DAOs - Are They Truly Autonomous?
A decentralized autonomous organization (aka. DAO) is a set of smart contracts that govern organizations. Autonomous refers to removing central control points of failure. Some of the most significant DAO protocols thrive because of decentralization. Core members of a DAO are responsible for making critical decisions involving the organization's operation. Many believe DAOs are only partially autonomous because they require proper human interaction. Some even question whether complete autonomy is possible; should "DAO" be renamed to "DO"?
What is a DAO?
As previously mentioned, a DAO is an entity that operates without centralized governance. It's a committee that agrees to work using specific rules for its common interest. The committee members own and manage the DAO using governance tokens, membership tokens, or NFTs to signify ownership. The organization's operation can require voting, sometimes known as improvement proposals. These proposals, if approved, make the final decisions based on a majority vote.
DAOs have qualities that make them more appealing compared to regular organizations. In a traditional organization, when someone makes a decision, it typically has to be approved by a manager before reaching a level for actual implementation. DAOs have no hierarchy, meaning all members can act on proposals. The community members vote on proposals to help future protocol operations.
When the DAO reaches an agreement, these protocols and changes alter the future process of the DAO using smart contracts. The community members must agree on proposals; otherwise, the proposal does not pass. Examples can include increasing or decreasing a token's supply, changing governance procedures, sending or withdrawing payments, etc.
Why DAOs?
In the ever-evolving Web3 industry, DAOs represent a critical innovation in decentralized governance and organization operation. DAOs offer accessibility, security, decentralization, and transparency. While there are a few drawbacks to DAOs, they certainly have many benefits. The autonomous and decentralized structure of DAOs is a prominent advantage. The autonomous system housed in smart contracts ensures all members are independent, facilitating freedom for DAO members.
DAOs also offer the opportunity for every member to contribute towards running or improving the organization. Stakeholders can submit their proposals and ideas and vote to improve DAO protocols. DAOs provide a neutral environment for the organization to operate. Without managers and intermediaries, DAOs remove the potential for conflicts and power plays.
A comparison: DAOs and Traditional Organizations:
DAO
Usually flat and fully democratized.
Members require voting for any implementation of change.
DAOs automatically count votes, and the outcome is implemented automatically without a trusted intermediary.
Offered services, handled automatically in a decentralized manner (for example, the distribution of philanthropic funds).
All activity is transparent and fully public.
A Traditional Organization
Usually hierarchical.
Depending on the structure, a sole party can demand or enforce change, or voting can occur.
Internal vote counting and manual implementation of voting outcomes are allowed if voting is allowed.
Requires human handling or centrally controlled automation which is prone to manipulation.
Activity is limited to the public and typically private.
DAO examples
To help this make more sense, here are a few examples of DAOs use cases:
A Charity – you could accept donations from anyone worldwide and vote on which causes to fund.
Collective ownership – you could buy physical items or digital assets, then members vote on what to do with them.