Written by: Lotta Spjut, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
What is a DAO, and how is a DAO different from traditional companies? Imagine a way of globally organizing and sharing business, ownership, and assets with others with the same interests as you and without knowing each other. Together You are establishing your own rules and making your own decisions autonomously, all encoded on a blockchain. With DAOs, it is possible.
This article is the first part of three, and the purpose is “only” to give you an overview; still, you will hopefully get it and have some basic understanding about:
What is a DAO? (Part1)
How is a DAO different from traditional companies (centralized organizations) when making decisions? (Part1)
What are the pros and cons of a DAO? (Part2)
In what sectors can DAOs be useful? (Part2)
Can and should we replace traditional organizations with DAOs? (Part3)
How to choose what DAO to join? (Part3)
Learning by doing “Balloon DAO.” (Part3)
Last month, I decided to be part of two different DAOs. Instead of buying Blue Chip (Well-known, established, and stable collections) NFTs (Non-fungible tokens) on my own, I paid a part of the amount, the same as others. I don't know and have never met these people, and now we own the NFTs together in our DAO. How can I invest in an asset and share something with people I don't know? Well, that is one of the mechanisms behind DAOs. (You find more about NFTs in one of my earlier articles).
In Nov 2021, a DAO called ConstitutionDAO with 17 000 people was close to buying an original copy of the early U.S. Constitution document. Unfortunately, the DAO didn't make it this time and was ultimately outbid by hedge fund billionaire Kenneth Griffin. Still, this shows how a DAO can work as intended and how it could replace traditional organizations in the future.
What is a DAO?
Before going into that, let's get a short history. Even if Decentralized Autonomous Organization, short DAOs are spoken about more today, the most well-known early DAOs were launched in May 2016. A German startup slock.it launched their DAO, "The DAO," a decentralized version of Airbnb. They raised over $150 million worth of Ethereum, though a bug in The DAO’s code opened a window for hackers to steal $50 million of the funds.
Today, web3 and the explosion of Decentralized Finance (DeFi) have led to renewed interest in DAOs. A “new” form of organization is turning the worlds of investment, business, and the creative industries upside down. DAOs can replace traditional hierarchies with flat management structures and have no company HQ. Instead, they are governed by token holders and are built on rules automatically executed on a blockchain. Voices from DAO advocates believe DAOs will radically change how businesses are run, which is already happening; many DAOs have already been launched and have created exciting things.
DAOs are transparent because of enabled by the blockchain, and some see DAOs as the future of human organization for the internet. Groups, with few individuals or thousands of people, are all organized with a common interest sharing a "bank" account, without any central authority leading the way.
Overview:
DAO stands for Decentralized Autonomous Organization and is a business structure where control is spread out rather than hierarchical.
For a DAO to work, there first need to be set rules. They create security and are very important.
DAOs are organizing the rules using codes in the form of smart contracts, a type of immutable digital contract that contains the organization’s rules.
The consensus mechanism ensures that everyone follows our rules. No one can edit the rules without other people noticing. Therefore, it is transparent and public.
Participants use a governance token (represent ownership in a decentralized protocol) to vote on topics such as fund allocation.
A community with the same interests can adapt a DAO and program it according to its goals.
A DAO is a group of individuals or organizations conducting business through a set of rules written through blockchain technology.
DAOs have no individual leadership. Instead, decisions are made by individual investors (participants with the same interests) of a DAO’s native governance token. The greater the number of tokens a member holds, the greater their voting power. The impact of a member's vote can, in the case of many DAOs, increase based on their contribution to the project.
The outcome can then be based on the degree of participation and voting preference.
Members of a DAO are responsible for creating the rules by which a DAO lives, as well as what decisions are made to reach a DAO’s goals. The govern decision-making rules and the findings are determined by the majority votes within a DAO, assuming the DAO has agreed upon this. Since voting power is divided among many individuals, there will likely be a consensus, and most members will be satisfied with the decisions the DAO makes. As well as having more satisfied members, DAOs present an open forum for member discussion, offering participants a greater understanding of why certain decisions need to be made.
Now You have a better idea of what DAOs are. It is time to understand more about Dao's background and characteristics to get a fuller picture of what is changing the traditional forms of organizing upside down.
How does a DAO differ from a traditional company (centralized organization) when making decisions?
Decentralized Autonomous organizations can change marketplaces through Web3 (in my last article, you find more about web3 for newbies) by implementing non-intermediated trust into the collaborative process. Most often, a DAO’s decision process follows these steps:
1. Discussion: Through community discussions on chosen forums like Discord, DAO members will circulate thoughts, concerns, options, and solutions to reach their community goals. A regular set call is made where the essential points are discussed. Many DAOs also use tools like Miro to stay organized.
