Dawn Of The DAO: What Happens When The Crowd Holds The Power Of A Corporation?

Dawn Of The DAO: What Happens When The Crowd Holds The Power Of A Corporation?

A week ago, about a dozen people hopped on Zoom to explore an idea: What if we got a community to bid together on a rare first printing of the U.S. Constitution offered at Sotheby’s auction? By Monday, over 2,000 people—many strangers—had contributed over $3 million. At the start of yesterday’s auction, the seven-day-old community had raised over $40 million from 17,437 donors. Ultimately, the collective, named ConstitutionDAO, was outbid, but the strange addition to the history of this 234-year-old document gave us a dramatic demonstration of how crypto can collide with social networks to unlock new economic power for decentralized communities of people—and shift the common understanding of how an organization operates and governs itself.

Blockchain technology—which has fueled bitcoin, NFTs and DeFi—is about to catapult another unwieldy term your way: DAO, or decentralized autonomous organization. A DAO is essentially a community using code to organize and establish trust. DAOs are already being used by a broad range of people, from creators seeking to fund film production to climate activists accelerating the adoption of low-carbon technology.

Early use cases are giving us a preview of the power that DAOs could wield by bringing together strangers with a shared purpose. By leaning on the functionality of cryptocurrency and NFTs, newly formed communities are able to establish shared treasuries and govern shared assets. DAOs also use blockchains to self-enforce rules of operation and governance, from voting on proposals or management roles to automatically releasing rewards after hitting key performance indicators, or KPIs.

Will combining economic power and agility outpace the corporation?

The impact goes far deeper than updating the frameworks and business processes that enable an organization to operate. These self-forming, self-governing networks are already demonstrating a new superpower: to harness and align the power of a crowd with a speed and agility that makes even the most modern corporation look stodgy. This power and agility is an enticing formula for mobilization in a world of accelerating change, giving DAOs the potential to collectively gather great influence.

A global lab of experiments: collective know-how drives rapid innovation

Right now, DAOs are racing to navigate the challenges of decentralization in a world built around traditional means of organizing. This space is very raw—many DAOs, including ConstitutionDAO, are navigating the complexity of establishing the legal and financial structures to interact with the traditional world in real time—but explosive innovation is poised to advance it quickly.

An entire ecosystem is springing up to develop “DAO tooling” (think of a library of apps, interfaces and other building blocks to make DAOs easier and faster to form and run). Much of the work in the space is open source and shared, accelerating the pace of experimentation. DAOs can be deployed as-a-service with infrastructure providers like Aragon (with 1,800 DAOs) and DAOhaus (1,900 DAOs), as well as newcomers like AstroDAO (an evolution of NEAR protocol’s SputnikDAO launched in February). Providers offer preset templates (for example, for deploying a foundation versus a corporation) and a full stack of tools for functions like voting, creating tokens and designing incentives—making it possible to launch a DAO in minutes.

There is much work ahead. Pioneers need to find a path to manage treasury, legal, tax, compliance and other challenges among a dispersed collection of participants who may not have other ties to one another. To unlock the opportunity for networks of DAOs to work together, technologists must establish standards for interoperability. And many of the issues DAOs face are those that have challenged organizations for ages (for example, how to ensure high voter turnout to prevent a small group from exerting outsize control on the outcome).

The community is actively collaborating to solve these issues. For over a year, Joshua Tan and Michael Zargham have maintained an open database of projects and tools in online governance they call Govbase, which includes a range of DAO resources for developers and researchers. A DAO Summit last June sought to advance collaboration on these issues, which organizer Connor Spelliscy called “collective R&D.” Spelliscy published a summary of the five most pressing questions DAOs face, gathered from interviews with over 20 founders, operators and lawyers. In October, a collaboration of over 20 organizations kicked off a DAO Global Hackathon that runs through mid-December and includes work on challenges such as streaming salaries and invoicing, legal compliance, voting technology and KPI options.

DAOs are still in an early, almost honeymoon-like period of experimentation before the reality of regulation and legal structures of the regions in which they are operating hits full force. And malicious actors will always work to identify and exploit vulnerabilities wherever the money flows, whether from flaws in voting mechanisms and governance design, or duping newcomers struggling to learn the basics of the space.

However, DAOs are a concept whose time has come. The growth of the gig and creator economies has pushed more labor outside of traditional organizations and onto centralized platforms—but the money and power haven’t shifted in proportion. DAOs hold the promise to correct this equation.