Increasingly, enterprises are turning to blockchain to reimagine the way they operate. As a result, companies of all types are exploring how this emerging technology can be leveraged to streamline processes, reduce costs, and make their organizations more efficient.
Reducing the cost of governance: Today’s businesses are operating in a digital world. Therefore, it’s important that their governing bodies are as well. Many enterprises have realized that keeping their governance costs low is critical to their ongoing success. The good news is that there are a variety of governance models that businesses can adopt to keep their operations efficient and maintain oversight.
If an organization has a board of directors, that would be the equivalent of a governance entity.
Voting rights: The most common governance model involves having a group of people who have the right to vote on company matters. When the members of such an entity are also the owners of the business, the term they would be equivalent to a DAO.
Right now, there are some businesses that are implementing DAO’s where they issue tokens to their users. These tokens give the owners voting rights on company matters. But in many cases, corporations will appoint a committee to make corporate decisions on their behalf.
Reduced costs: As companies become more efficient, it makes sense that they would try to find ways to lower costs. After all, fewer people are needed to make decisions, and the organization is able to
What are DAOs?
A Decentralized Autonomous Organization is a type of decentralized business entity that runs autonomously and uses blockchain technology to manage assets, assign responsibilities, and make decisions. It’s a new way to structure a business that could have enormous implications for companies and their investors. Unlike traditional companies, which are typically controlled by a few people or entities, decentralized autonomous organizations (DAOs) are controlled entirely by the members who own the tokens that make up the organization.
How DAOs Work
DAOs are run using a variety of blockchain tools and protocols. The most common type of DAO is a token-curated registry, a type of software that lets token holders vote on who gets to enter the registry. In practice, users vote on the authorities that control the registry, which then decides which users can sign the registry entry. Once the registry entry is signed, it’s listed on the blockchain. Any entity that wants to use the registry can then pay a fee for permission to use it.
How DAOs Are Different from Traditional Boards of Directors
The biggest difference between DAOs and traditional boards of directors is that members of a DAO are actually owners of the organization because they control the organization’s assets—including the voting tokens. Unlike with traditional boards of directors, the members of a DAO don’t just have a say in whether the company does well financially; they also have a say in how the company is managed day-to-day.
One of the biggest advantages of using a DAO is that it allows companies to raise funds without the need for venture capitalists. In fact, DAOs are essentially crowdfunding platforms because they let people invest in projects without exposing themselves to the financial risks that come with investing in a startup.
Pros of Using DAOs
- Lower Costs: By using a DAO, companies can cut down on the costs associated with operating a board of directors. For example, many companies spend money on recruiting new directors, paying for their travel, and paying them a salary. This may not be necessary if you have enough voting tokens in the DAO.
- Reduced Risk: Another advantage of using DAOs is that members of the organization don’t have to make any financial investment in the company. This means that the members of the DAO don’t have to worry about if the company is making money or going under.
- Greater Transparency: Using a DAO, companies can make all the decisions about the company’s activities transparently accessible by all the company’s stakeholders. This makes it easy for people to track the activities of the company and get involved at any level.
- Greater Inclusivity: Using a DAO, companies can create a truly inclusive environment for their stakeholders. All people need to do is get voting tokens and they are able to participate in the activities of the organization.
Cons of Using DAOs
- Lack of Regulatory Backing: Using a DAO may not be legal in all jurisdictions. Because DAOs are decentralized, they are difficult to control and manage. This can lead to issues with operational transparency and decision-making.
- New Technology: As with anything new and groundbreaking, DAOs will be a work in progress for a while. Some of the most rudimentary aspects of using a DAO—like voting and consensus mechanisms—are still being developed.
- Lack of Stable Financial Model: DAOs have a lot of potential to disrupt industries and make business operations more efficient. But it’s unclear how long it will take for these organizations to be financially self-sufficient.
- Lack of Legal Recognition: As mentioned, governing bodies like governments and corporations often have a storied history of regulating and recognizing companies. DAOs, by definition, are a new type of entity that is not recognized by any governing body.
Final Words: Should Enterprises Jump on the DAO Bandwagon?
If you’re interested in using a DAO, it’s important to understand what makes this model different from traditional companies. Also, it’s worth noting that governance models like these are still in their infancy. Therefore, there are bound to be issues along the way.
The advantages of using a DAO are clear. Companies can save money by skipping the board of directors and cutting down on operational expenses, such as travel and salaries. But the best companies will not just identify these cost savings but also find ways to use the efficiency of these models to drive innovation.