A major part of Web3 that will increasingly become more popular and prevalent for entrepreneurs and like-minded communities are Decentralised Autonomous Organisations (DAOs). As the name suggests, DAOs are decentralised business entities where its management, decision making and ownership is spread between the members / owners of a DAO rather than centralised to a small group of decision makers.
They have built-in treasuries that no one has the authority to access without the approval of the group. Decisions are governed by proposals and voting to ensure everyone in the organisation has a voice. Make no mistake, DAOs are here to stay and will change the way that businesses are structured and then governed in the future.
Decentralised Autonomous Organisations (DAOs)
A major part of Web3 that will increasingly become more popular and prevalent for entrepreneurs and like-minded communities are Decentralised Autonomous Organisations (DAOs). As the name suggests, DAOs are decentralised business entities where its management, decision making and ownership is spread between the members / owners of a DAO rather than centralised to a small group of decision makers. They have built-in treasuries that no one has the authority to access without the approval of the group. Decisions are governed by proposals and voting to ensure everyone in the organisation has a voice.
The decentralised aspect of DAOs mean that there is no CEO of a DAO nor a CFO that can potentially manipulate financial records. With DAOs, there is total transparency and the rules around spending are coded directly into the DAO22.
DAOs fundamentally shift how businesses are structured and governed compared to how most businesses operate today. Smart contracts are the backbone of a DAO and the rules of engagement are defined within this. Importantly, smart contracts can
be verified easily and cannot be manipulated. This provides a level of trust and transparency in a DAO allowing like-minded or interested parties to easily invest in an entity and have a say in all decisions related to it.
The table below compares how DAOs differ from traditional companies:
A Traditional Organisation
A flat and unstructured organisational structure
Typically hierarchical structure
Voting is required for members to make changes to the entity or to make spending decisions
Changes can be made by a sole party or smaller vote based on controlling interests
All votes are tallied with the outcomes automatically implemented with the need for a third-party
Votes counted manually and are open to manipulation from third-parties
All activity and transactions is transparent and fully available to the public
Transactions and activity is typically private and not available publicly
Depending on the structure of the DAO, membership can remain fairly liquid and tradeable in public Web3 markets
Often difficult to exit private entities.
How can DAOs be used?
DAOs can replicate many of the types of traditional organisations that exist today:
- Charities / Causes: A DAO can be created to help raise funds for a single or group of charities with spending decisions voted upon by DAO members.
- Networks: Groups of people can join forces, raising capital for investment in specific activities. For example, a group of freelancers can come together and use their collective buying power (held in the DAO) to vote on aspects such as office space, software tools and get-togethers.
- Private Ventures: DAOs have been formed to create purpose-specific ventures. For example, PleasrDAO was created by a group of like-minded NFT collectors who raised funds to make collective investment decisions relating to NFTs and other assets. Another example, is LinksDAO that was created by a community of golf enthusiasts with the purpose of building a new golf course and modernising the golf club membership experience.
There are two main types of DAO membership in use today:
- Token-based Membership
Members can participate in a DAO by trading tokens on a decentralised exchange. An example of this could be through the trading of NFTs where owners would gain access to the DAO through ownership. Token-based membership is permissionless with any NFT owner having equal rights to other NFT owners.
- Share-based Membership
More permission-based than token-based membership, those wanting to become a DAO member through a share-based membership would typically need to submit a proposal offering work-based services or contributions or tokens.
If you're interested in creating a DAO or have a fractional-ownership concept that you believe will work in the Web 3.0 world, please reach out to our team by completing the form on this page.
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