Form DAOs!
The most underrated achievement in crypto is the DAOs: Decentralized Autonomous Organizations. In the ecosystem of decentralized finance, they have already shown what they are capable of. It’s time to utilize them beyond that. Let’s shed light on the jungle of organizations!
To claim that something is underhyped is quite a bold statement when talking about the crypto market. After all, the market is shaken daily by waves of hype, and there seems to be nothing, truly nothing, too absurd that it can’t generate at least a little bit of hype.
But when it comes to DAOs, interest wanes, and there’s not a shred of hype in sight. Hardly anyone even knows what these three letters stand for, and every time I write about DAOs on this blog, the site traffic plunges abruptly.
Yet Decentralized Autonomous Organizations, as the abbreviation unfolds, are amazing and fantastic. They are one of the most fascinating aspects of crypto—a dizzyingly magnificent, almost inevitable consequence of what Bitcoin has enabled—and their huge potential to turn the world upside-down hasn’t even been scratched at yet.
DAOs Can’t Not Fulfill Contracts
A DAO refers to the representation of an organization on the blockchain through smart contracts. A Decentralized Autonomous Organization has no physical headquarters and is not registered in any jurisdiction. If you absolutely had to specify a location, it would be the address of a smart contract.
The rules and processes of the organization exist on-chain, and they are enforced by the consensus of the respective blockchain. A DAO literally cannot do anything other than what its code says.
Every operation of a DAO takes place with the same security, transparency, and finality as a Bitcoin transaction. It doesn’t need jurisdiction because it cannot defraud; it doesn’t require a court venue where users can sue for contract fulfillment, because the DAO is incapable of breaking the contract.
Large parts of economic, contractual, and corporate law exist simply because they are based on companies that are not DAOs, but rather opaque, potentially corrupt constructs, always subject to the arbitrariness of their staff. With DAOs, these become as obsolete as catalytic converters in electric cars.
DAO or Not?
Of course, not every type of organization can be mapped through smart contracts.
DAOs work wherever an organization receives and stores financial assets and then distributes or exchanges them according to a set of rules. These rules can require votes among DAO members—such as deciding which projects to fund—or even how the rules themselves can be changed.
The perfect example is the domain of decentralized finance (DeFi). Here, DAOs thrive beautifully. All major platforms—Uniswap, Aave, Lido, Raydium, GMX, Curve, to name just a few—operate as DAOs and enable users to swap, lend, borrow, and earn interest on tokens.
DeFi has the advantage of occurring entirely virtually, completely on-chain. Wherever one tries to operate in the real world, however, things start to get complicated.
Even an operation like MakerDAO, which issues the algorithmic DAI dollar, depends on having various interfaces to the real world. Sometimes so-called oracles help by bringing real-world data on-chain in a decentralized manner. But when you want to pay with PayPal, need a legal domicile, or enter into contracts with other service providers, things get hairy.
Still, MakerDAO demonstrates that even connecting to the real world can be part of a DAO. Under its continuing decentralized umbrella, more and more spin-offs are joining in the real world to undertake specific, tightly defined tasks.
A Smart Contract Needs No Trade Office
DAOs have the enormous potential to outsource companies—completely or partially. They can not only reduce, but fully eliminate, numerous sources of corruption, arbitrariness, and error; making many regulatory, business, and legal detours unnecessary.
If the smart contract is public and a DAO can only do what the smart contract prescribes—why would we need consumer protection? If the smart contract follows the rules and laws required in a country—why is there a need for a trade office and oversight agency to check if everything is running by the rules?
Additionally, DAOs make organizations decentralized and therefore more resilient. You can’t hack a DAO in the conventional sense.
Finally, a DAO facilitates the integration of members and helps to stabilize collective decision-making processes. DAOs are the key to a new era of participation that goes far beyond the occasional democratic elections.
Especially—and Particularly—in the Public Sector!
DAOs have immense potential to play a role in associations, charities, NGOs, and cooperatives. Even today, they are already supporting scientific funding and could gradually replace numerous institutions in the public sector, administration, and politics—either partially or even completely.
Especially in the public sector, it seems like a historic misstep not to embrace DAOs. That’s because DAOs embody virtually every ideal that public democratic institutions are actually supposed to uphold: They strictly follow the rules, making corruption virtually impossible; they are completely transparent, so the sovereign—the citizen—can see every move the DAO makes; they are maximally inclusive via tokens, as they make every form of participation—whether in profits or decisions—safe and easy.
You could use DAOs to conduct regional voting, in which everyone who holds a neighborhood token gets a vote. Community projects could be jointly financed and profits shared. On a larger scale, collective funds distribution could be decided by vote, integrating a variety of citizens, organizations, experts, and stakeholders; this could even be extended to the level of the EU and UN, where many processes revolve around the allocation of funds.
Every operation carried out by DAOs in the public sector is a win for democracy and transparency. Conversely, every operation that could be but isn’t handled by a DAO—and thus remains opaque and arbitrary—is a loss.
In the future, it should go without saying that one should only refrain from using a DAO when absolutely necessary. Laws and regulatory authorities should burden companies that don’t adopt a DAO model without good reason with painful requirements, and we should one day look back with disgust at the time when non-DAOs were still the norm.