Have you ever questioned whether it’s possible to have an organization where everyone has a voice in all decisions, and there are no leadership positions? A democratic group that solely relies on votes from each member to make decisions and changes? You’re correct if you said yes. This type of organization does exist and is active online in the cutting-edge Web3 environment.
The Decentralized Autonomous Organization (DAO), which operates on the blockchain network, offers a democratic organizational structure. It is a group of like-minded individuals working toward a common objective with access to a joint financial account. Like a digital cooperative, everyone has voting rights on the board instead of just a few leaders. Depending on how many tokens a member holds, DAOs may have weighted votes or equal governance for each member.
Its members manage a DAO through the crypto tokens it issues. For instance, Decentraland uses the Decentraland DAO to handle all transactions, land, assets, and other things in the virtual world. They do this by holding their very own MANA tokens. A smart contract, a type of blockchain code, contains the rules governing a DAO. The intelligent contract automates changes and functions, processes, transactions, and data storage.
Over a thousand DAOs are active and used for various activities, including investing, fundraising, managing stablecoins, and borrowing or purchasing NFTs. The World Economic Forum and other analysts and experts recognize the strength and potential of DAO, its rise to fame, and even the possibility that it could displace some traditional businesses.
Advantages of a DAO
It’s essential to be aware of the benefits and drawbacks that come along with the opportunities and growth that DAO offers.
Transparency
Unlike DAOs, which are run on a decentralized blockchain network where processes and transactions are transparent, permanently stored, and open to the public, traditional organizations typically keep a large portion of their operations internal.
Democratization
A DAO’s ability for all members to vote on decisions encourages members to be responsible and deliberate. This eliminates hierarchy barriers and creates a flat, just, and equal organization. Instead of electing members to make decisions on their behalf, DAO members vote directly to make decisions that affect the organization’s direction, developments, and actions.
Automation
Blockchain has embedded codes that contain the DAO rules. The rules are applied as the program runs without human intervention’s work, manipulation, discrimination, or mistakes.
Elimination of Third-party Organizations
Members can conduct transactions without the assistance and expense of external institutions like regulatory bodies, attorneys, and other intermediaries.
DAOs can directly carry out these plans through voting and do away with the need for banks, legal counsel, and other intermediaries, for instance, if members want to invest in a startup or change the code of the program they run.
Meritocracy
Members are only judged on their work and can work anywhere. Since DAO is virtual, members can work wherever they want, including on the beach, whenever they want. Anyone with a crypto token for a DAO can vote with it. Members are judged on the quality of their work, not on how they appear or how impressive their credentials are. This eliminates bias and promotes everyone in the DAO’s right to make their own decisions.
A Decentralized Autonomous Organization’s Risks
The clear advantages of DAOs don’t mean that the organizations aren’t without their risks and challenges, which need to be taken into account before choosing to form a DAO and while developing the underlying contracts to govern it. Stories like Beeple’s or the Bored Ape Yacht Club may lead some in the fine art community to believe NFTs aren’t.
Making Slow Decisions
The development and progress of an organization may be sluggish when all members are involved in every decision. Members might take a while to comprehend and make project changes and development decisions. For instance, the DAO might need to explain the NFT to some members if it wants to purchase a non-fungible token (NFT). Members occasionally have trouble explaining things because other members don’t understand them. Because of the bottlenecks it causes, they risk losing the NFT to someone else who is eager to buy it and can move quickly.
Additionally, the program cannot read votes intuitively like a person would when casting a traditional ballot. Some might argue that automation removes the element of critical thinking, which is essential for some significant organizational changes and dehumanizes people.
Majority Rule.
DAO members follow the majority’s views and judgments because the organization is decentralized and democratic. It might eliminate manipulation, but conspiracy risk still exists.
Security
DAO members follow the majority’s views and judgments because the organization is decentralized and democratic. Although manipulation may be eliminated, there is still.
The developers cannot guarantee the security and perfection of the code that forms the DAO’s framework. Codes might have flaws and be vulnerable to hacking.
The German startup stock. Its DAO was destroyed in 2016 due to an incident that exposed vulnerabilities in the code that hackers could use to their advantage. Out of the $150 million raised for developing a decentralized version of Airbnb, they ultimately lost $50 million. Although a significant setback, situations like this have prompted technological advancement and increased the security and auditing standards of DAOs.
As Web3 matures and potentially spreads, the DAO is essential in fostering growth and governance structures within blockchain ecosystems. You need to take help of Decentralized Autonomous Organization Development if you want to improve user experience, security, and scalability.
RisingMax works with important companies in their foray into Web3. Through its specialised talent pool, RisingMax also provides Web3 development services, applications, and the technical implementation of an organization’s Web3 strategies in areas like blockchain, NFTs, and DAO, among others.
