DAO: A governance model that may replace all forms of human organization

If you are reading this article, you know new things very, very early. We believe that 169 DAOs (according to deep DAOs) today are just a drop of water in the ocean that is emerging in the next chapter of cryptocurrency. These DAOs set a precedent for a revolutionary governance model that will have the potential to replace all forms of enterprises, governments, and human organizations.

What is DAO?

DAO stands for Decentralized Autonomous Organization and refers to crypto-native groups formed around a common purpose. These groups usually (but not always) involve pooling funds for investment based on specific goals/tasks.

The use cases for DAO are endless and are still evolving. They can range from purely social platforms, such as the token-gated Discord server (i.e. patrons, of which a16z has recently invested) to purely investment-driven platforms such as MetaCartel Venture Capital. PleasrDAO is another interesting example; social and A mixture of art collections, acquiring culturally significant digital art works over time. The following is a market map showing the DAO pattern in 2021.

DAO: A governance model that may replace all forms of human organization
2021 DAO scene, curated by Coin 98 Analytics

Given the diversity of use cases and the speed of emergence of new DAOs, market participants and observers still struggle to understand the true meaning of DAOs.

This is why we think it is useful to clarify the basic principles of DAOs, show how they differ from traditional organizations, and provide guidance on how to approach this revolutionary wave.

DAO governance model explained

The easiest way to explain DAO is to start with the acronym. First, DAOs are autonomous, which means they are organizations run by smart contracts. These smart contracts are automatically executed lines of code agreed by the initial developers of the DAO and stored on the blockchain. When it comes to hiring, assigning rewards, and other bureaucratic or important issues that you usually find in an organization, they enable the organization to sustain itself.

Second, unlike traditional organizations, decisions are made collectively, not by the CEO or senior management. In fact, according to DAO, members who have one or a predetermined number of DAO native tokens can submit and vote to change smart contracts, propose initiatives, and invest in ideas, so that DAO can develop and grow. It is worth noting that the access methods, economic rights, and governance rights that members are entitled to vary from DAO to DAO. 

Membership in DAO adopts the ownership form of DAO’s native token. The number of tokens required to join varies from DAO to DAO. People can buy tokens after the release date or after the release date, and they can also receive these tokens for contribution, which also depends on the DAO. Although DAOs are generally known for being open to everyone, smaller DAOs get more licenses than larger protocol DAOs. In this case, possession of tokens is not enough, and a written application and invitation from other members are also required.

After joining the DAO, owning the native token of the DAO can provide different benefits, from voting rights to sharing the profits generated by the organization. When the increase in demand for the token is met by a hard supply cap, members can also benefit from the overall appreciation of the token. 

Generally, in large-scale protocol DAOs as financial service platforms (such as multi-chain platforms such as BitDAO or lending platforms such as COMP), token ownership unlocks voting rights on issues related to fees and distribution matters. Members are rewarded mainly by staking their tokens and providing liquidity for the agreement. In other cases of large DAOs, governance tokens may provide more governance rights, but have no inherent monetary value. For example, this is the case of Aavegotchi’s native token GHST. 

In smaller DAOs (500 members and below), membership usually involves working for the DAO. In addition to voting rights, members can also receive tokens, token returns, pre-determined treasury and/or cryptocurrency (such as Ether, Dai, and Cash) shares in exchange for their contributions. This is especially true for investment DAOs (such as Laos, MetaCartel Venture Capital) and collector DAOs (such as PleasrDAO). Some of them, such as MetaCartel Venture Capital, require members to continue to participate in management responsibilities, due diligence, proposals, and investment voting if they want to stay in the DAO.

Once you become a member, you still have the right to vote, which differs greatly between DAOs. The minimum requirement for voting may be holding one of DAO’s native tokens, a predetermined number of tokens, or a threshold of total supply (for example, 1% noun DAO). Once the proposal is proposed and voted through, the quorum required to verify the proposal will also be different, such as 10% quorum, 20% quorum, 50% quorum (for example, in Laos), and so on. 

How does the DAO model become a paradigm shift for human organizations?

This model is revolutionary and constitutes a paradigm shift in human organization in two ways. First, for the first time in history, Internet users can collectively create and exchange value in a credible environment. This environment is the blockchain. Blockchain technology first provides power for DeFi, and then irreplaceable tokens, and is now creating a collective work space for a group of people. In fact, it eliminates the need for third parties to participate in financial transactions because all financial transactions and rules are recorded on the blockchain. This makes the DAO independent of government agencies because the blockchain is a third party.

Secondly, unlike other forms of organization, DAO has a stronger incentive mechanism. Members are motivated by voting rights, which may in turn affect the fees and rewards they receive, and they can obtain a share of the generated profits through tokens, token buybacks or cryptocurrencies. Since the birth of the traditional Web2 platform, most of the value created by users has been occupied by the platform, more specifically their founder/CEO. In the new framework that the DAO is setting up, other members can now capture part of the value created. Then the specific conversion method depends on the particularity of the economy and voting rights in each DAO. Overall, this consistency of interest is said to motivate each member to make the best contribution and make the organization more efficient.