2. Proposal: Proposals will be made due to the community’s discussions.
3. Voting: The DAO will then place their votes using the predetermined rule-set created by the community. Voting can happen on-chain and off-chain.
4. Allocation: The DAO will decide how many tokens they are willing to contribute to their proposal.
Though this process may vary from DAO to DAO, the lack of a hierarchical structure creates an inclusive environment for investors’ opinions to be counted. In addition, a DAO’s structure can reduce the noise and uncertainty sometimes made in a traditional decision-making process.
Overview:
Compared to traditional companies (centralized organizations), DAOs have a democratized organization. For any changes to be implemented, all the members of a DAO need to vote. Instead of implementing changes by a single party (depending on the company's structure).
DAOs funding is mainly based on investors/people with the same interests that issue the governance tokens.
The governance of DAOs is based on community. Traditional companies' governance is mainly based on executives, the Board of Directors, and activist investors.
DAOs’ operations are fully transparent and global. Meanwhile, traditional companies’ operations are often private; only the organization has the insights, and they are not always international.
DAOs use a standardized set of tools to function fully, often combining multiple tools to form a multi-layered DAO structure.
Example of how a “centralized” situation would be in a DAO: In a DAO, every action is a transaction. You apply to raise Your salary, which implies a transaction. Each transaction is a vote represented by a token. The smart contracts then execute the token, and the result will be that Your request for a salary increase is displayed in the DAO.
DAO’s financial transactions and rules are recorded in smart contracts on a blockchain. Because of this, it eliminates the need to involve a third party in a financial transaction. Centralized companies are backed by legal status. A DAO could function without it as it can be structured as a general partnership.
There are also responsibilities for DAOs that ultimately can be designed to perform any type of task. However, some of their most common faults include; Approving upgrades to an open-source protocol, adjusting parameters within a dApp, submitting improvement proposals, and debating their merits, directing protocol-owned funds to investments or external accounts, managing leadership, arbitrating disputes, determining the long-term roadmap and vision of the protocol and calibrating the value catch mechanism of the protocol.
In my next article, Part2, I will go through the pros and cons of a DAO, and You will also find out in what sectors DAOs can be helpful, and they are many!
Disclaimer: I am not a financial advisor, and this article only overviews the topic. You should not take my own shared experiences for any financial advice. Technology is moving fast, and updates happen regularly. I have linked to some sources where You can learn more if there is an interest. The internet is full of links about the topic. Just remember to DYOR of the originals. Also, DAOs are banned in some countries, so please refer to your federal laws before making a DAO.
To learn more from Lotta, you can visit her website and connect with her social media accounts; Facebook, Instagram, Twitter and Linkedin. Read more from Lotta!
Lotta Spjut, Executive Contributor Brainz Magazine Lotta Spjut has a passion and drive to inspire and empower people, especially women around the Globe. To use the skills they have, learn new skills and knowledge to grow themself, and become successful individuals and/or entrepreneurs.
She has made hundreds of lectures, speeches, and individual and group training for private and public companies, built on empiric knowledge. Sharing what she has learned and experienced herself to inspire and empower people. Not to compare with her or anyone else but to get inspired. The amount of listeners is not important for her; it is what each person gets out of it.
Lotta is a TEDx speaker, and she was one of 20 Global Women Leaders to Look up to 2021 by Passion Vista & Unified Brainz. She was also selected for Brainz 500 Global Awards 2021” by Brainz Magazine as one of the "500 Global Companies and Influential Leaders recognized for their entrepreneurial success, achievements, and dedication to helping others”. 2022 she got selected for "Who´s Who of the world" and got her own Coffee Table Book.
Lotta’s main business over the last decades has been as a Business Developer, Global Speaker, and Trainer. She has thousands of people all over the world whom she has mentored and educated in leadership, personal development, technology, and entrepreneurship.
Her background is as an Experienced Chief Executive Officer with a demonstrated history of working with leadership. She was an employee for 10 years before she resigned and became her own boss. Master's Degree in Didactic, Bachelor of Education, and many years of experience as a teacher in elementary school and at University. Certified Business Pro Executive Coach, coaching CEOs in different businesses. Bachelor's degree as a health and nutrition developer. Educated people in the health, nutrition, and fitness industry.
Lotta is skilled in Leadership, Coaching, Entrepreneurship, Team Building, Education, and Management. Strong business development and 2015 she started to educate herself about cryptocurrency and blockchain technology and the latest area she is developing her knowledge in is the NFT ‒ and Web3 markets. Lotta’s mission is to help more people understand and get educated about the opportunities within the innovations in technology and web3. She especially wants to inspire and empower more women to learn more about web3.
Her favorite quote is from Arthur Ashe: "Start where You are, use what You have, and Do what You can"! And "You don´t need to be great to start, but You need to start to be great".
