Decentralized Autonomous Organizations: A New Tool for Businesses

Decentralized Autonomous Organizations

Decentralized Autonomous OrganizationsExplore the role of Decentralized Autonomous Organizations in businesses in 2022

Traditional organizations are frequently hierarchical, elitist, regional, and opaque. Decentralized autonomous organizations are the polar opposite of this, consisting of informal grassroots networks with anywhere from a few to thousands of members. The norm is extreme openness and anonymity. DAOs lack a corporate headquarters or formal organization at their core and hence have no single point of failure. The decision-making procedures are recorded in smart contracts that run independently on a blockchain, and the rules are documented in open-source code. Importantly, DAOs are meant to operate as global communities, resulting in a far larger and more diverse playing field. DAOs in businesses are playing a vital role. 

A DAO distinguishes itself from traditional business arrangements in two big ways. First, DAOs are exclusively online, with members rarely if ever interacting with one another in real life. And second, they operate with rules and targets informed by blockchain technology, a permanent record of digital information that is not run or managed by any central authority, and acts as a ledger of digital transactions online.


Democratized Organization

DAOs have a democratized organization. All the members of a DAO need to vote for any changes to be implemented, instead of implemented changes by a sole party (depending on the company’s structure). The funding of DAOs is mainly based on crowdfunding that issues tokens. The governance of DAOs is based on community, while traditional companies’ governance is mostly based on executives, Board of Directors, activist investors. etc. 


A Multiple Perspective 

DOAs are a response to multiple challenges. A major one is an awareness of and the realization that action must be taken now over issues of sustainability. Capitalism’s flow of investment expects and rewards growth. Corporations are locked in the competition which is depleting the planet’s finite resources and fuelling the climate crisis. Increasing numbers of people don’t want to contribute to that scenario and are looking for opportunities to collaborate as part of a less destructive way to make a living.


Limited Liability Company

The formation of a DAO is not unlike a traditional organization. A legally compliant DAO operates as a registered limited liability company (LLC), which limits an investor’s financial and legal liability to the DAO LLC. Forming a DAO LLC entails a few additional steps that other LLCs do not, including establishing rules before writing the code and funding the startup. 


Transparent and Verifiable 

Starting an organization with someone that involves funding and money requires a lot of trust in the people you’re working with. But it’s hard to trust someone you’ve only ever interacted with on the internet. With DAOs you don’t need to trust anyone else in the group, just the DAO’s code, which is 100% transparent and verifiable by anyone.


Decentralized Environment

Decentralized autonomous organizations provide access to a decentralized environment where incentives are aligned among the many stakeholders from governance and organizational viewpoints. Simultaneously, conventional institutions’ hierarchical systems are partially or completely replaced by a system of incentives that directs users’ interests toward the benefit of the community, ensuring that stakeholders’ behavior is aligned with the desired outcome. As a result, an ecosystem of decentralized organizations has emerged that can give access to a wide range of financial services while removing the majority of entry barriers and so promoting financial inclusion.


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