency promotes trust and removes any chances of manipulation from the stakeholders. This is another key area that stakeholders seek in a modern business.
In the future, it is likely that we will see an increased number of DAOs operating in both small and large organizations. But for the DAO to become mainstream, a number of legal challenges will need to be settled.
If you are interested in learning more about how your business could get involved with the Web 3.0, why not book a consultation with one of our Blockchain experts here.
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