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 Are A DAO's Pros And Cons ‒ And In What Sectors Can DAOs Be Useful? 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 second part of three articles, and the purpose is “only” to give You an overview; still, You will hopefully get it and have some basic understanding. In my last article, You got the basics of What is a DAO? and how is a DAO different from traditional companies (centralized organizations) when making decisions? In this article, the focus is on the pros and cons of a DAO and in what sectors can DAOs be useful.
What are the pros and cons of a DAO?
DAO structure offers members many benefits, and like anything else in life, there can also be fewer good factors to consider when becoming a member of a DAO.
Let's start with an overview of the positive aspects of a DAO:
Transparency - Whether questioning votes, options, or funding decisions, all information and actions are written into a blockchain and available for any DAO member to view.
Simplicity - Any member worldwide can contribute and become a member by purchasing the DAO's token. Lower barriers to entry into a DAO than traditional companies.
Cheaper - The concept is born out of DeFi. So many tools are already created and possibly built on, so little needs to be made from scratch.
Collaborative - Giving everyone a voice incorporates mass knowledge for a proposal and makes it possible for experts to invest in the ecosystem they are building.
No hierarchy - All DAO members will have a voice in decision-making and understand the ideals behind decisions.
Long-term - DAOs are designed to grow organically and evolve independently, as these organizations essentially “run themselves.”
Overview of the negative aspects of a DAO:
Hackers - A DAO is only as “safe” as its code allows. Hackers frequently look for contract flaws in every ecosystem and token contract they can find. A DAO’s contract that has flaws and is not well audited, a hacker can steal the community’s funds and end the project altogether.
Disagreements - DAO members may not agree on everything. If the community disagrees strongly, it could split the organization. In addition, a DAO may have many token holders with significant voting power. If there is a disagreement between groups of token holders and the conflict is substantial enough, one group may decide to sell off their tokens. This selling pressure may be enough to end a project altogether, and it is, therefore, essential for the DAO to have a clear token allocation plan.
Unexperienced - If most members of a DAO are bad informed or not experienced, they may make decisions that will damage the DAO, thereby causing investors to lose funds and damage the DAO’s reputation.
Flat structure - By not having an apparent authority figure or chain of command, decentralized organizations can be slower to operate as decisions can take longer.
Proposal agreements are not always easy to complete. Based on a DAO’s rules, it may require “x” number of votes with “x” percentage of total votes to be counted as complete. If this number of votes is not reached, then there may be little to no progress with developing a DAO.
Lack of preventive - Without precise and measured token allocation, a single buyer can potentially purchase enough of a DAO’s token to dominate any vote and ensure their wishes are carried out.
Stagnation - In some DAOs, those with the most tokens call all the shots, so governance looks very similar to traditional organizations.
Legality - minefields abound about token projects that might be deemed securities and people using DAOs to
In what sectors can DAOs be useful?
All DAOs use pooling funds or decentralized governance to achieve a common goal. They can fill needs for the simplest to the most complex of causes and potentially become the most common type of business structure in the future. Whether investors are interested in staking rewards, investing for a specific reason, or would like to join a community of like-minded individuals, there is, or will be, a DAO for everyone. While still in the beginning, DAOs can be categorized into different categories.
Protocol DAOs support the development and management of decentralized applications (dApps) or the infrastructure used by dApps.
Investment DAOs manage and make investments using funds in a treasury under the DAO’s control. Investment DAOs focus on generating profits for their members, like private equity or hedge funds.
Cause-based DAOs manage initiatives and funds to support specific causes. They are centered around achieving collective goals. For example, philanthropy, politics, and public goods are similar to traditional organizations like charities, lobbying groups, and grant (set criteria) programs.
Social DAOs manage a shared social space. They collectively own something of artistic value and cultivate culture and events for their members. Social DAOs unite social communities around entertainment, art, games, and other social aspects of life, like modern social clubs.
Data DAOs manage and develop data under the control of the DAO. They are designed around pooling users' data or developing unique products to sell to third parties who want to use it, such as market research or to create AI algorithms.
Crypto DAOs are considered DAOs if they are managed by decentralized governance, where token holders can vote on the project’s direction.
Collecting DAOs can be a group of NFT (Non-fungible token) and Web3 enthusiasts. The form of expression and vehicle for collective coordination to acquire, for example, Blue Chip NFTs. The members share the cost, profits, risks, and utility.
Other examples of DAOs that could make our life easier:
Homeowner associations could mean that there would no longer be a president with complete power over the association, no treasurer, or secretary. Instead, all members would vote for each change while eliminating manipulation concerns.
Ridesharing services could be a DAO. Imagine an Uber-type service in which a fleet of vehicles, repair costs, wages, and benefits would all be paid by a DAO owned by individual token holders and the employees themselves. Anyone can essentially own a portion of co-op rideshare.
Real-estate investments where a crowd-funded DAO purchases rental properties, the DAO would pay for all repairs, maintenance, and property management. The members would receive a form of passive income and a portion of rental income going into the DAO’s treasury to cover future costs and additional property purchases. With each other home purchased, the total value of the DAO increases.
Instead of each farmer buying equipment, water rights, or feed, region-based farming could, instead of each farmer buying equipment, etc. As a result, an entire town of farmers could come together and share farming costs, thereby cutting overhead costs and reducing risk.
School Districts could be co-funded by communities and governmental funds together. The DAO's votes could dictate the curriculum and exposure to specific areas of study.
Though these forms of DAOs could do very well in theory, it would take a lot of careful execution of rule sets to prevent the member's votes from becoming overpowered by a few highly wealthy individuals. However, any DAO can thrive with the proper rules and enough participation.
Now You probably know more about DAOs than You did before, and it is only one more part to go. Then maybe You decide that You might even want to join a DAO Yourself. My next article, the last part, will focus on choosing what DAO to join and whether DAOs can and should replace traditional organizations.
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".
