What is the advantage of DAO?
Traditional organizations are characterized by a management structure that is usually led by a select few or even a person at the top of the corporate governance mechanism. While this has benefits, such as quick decision-making, there are risks in placing so much power in the hands of a few.
Popularized with the rise of blockchain technology, the concept of the decentralized autonomous organization (DAO) has been touted as a solution to the inadequate governance structures that plagued traditional organizational types. In other articles, Learn Crypto elaborates on the concept of a DAO and discusses the practical steps involved in creating a DAO.
However, the benefits of a DAO may need to be further explored before fully committing to a new form of governance. In other words, other than being one of the cool kids involved in the DAO, what’s in it for you?
In this article you will learn:
- A summary of what a DAO does differently than a traditional organization
- Main advantages of DAO
- How DAO can benefit consumers
How does DAO differ from other organizations?
A complete definition of DAO in its current context can be quite difficult to do concisely, but we can try:
- A blockchain-based organizational form that is self-governing through a community-based approach and is facilitated by a native cryptographic token.
- It is based on blockchain because DAOs use blockchain technology. They use digital ledgers to record their history and ensure all transactions are transparent.
- It governs itself through a community-based approach as it brings people together with a common purpose to achieve common goals.
- It makes management easier with the native cryptographic token because it is this token that determines who has power in the organization. The more a member contributes to an organization, the more tokens he receives and the more power he has.
How do DAOs compare to traditional organizations using the same aspects?
- Traditional organizations have no way to showcase their activities to their members transparently and publicly, at least not in a way that members can independently verify.
- Some traditional organizations may attempt a community-based approach, but to a large extent they are managed or directed by one person or a select few who often make decisions without community approval.
- Instead of tokens, organizations can use shares to increase a member’s stake in the organization, but there’s no clear-cut way to reward donations with larger shares.
- DAOs are often referred to as code-managed companies. This expression means that DAOs use smart contracts and place them in place of traditional corporate structures to coordinate the main objectives of the organization.
- Instead of people potentially having hidden biases, DAOs use objective programs that perform actions when predetermined conditions are met. For this reason, planned collective ownership is one of the key features of DAOs that distinguishes them from traditional organizations.
While it may require a lot of effort, joining a DAO is usually easy as community members have the ability to participate and decide important issues by purchasing and holding the original tokens.
There are many different types of DAOs, depending mostly on the goals you want. However, all DAOs work the same technically and have some common features and benefits.
The advantages of DAO over traditional organizations
While the blockchain ecosystem and DAOs are still in their infancy, their rapid growth in recent years has attracted a lot of attention. DAOs offer a number of important benefits that are likely to become more important over time, especially when compared to traditional organizations. As blockchain technology becomes more common and easier to use, the customer base is likely to expand.
The main appeal of decentralization is that it promises to make organizations much less susceptible to manipulation and corruption than traditional organizations. Particularly since the late 1990s, there has been solid academic evidence showing that more decentralization is closely correlated with less corruption.
This is mainly because DAOs support greater accountability and facilitate traceability. For example, the DAO of a public blockchain is completely public, so every user can be held responsible for voting. A decentralized approach also reduces the risk of collusion.
This feature is closely related to some of the original ideals of blockchain technology. Due to the decentralized management structure, most of the management problems can also be solved by system automation.
The goal is to achieve the highest level of decentralization thanks to the fundamental principles of each DAO.
Decentralization is also related to the community-based approach of the DAO, as community members can have a say in the future of the organization. While voting rights ultimately depend on the number of DAO tokens held by each individual, it can be argued that voting rights are fairly distributed, especially when compared to traditional corporate structures and their centralized management.
Many DAOs have found that the true foundation of a DAO lies beyond the technology side of the equation in its community.
DAOs create equal access for people from all over the world to join a community and connect with each other for a common cause. Every member of the community has a real chance to shape the future of the organization fairly. Decision-making is distributed among brand owners, i.e. community members, not in the boardroom, as is the classic feature of traditional organizations. A community-based approach is a two-way street.
For DAO members, participation in such an organization provides the opportunity and beneficial value to participate in new projects, such as the creation of new crypto games, new domains or participating in interesting investment projects. For the DAO itself, contributions from its members can lead to innovative ideas and developments that strengthen the DAO.
Also votes and active contributions
A community-based approach results in each community member actively contributing to the organization.
This benefit is closely related to the use of the DAO administrative token. In other words, initial tokens directly represent the essential requirement to buy, hold or use tokens to obtain voting rights. Ideally, this gets members to think more about the entire voting process and the weight of each vote. While differences may arise during voting, the democratic process increases equality. The blockchain technology exists only to ensure that the final agreement is followed and becomes part of the rule of the DAO.
This advantage of the DAO is also related to the benefits it offers to investors. Investors can directly influence decisions regarding the future of their projects without a board of directors or similar administrative structure typical of traditional companies.
An investor’s number of initial tokens determines his or her voting rights in the DAO, but every member has the opportunity to voice their opinions on new ideas and proposals thanks to this decentralized governance mechanism.