DAO as a phenomenon
DAO (Decentralized Autonomous Organisation) is a decentralized autonomous form of organisation that’s being governed by smart contracts. Smart contracts are needed to implement a voting system, working and finance systems. The goal of DAO can be very different, such as joint investment, crowdfunding or even research activities. An interest to DAO structures is increasing every day and many people leave their jobs to participate.
Also, many people think that DAO is an organisation itself, but It’s important to understand, that DAO is just a form of organisation.
Who invented the technology?
The pioneer of DAO conception was EOS blockchain platform founder Dan Larimer. He invented a “decentralized autonomous corporation” notion. He described it as a structure that is being “determined by the source code”. Vitalik Buterin expanded on this idea by suggesting that a codebase can determine the operations of an organisation, its mission, and how to achieve it and described it in the Ethereum whitepaper. Therefore, the first real infrastructure for the DAO appeared thanks to Ethereum.
After some years the first DAO company appered - it was called “The DAO”. It was a decentralized analogue of a crowdfunding platform, an autonomous venture fund that was collectively managed by all investors. The German startup Slock.it was behind the development of the project.
The DAO predetermined the key features of modern DAO:
- anybody can participate
- voting system that ables to solve any questions
- opportunity to receive profit from its initiatives
- fair managing system
The DAO gathered 11.5 million ETH (~$150 million cost at that moment), which was approximately 14% of the total supply of Ethereum. But the story ended in failure - because of an error in the code, the project lost more than $50 million. However, specifically this DAO became the foundation for the further development of the concept.
Advantages and disadvantages
In theory, the DAO concept has many advantages. Automation of management gives you an opportunity to get rid of a huge staff of managers, lawyers and bureaucrats, to minimize the human factor, corruption and abuse of power. But in reality a complete rejection of centralization, despite the technical opportunity of realization, it is still an unreal idea.
A fully decentralized online store that sells digital products like games, art, music can be a great example. As we already said, DAO is also well complies with requirements for crowdfunding platforms, freelance exchanges, philanthropy and venture capital funding. But occupations as logistics, author authentication and even the proper motivation of DAO participants are still difficult to implement on a fully decentralized basis. Most DAOs remain in the niche of fintech, media platforms, games and metaverses, but do not enter the real sector. In addition, if a vulnerability is found in the original code, then it will be much more difficult to prevent theft than in a centralized organization.
Decentralized autonomous organizations now have great potential, but so far it is difficult for them to go beyond the digital space.