A digital decentralized autonomous organization (DAO) is a paradigm shift in the very idea of economic organizations. It offers complete transparency, total shareholder control, unprecedented flexibility and autonomous governance.
What is DAO?
In order to understand it in simple terms, we need to first understand digital assets. A digital asset is an asset that has no physical form and the best example is cryptocurrencies (E.g. like Bitcoin, Dogecoin, and Etherium) which can be transacted only in the digital world.
Next concept is blockchain, it is mainly a public ledger of digital transactions stored in the form of blocks. DAO is an organization formed by crowd funding (or crowd-founding) to support Ethereum blockchain projects. DAO can be further explained in a more simplified manner as:
Decentralized – DAOs have no directors or board members to control organizations’ decisions. Users with tokens have some control over decision making.
Autonomous – It is a computer program at its core that makes decisions based on its own rules, which are known as smart contracts. An example of a smart contract can be filtration of applications of candidates based on CTC or minimum marks in the university. It filters prospective employees based on set rules and only selective employees qualify for the interview round.
Organization – The organization stands on the capital invested by supporters in the form of cryptocurrency. In exchange for supporting DAO through these cryptocurrencies, the backers get DAO token which they can use to vote on the direction of the organization. They can use the tokens to vote on big governance issue (akin to traditional shareholders) and also on minute details of how the DOA spends its resources. In this way, token holders have total control over the DAO’s assets and actions.
The modus operandi for DAOs is simple. A group of people write smart contract, then open it for initial funding from the investors for stake holding and after the funding is over, DAO begins to operate. People make proposals to DAO on how to spend money and based on the voting from investors, the proposals get approvals.
DAOs were mainly created to have more transparency in the investment houses. This was ideated to safeguard investors from mismanagement of funds by the officers and to bring complete transparency in the system.
DAO was launched in April 2016 and has been the largest crowd-funding in history to raise over $150 million from more than 11,000 investors. Much more than any investor or founders could have expected. However, the cyber attackers managed to steal more than $50 million from the corpus in June 2016.
Issues and Challenges
There are various known issues and challenges associated with DAO. Let us have a brief look at each of them:
- Attacks - Since the architecture is open and records are public, it is more susceptible to cyber-attacks.
- Slow Decision-making – It delays the overall decision making considering there is no leadership to drive the process.
- Complex Code – Difficult for investors to fully understand any investment considering the rules are in computer programmed codes and it is anonymous in nature making it impossible for investors to understand it.
- Regulatory concerns – The organization are considered as investor house but the tokens owned by investors cannot be considered as equity, hence there is no legal or regulatory framework applicable on the organization or its transactions.
The similar structure is being replicated in real organizations where instead of hiring resources as an employee, potential candidate gets a contract on project basis which can be termed as Contribution Contracts. In this case, after discussion among the community members, the proposal is voted upon and, when passed, work can commence thereafter.
Future of work
DAO will not only bring in a boss-less system, but will also help in identifying top performers much faster. And this will help in incentivizing and retaining them more efficiently. Apart from this, it will also highlight underperformers or unwanted resource which will help in taking preventive measures quickly. The true meaning of a performance driven system can be envisaged through DAO. It offers potential to produce better output along with improved work experience for everyone. The future may provide you an opportunity to have different contributions contracts attached with multiple DAOs allowing to earn much more than a full time job with flexibility and ease.