DAO: A governance model that may replace all forms of human organization
Simplify corporate relationships in traditional organizations and DAOs

Potential limitations of the model

However, the same characteristics that make DAOs fundamentally superior to traditional organizations can also be the source of vulnerabilities. The blockchain technology it relies on makes it trustless and transparent, but it also makes its code accessible to everyone, including potential hackers. A perfect example is the DAO hack in 2016, during which hackers took advantage of bugs in the code. 

Similarly, the DAO cannot be shut down by the authorities or the government because it relies on the blockchain as a third party. This fact may soon attract more and more attention from regulators. 

In addition, its lack of verticality makes decision-making time very long. Nevertheless, we have seen the emergence of proxy voting in the DAO, which can make governance more efficient and effective. More generally, the structure of the DAO will be more and more, including representatives, sub-teams, and professional executives.

In fact, the DAO model itself has limitations and is not suitable for all types of organizations. Although we don’t know to what extent it will disrupt all forms of human coordination, one thing is certain-we will see more and more DAOs appear, and fast.

Contact this revolutionary wave

You now understand the basic model of DAO and are already keen to understand this emerging trend. You may be wondering: How can I participate? The quick answer is to join the DAO by acquiring its native token. According to the DAO, you must purchase one or more on or after the release date, and some DAOs even give away tokens to active contributors. However, some DAOs will succeed, while others will not perform well. Therefore, it is important to conduct due diligence on the quality of the project and members before participating, and analyze how/can drive value in the DAO. Although the field is still relatively new and no indicators have been established to evaluate DAOs, we provide below some factors that drive quality membership and the value of DAOs.

Drivers of DAO value

Effective incentive mechanism

It is important to understand how members are rewarded for their contributions in the DAO. Usually, governance rights, contribution rewards, or profit share motivate members to work for the DAO and actively participate in governance. This in turn makes the organization more efficient.

Another way to look at it is that the secondary market value of the token will increase as the DAO becomes more successful. If DAO becomes more and more successful, it will attract the attention of other market observers, who hope to seize the advantages of DAO’s creative/currency output, voting rights of the treasury, etc. Therefore, DAO’s tokens appreciate. When the value of the coin appreciates, it will encourage members to work more, thereby continuing to promote the success of the DAO and the value of the coin.

Therefore, we can expect that in the long run, DAOs that have a consistent incentive mechanism for contributors may perform better than other DAOs. The more rewards members get based on their work/contribution, the value of DAO will be pushed to a higher level. 

High voter participation rate

The value of DAO is not only driven by the work of each member, but also by active participation in governance, which enables the organization to adapt and grow continuously. Possessing voting rights does not necessarily mean that members will vote. You can measure the degree of participation of members in decision-making by considering the participation rate of all voters who submitted proposals, you can be in the depth of DAO.

The smaller the size of the DAO, the greater the relevance of this indicator. As you can notice below, the largest DAOs are usually those with lower participation rates. The reason behind this is that they are mainly large-scale agreement DAOs, in which collective decision-making is currently limited to marginal issues.

DAO: A governance model that may replace all forms of human organization
Voter participation rate relative to DAO size

This is the overall voter participation rate, but you can see the main contributors in the DAO more specifically by identifying the addresses that received the most tokens from the Ministry of Finance. This shows which members have received the most rewards for their contributions.

DAO: A governance model that may replace all forms of human organization
Maximum balance of FwB tokens

You might also want to see if they include famous people in the DAO field. This shows that DAO has gained the attention of experts in the field. The following names:

DAO: A governance model that may replace all forms of human organization
Top 7 outstanding contributors in the DAO field

Project continues

If there is a good incentive mechanism and members actively contribute, then the DAO should consistently deliver projects and initiatives. The DAO that regularly promotes the project is usually a good indicator of collective participation, execution ability, and long-term value appreciation potential.

A perfect example is PleasrDAO. Since the first purchase of Uniswap V3 NFT in March last year , DAO purchased and subdivided Doge Meme NFT, obtained the Wudang family CD and even organized an exclusive event for its members in New York.

Consistent delivery in turn promotes the value of DAO tokens, increases the motivation to join the DAO, stimulates participation and again feeds back into effective delivery.

in conclusion

In short, DAO marks a new chapter in the history of encryption. Although we don’t know to what extent it will disrupt all forms of human organization, it turns out that the DAO governance model is particularly successful for the crypto-native community. It should go beyond traditional organizations because it enables Internet users to collectively create and exchange value in a trustworthy environment, and rewards the value they create. Although this new governance model is inherently vulnerable to attacks and other challenges, it will continue to flourish. Today, there are only 169 DAOs. One day, there will be tens of thousands of people. Now is the best time to join the revolutionary wave and participate in one or more of the DAOs.

The information provided in this article is for general guidance and information purposes only. The content of this article should not be considered investment, business, legal or tax advice under any circumstances. We do not take any responsibility for personal decisions made based on this article, and we strongly recommend that you conduct your own research before taking any action. Although every effort has been made to ensure that all information provided here is accurate and up-to-date, omissions or errors may occur

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/dao-a-governance-model-that-may-replace-all-forms-of-human-organization/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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