DAOs: The Future of Organisational Governance

More than buzzwords, Decentralised Autonomous Organisations (DAOs) are becoming a force to be reckoned with.

With recent headlines being flooded with MakerDAO’s $500 million worth of stablecoin investment in US Treasuries and corporate bonds, as well as World Economic Forum perspectiveson DAOs as the business structure of the future, we are met with a timely question: “What is the big deal with DAOs?”

Utopian Democracy Comes to Life

Imagine joining an organisation that has no leader, without knowing the identity of anyone within the same group, and even entrusting it with business-critical decisions. Before the blockchain and DeFi era, this would have been unthinkable. However, DAOs are making this a reality now, with more than 4,800 DAOs worldwide, owning a total of US$8.1 billion in treasury.

Inherently a unique governance construct, collectively owned and managed by its members, DAOs are reimagining the way organisations are governed and funded. With an operating system backed by smart contracts, DAOs break the stranglehold of traditional hierarchical organisations often dominated by a few, and replaces them with a more democratic structure.

Also, as all internal decisions and transactions are recorded on the blockchain, a DAO’s activities are transparent for everyone to access, thus forming a strong basis for trust among its members. In a way, DAOs advocate for a fair, transparent and almost utopian-like governance process that allows all stakeholders to have a say in all decisions.

However, DAOs do have its limitations, such as the recent incident where a DAO managing Solend – a Solana-based lending protocol – voted to take over its largest user’s account. While the voting decision was reversed eventually, following a severe backlash, it posed a question on whether DAOs are a sound governance model and what are the legal rights of the DAO participants. As DAOs are still in their infancy, these questions are to be answered in due time as organisations experiment with the model.

Real-life Use Cases of DAOs

While we are still at the very early stages of DAO experimentation, there have been really promising developments and trends that point towards its untapped potential and future growth.

Those familiar with the blockchain ecosystem would have heard of Uniswap DAO, which is one of the largest and most popular DAOs with more than US$2 billion in treasury. Built on the Ethereum blockchain, anyone holding the UNI token can vote on the way Uniswap is operated, enabling its token holders to set the direction of the ecosystem.

However, this new governance structure is no longer contained just within the realm of blockchain enterprises and organisations. There have been many use cases whereby individuals have come together to pursue a cause they believe in, and have it materialised in the real world.

To begin with, DAOs have shown its potential to disrupt journalism. For instance, DirtDAO allows its token holders to vote on stories and shape the editorial process of an entertainment newsletter, enabling a more participatory content creation process — where both the authors and the audiences are rewarded for creating high quality content on Web3.

Charitable organisations are another real life use case, including the likes of UkraineDAO, which sets out to collect and distribute donations to the Ukrainian army and those affected by the war. As more organisations automate administrative tasks and decision-making processes, DAOs can help non-profits reduce overhead costs significantly, distribute funds and create impact in a much more efficient manner.

Infrastructure as an Enabler

As DAOs bleed into the realm of our everyday lives, the role of innovation and a robust infrastructure remain critical to truly uncap its potential.

The progress to lay a solid foundation for anyone to explore the new governance mechanism is promising so far. The industry has seen emergence of one-stop solutions, which enable anyone to develop their own automated DAOs, with two notable contenders being DAOHaus and Aragon. We also see more infrastructure providers catering to developers as a plug-and-play offering, encompassing a combination of different tools to meet the specific needs of their DAOs such as the voting protocol Snapshot and the treasury wallet Gnosis Safe.

Altogether, the infrastructural innovations offer easier implementation of the most crucial functions of a DAO, namely governance architecture, treasury, and execution. Now more developers can build and design DAOs in a modular manner, allowing for more flexibility in their creation and expansion. As more players within this infrastructure layer emerge, more variety of DAOs will be established, resulting in a vibrant and innovative governance ecosystem in the future.

The Road Ahead

There is no doubt that Web3 is becoming front and centre of the future society. Particularly, as the physical and digital realm merge, certain aspects of DAOs and their governance principles are expected to disrupt how organisations operate and streamline decision-making.

From funding scientific research to purchasing physical land, there are already several examples of how DAOs are breaking the traditional organisational structure and transforming the way it is run. We can expect the space to continue growing, supported by the wave of mainstream investment over the past year that points to larger scale buy-in by institutions.

This mainstream interest is coupled with growing support by blockchain-native ventures looking to build, grow and scale early-stage players in order to support the overall growth of the ecosystem. For instance, Matrixport Ventures invested in BendDAO, the first decentralized peer-to-pool based NFT liquidity protocol. Interestingly, BendDAO also integrates Snapshot for its governance mechanism, showcasing the collaboration between different DAOs, venture firms and infrastructure solutions within the blockchain industry that enables the concept of decentralised governance to grow and scale.

As the idea of the utopian governance, as well as its underlying infrastructure, matures and innovators experiment with new models, we will continue to see DAOs pushing the boundaries of what’s possible and pave the way for a more ubiquitous Web3 economy for all.