What's the benefit of a DAO?

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Learn Crypto Nov 16 · 7 min read

What's the benefit of a DAO?

Traditional organisations are characterised by a leadership structure that is usually led by a selected few or even just a single person on top of the corporate governance mechanism. While there are benefits to this – quick decision-making processes, for instance – there are risks to allowing so much power in the hands of the few.

The concept of the decentralised autonomous organisation (DAO), popularised with the rise of blockchain technology, is touted as a solution to bad management structures that plagued traditional types of organisations. In other articles, Learn Crypto examines the DAO concept in depth and discussed the practical steps of creating a DAO.

Before committing to a completely new way of governance, however, it might be necessary to further explore the advantages of a DAO. In other words, aside from being one of the cool kids joining a DAO, what’s really in it for you?

In this article you will learn about: 

  • A summary of what a DAO does differently from a traditional organisation
  • Main benefits of DAOs 
  • How DAOs can benefit consumers

How is a DAO different from other organisations?

A complete definition of a DAO in its current context can be quite difficult to make concise but we can attempt it:

A blockchain-based form of organisation that is governs itself through a community-based approach and facilitates that with a native crypto token.

  • It is blockchain-based because DAOs use blockchain technology. They use digital ledgers to record their history and to ensure all dealings are transparent.
  • It governs itself through a community-based approach because it brings together people with a shared purpose to fulfil common objectives.
  • It facilitates governance with a native crypto token because it is this token that determines who holds power in the organisation. Typically, the more contributions a member makes to the organisation, the more tokens they gain and with that, the more power they hold.

How do DAOs compare to traditional organisations using the same aspects?

  • Traditional organisations don’t have a way to show their members their dealings in a transparent and public way, at least, not in a manner that members can independently verify.
  • Some traditional organisations may attempt community-based approaches, but to a large degree, are controlled or led by one person or a few selected people who often make decisions without the community’s approval.
  • Instead of tokens, organisations might use shares to increase a member’s stake in the organisation but there are no clear ways to reward contributions with more shares.

DAOs are frequently referred to as companies that are run by code. This expression means that DAOs use smart contracts and put them in place of traditional corporate structures to coordinate the main objectives of the organisation.

Instead of people who may have hidden bias, DAOs use objective programs that execute actions when predetermined conditions are met. Hence, one of DAOs main features that stands out from traditional organisations is programmed collective ownership.

While it may sound like a lot of effort, it is generally easy to participate in a DAO since community members gain the ability to participate and decide on important matters on the basis of purchasing and holding native tokens.

There are many types of DAOs, mainly depending on their desired objectives. However, all DAOs operate in a similar manner from the technical point of view and share some common features and benefits.

Benefits of a DAO over traditional organisations

Even though the blockchain ecosystem and DAOs are still in their infancy stage, their rapid growth in recent years has attracted a lot of attention. DAOs provide several major benefits that are likely to become even more important with time, specifically in relation to traditional organisations. As blockchain technology gets more popular and user-friendly, it is likely that the customer base will expand.

1. Decentralisation 

Decentralisation’s main attraction is that it promises to make organisations much less susceptible to manipulation and corruption than traditional organisations. Especially since the late 1990s, there is sound academic evidence that proves that increased decentralisation is closely associated with decreased corruption.

This is mainly because DAOs support greater accountability and facilitate monitoring. For instance, a DAO on a public blockchain is entirely public so every user can be held accountable for their vote. A decentralising approach reduces the likelihood of collusion as well.

  “...fiscal decentralization in government expenditure is consistently associated with lower measured corruption.” -- World Bank study, 2000

This trait is tightly associated with some of the original ideals of blockchain technology. Having a decentralised governance structure also means that most managerial issues can be solved through system automation.

The focus is on attaining the highest extent of decentralisation due to each DAO’s basic principles.  

Decentralisation is also linked to the DAO’s community-based approach since community members can express their voices on the future of the organisation. Although the voting power ultimately relies on the number of DAO tokens each person holds, it could be said that voting power is fairly distributed, especially when compared to traditional corporate structures and their centralised type of leadership.

2. Community-based approach 

Many DAOs have found that, apart from the technological aspect of the equation, the DAO’s true foundation lies in its community. 

DAOs generate equal access for people anywhere in the world to join a community and connect with each other to fulfil a common purpose. Every community member gets a genuine opportunity to shape the future of the organisation in a fair manner. The decision-making process is distributed among token holders, namely community members, and not the boardroom as a classical trait of traditional organisations. 

The community-based approach is a two-way street.

For DAO members, participation in such an organisation produces the opportunity and value advantage of taking part in new projects such as creating new crypto games, novel domains, or participating in interesting investment projects.

For the DAO itself, inputs from its members could lead to innovative ideas and developments that strengthen the DAO. 

3. Equal Voting and Active Stakes 

The community-based approach leads to each community member having active stakes in the organisation. 

This perk is associated tightly with the use of DAO governance token. That is, native tokens directly imply the essential requirement for buying, holding, or spending the tokens to attain voting rights. Ideally, this leads to members being more thoughtful of the whole voting procedure and the weight each vote carries. Even though differences may arise during the voting procedure, the democratic procedure enhances equality. The blockchain technology is there only to make sure that the final agreement is being upheld and becomes part of the DAO’s regulation. 

This benefit of DAOs is also linked to advantages provided to investors. Investors are able to directly impact decisions regarding the future of their projects without the involvement of a board or similar governance structure typically associated with traditional types of companies.

The number of native tokens an investor holds determines his or her voting power in the DAO, yet each member has the opportunity to voice their opinion on novel ideas and proposals due to this decentralised governance mechanism. 

How can DAO benefit consumers?

The emergence of DAOs produced a broad array of divergent business models and the opportunity to create all types of autonomously structured and decentralised organisations run by code such as decentralised public utilities, hedge funds, and distributed venture capital companies.

As blockchain technology matures and becomes more user-friendly, the list of consumer use cases for DAO will only grow. 

With the global trend in commerce shifting towards a higher degree of consumer protection, contemporary trends like DAOs could also impact the way businesses and trends treat consumer welfare and engage with customers. The possible relationships between customer welfare and the DAO structure can, therefore, be significant considerations for businesses. 

Here are just some ways DAOs can benefit consumers directly:

  • Consumers can invest in a variety of businesses and ideas in an environment characterised as an equal playing field. 
  • Consumers can trade DAO tokens with others peer-to-peer, without any complexities regarding technical and/or financial knowledge. 
  • Entities will be held programmatically liable for any products that derive from a DAO crowd sale. This increases the odds of a return for consumers. 
  • A high degree of transparency means that investments consumers make are less risky and they will be more informed of strategic business decisions and the entire decision-making process. 

DAOs are a new way of organising online communities and businesses that no longer requires powerful leaders or authorities to lead them. Run by code rather than people, DAOs offer a new way of achieving things more efficiently, fairly, and transparently.

Even for the most amateur crypto newcomer, DAOs can be a great way to learn about crypto, while earning rewards for participating in a crypto community.

Want to see how? Then jump right in and join the Learn Crypto DAO.