In April 2016, The DAO, the first decentralized organization in history, appeared. It exists as an open source distributed software and develops venture capital funds. But within 2 months, the company was hacked and dissolved. This failure did not extinguish the enthusiasm of future generations to explore. In recent years, the DAO organizational form has initially taken shape.
Definition of DAO
DAO is called Decentralized Autonomous Corporations. To understand this concept, you need to analyze it from its three components.
Compared with the common forms of organization and management, DAO has obvious characteristics of decentralization. Many DAO organizations also rely more or less on centralization to start or maintain, and they have not achieved absolute decentralization. Therefore, it is more accurate to understand from the perspective of degrees of freedom, that is, to show an organization with a clear decentralized scale.
All token holders can participate in proposals and voting decisions. From the perspective of ownership, DAO belongs to all stakeholders such as investors, developers, users, suppliers, and partners. From this perspective, autonomy means that DAO belongs to everyone who can create value for it.
Generally, DAO is regarded as a decentralized company. Of course, it is more business and practical to understand DAO from the company level. But we need to make it clear that DAO is not a specific organizational entity, but a general organizational form. DAO can be not only a company, but also any organization that requires human participation, such as cooperatives, network platforms, communities, etc.
DAO construction and ecology
To understand how to build a DAO, we need to understand the following five elements.
- Catalyst: Every decentralized organization has the same pattern. A catalytic figure makes a decentralized organization run, and then returns control of the organization to the members.
- Belief: Not only freedom and trust, but the power that can hold a decentralized organization together is faith.
- Platform: Centralized organizations rely on the Internet to provide a platform for their work.
- Circle: A decentralized organization will form a unique circle and delegate power to all members. The circle has strong adaptability to innovative activities.
- Fighter: Different from the organizer or contact person. Fighters are more like salesmen and will work full-time around current issues.
In this sense, the creation of DAO is not simply an improvement of the company system or the decentralization of company rights. Rather, it requires technical level as the basic condition, the pursuit and belief that emerged in a specific era, as well as the catalyst-like characters and maintenance fighters who help achieve change. Therefore, for each specific DAO, we can find the background story of a specific era from the dimensions of technology, culture, and history.
At present, various DAO organizations have initially emerged and have begun to expand at the ecosystem level. After screening out the organizations that have built a strong product team, DAO can be divided into the following 8 categories:
- Agreement DAO: A company that is characterized by decentralization and operates by constructing and executing agreements
- Social DAO: Based on common ideas, aiming to create a strong community
- Investment DAO: similar to a fund, deploying investment plans by gathering capital and investors
- Funding DAO: Incentivize the development of projects other than pre-existing projects, aiming to build a broader ecosystem
- Service DAO: similar to a “talent aggregator” that brings together human capital that can be used for certain projects
- Media DAO: Collaborative production of public content, including subject categories and resource management, etc.
- Creation DAO: similar to a fan group, working for organizations supporting idols, creators or artists
- Collect DAO: Unite collectors around certain assets or collectibles, such as NFT
The masses and the core
The emergence of artificial intelligence has liberated human hands and opened the mode of automatic evolution. In terms of business model, products turning to platforms have also become a trend, such as social networking, shopping, music, maps, and so on.
The emergence of DAO also represents the transformation of the three groups of relationships between machines and people, platforms and products, and the public and the core. By writing code and automatically executing smart contracts, DAO has its own set of operating logic and automatic execution capabilities. By establishing a platform model, DAO supports all participants to participate in decision-making and execution. But among them, the decentralized change is the most eye-catching.
Compared with traditional enterprises, DAO has stronger cohesion. Relying on the borderless cooperation of the network, the time and space constraints are broken, and the DAO organization has a wider network and vision. Enterprises exist in the form of open software, and organizational transparency ensures that there is no internal fraud in the enterprise. The trust within the organization has been greatly improved. The non-hierarchical organizational model in which participants have ownership makes everyone the owner of the company. This type of organization linked to one’s own interests can more arouse the enthusiasm of participants. Participants act as nodes of the enterprise organization. Under the incentive mechanism of tokens, they are more willing to play to their personal advantages, which brings strong synergies.
Another obvious advantage is low cost. The new financing mechanism, the investor-owner model, has attracted a large number of investors who have approved the project. The mechanism of token operation also supports trustless fund management, which means that trust costs are greatly reduced. The organization’s governance, incentives, and revenue distribution mechanisms are all distributed in accordance with algorithmic ownership, and rules are placed on the chain through the blockchain. This ensures fair internal competition while also reducing the time and money costs of traditional companies in distributing profits.
Hacking, decentralization and democracy
When it comes to a decentralized, free, code-executed DAO organization, people always feel anxious and uneasy. Indeed, while the corporate organization is still expanding and growing, the DAO organizational form has flaws that cannot be ignored.
After hackers stole one-third of The DAO’s Ethereum, they chose to use the Ethereum hard fork to end. What’s interesting is that hackers commit crimes “openly and legally”, that is, in a transparent mode of operation, they take the funds through loopholes in the code contract.
DAO uses programming algorithms and smart contracts as the logic and rules for its company’s operation. But no matter how predictable, a complete set of algorithms and a perfect contract does not exist. Algorithms and contracts without emotion are more likely to be the target of hacker attacks. The paradox of “imperfect contract” makes how to solve the hacker risk a problem that the DAO model must overcome.
Decentralization is the most innovative breakthrough of the DAO, but the realization of decentralization seems to conflict with the human nature of controlling and intervening. The ideal model of token governance is also questioned in reality. The essence of DAO cannot get rid of the shareholder system. DAO investors can form an advantage over others by purchasing tokens, thus enjoying a greater right to speak in the process of organizational development. From this perspective, decentralization is difficult to achieve.
The essence of DAO is a group composed of many individuals. The fact is that individuals in a group will show a clear herd mentality. Morality and law often lose their ability to restrain individuals in fanatical group activities.
From the democratic group to the mob, the confusion of most people is not uncommon in history. When the ideals of democracy are propagated paranoidly and arbitrarily, the rabble will disrupt the existing order. Therefore, the pursuit of democracy needs to be based on reality. How to find the best balance between democracy and autocracy is more meaningful than pure idealism.
Hackers, interventions, and paranoia, after all these flaws have been exposed, there are still countless people who continue to make efforts to create an equal organizational form. And what kind of form the DAO will take in the future, this question is more realistic today. In the era of digital economy, blockchain has become an indispensable underlying technology foundation. NFT, as a digital form of token, is being widely accepted and discussed, and the world of the meta universe is expanding. And DAO, as a decentralized organization that relies on network and digital development, inevitably has too much imagination.