Episode 23 – What in the world is a DAO?
Decentralized Autonomous Organisation. Quite a mouthful, which is why most people just say ‘DAO’.
But what are they? What do they do? And why should you care?
Very, very good questions.
In a nutshell, DAOs provide the framework for OPEN COLLABORATION. Which, it turns out, can be incredibly productive. Not only that, they turn the traditional VERTICAL decision tree for corporations, societies and even countries completely on its head.
Well, actually, technically on its side. Because that decision tree becomes entirely HORIZONTAL.
And what does that mean? That YOU, fine sir or madam, can get a whole lot more POWER than you ever could before, to have a role in the way all of our futures pan out.
Sounds good? Then stick around…
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We don’t have to go back too far into history to find the birth of the decentralized autonomous organisation.
Although confusingly, if you say, *The* DAO, that tends to refer to one particular DAO created to help investors gain exposure to Ethereum. It was launched in April 2016, with the meritocratic goal of eliminating human error and manipulation of investor funds.
Unfortunately this very first DAO got hacked two months later, leading to the theft of 3.6 million ETH, worth about $50 million at the time.
What happened next is part of CRYPTO-LORE, and not the subject of this film. If you’d like to know more, simply google ‘Ethereum fork DAO’ and you’ll disappear down a rabbithole quicker than Alice on roller skates.
So instead let’s start this journey by going back into the dawn of human civilization. Since then, our tribal nature – and some degree of technological practicality – has led to VERTICAL ORGANISATIONAL STRUCTURE.
What does this involve?
- The BOD at the TOP usually gets to demand CHANGES, although voting is possible.
- Any VOTING must be handled manually, and is prone to manipulation.
- ACTIVITY is typically PRIVATE to the group or organisation involved.
- The CHAIN of decision making is often filtered down vertically, leading to inefficiencies and STRATEGIC DRIFT.
This is the way things have always been, plus or minus. We’ve got used to it. But what if there was another way? Where…
- The structure was FLAT, and fully DEMOCRATISED.
- All members are consulted on any change, with VOTING required.
- VOTING is tallied and outcomes implemented AUTOMATICALLY, without any possible manipulation.
- Any services offered, like distribution of funds, are handled automatically without interference.
- And all activity is transparent, and fully public.
I don’t know about you, but I know which of these sounds better to me.
And guess which one is enabled by a DAO…?
So let’s take a look at some examples.
Here’s one you weren’t expecting: BITCOIN. It might be a very primitive example, but the BTC network can be considered the first working DAO. It operates in a decentralised fashion and is co-ordinated by a consensus protocol with no hierarchy between participants.
The common goal for Bitcoin is storing and transferring value without a central entity coordinating the system. But that’s just one possible use case.
How about TOKEN GOVERNANCE – for example, MakerDAO. Where the MKR token is widely available on decentralized exchanges, enabling anyone who owns it to have voting power on the Maker protocol’s future.
Or DECENTRALIZED VENTURE FUNDS. Take the NEPTUNE DAO, which aims to provide DeFi upstarts with liquidity, enabling more of them to get off the ground, and give you more DeFi products to choose from.
Of course, SOCIAL MEDIA PLATFORMS are ripe for a good DAOing too. Imagine a platform where you have ownership of your identity, data and digital assets, in stark contrast to the centralized megaliths that dominate the social media space at the moment. SOCIAL.NETWORK is the first of these to launch, using the Polkadot blockchain to enable all content to be created as NFTs. But there will of course be more.
And if you remember episode 21, where we dived into CRYPTO AVATARS, you’ll remember the BORED APE YACHT CLUB and how it’s shaken up the NFT space. Got an APE? Well you’re pretty much part of a DAO, due to the horizontal structure of the club.
And in episode 22 we introduced the concept of SOCIAL TOKENS. The exclusive FWB club recently moved to a DAO model of governance, and the NFT exposure vehicle WHALE won’t be far behind.
Given the breadth of possibilities for this type of organisation, DAOs may point the way to the FUTURE of WORK itself, where individuals group themselves into working teams. These teams may be based on their career experience and interests, and work together to run organisations better – collectively.
So it could be SAYONARA or ARRIVEDERCI to your boss. And welcome to the new CREATOR ECONOMY.
Think about it. Look at the ENTERTAINMENT industry, and in fact any creative industry these days. Countless mergers and acquisitions have turned dozens of smaller entities into gigantic shareholder-owned corporations.
And which projects get funded and made? The ones with the highest chance of return on investment and lowest risk. This is why IP is king, and all we see at the cinema is prequels, sequels, reboots and remakes.
There are literally THOUSANDS of brilliant, original, fresh scripts sitting on shelves, or more accurately – in inboxes – that will never get made. And that’s just the MOVIE BUSINESS.
DAOs have the potential to shake all of this up, and become a stepping stone for new creative ideas. For example, look at MIRROR.XYZ.
A PUBLISHING PLATFORM where everyone who contributes their writing becomes a PART OWNER of the business. And – importantly, quality of content is incentivized – with the audience voting for the weekly article pitch and writer.
Platforms like this have the potential to revolutionise the way we express, share and monetize our thoughts.
But there’s no reason why DAO based media platforms couldn’t also apply to VISUAL ARTS, VIDEO CONTENT and any other creative industry you can think of.
So, let me jump into one and I’ll show how they work.
Now no new technology or process is immune from teething trouble, and it’s fair to say DAOs haven’t had an easy ride to date.
The LEGAL and REGULATORY environment is currently uncertain. How do different jurisdictions create a regulatory framework around a borderless and global organisation?
DAOs have previously been the target of COORDINATED ATTACKS – and their desirable properties of decentralisation, immutability and trustlessness do inherently carry significant performance and security drawbacks.
And FULL DECENTRALISATION may not always be desirable in every case – not every participant may want or be informed enough to vote effectively, and centralised organisations can operate more efficiently in some circumstances.
I’m not going out on too much of a limb when I say traditional organisations have their limitations, and a perfectly structured DAO goes a long way to eliminating many of them.
Every investor can have the opportunity to shape the organisation. Innovative ideas can be put forward by anyone and everyone, and considered by the entire group.
A set of pre-written rules that everyone is aware of before joining, as well as the voting system, leaves no room for ARGY BARGY amongst the group.
And of course, along with the rules, every financial transaction is available on the blockchain and completely transparent.
But for me, the most exciting aspect of the DAO is the POWER to the PEOPLE. And the opportunity to change the very nature of the way we work, and who we work for.
Always wanted to give it to THE MAN?
Well, this is the way we do it.
You’ve been watching School of Block, presented by Ledger and the Defiant, demystifying decentralisation, one block at a time. Don’t forget to subscribe, drop us a like if that’s what you’re into, and as always – here’s to your financial freedom.”