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Decentralized organizations: what is a DAO and what is its role within web3?



Decentralized organizations: what is a DAO and what is its role within web3?


A concept that the arrival of web3 has put on the table is the DAO (Decentralized Autonomous Organization), which means Decentralized Autonomous Organization. These emerged in 2016, but have not had a real boom until today. Something that is not surprising, since other digital phenomena have needed to reinvent themselves to, over the years, come back stronger. Something similar happened with the dotcom bubble in the early 2000s.

A DAO is an organization that is governed through computational algorithms, which are executed through the blockchain. These algorithms are known as smart contracts intelligent contracts , and are responsible, among other things, for regulate how the parties involved should cooperate in the DAO. Why? Because unlike traditional companies, the members involved do not have to know each other. Besides there is no hierarchy between them.

Owners of a DAO will have tokens associated with the same organization that will allow them to vote on decisions, receive rewards or access exclusive rights. In short: since there is no centralized authority, as in traditional companies, governance is carried out through a voting process of all members of the DAO. Bearing in mind that no one will be able to modify the smart contract, since everything is done transparently by being publicly registered in the blockchain.

What is a governance token?

To be able to talk about DAOs, we also have to talk about the process of tokenizing organizations that, «is he feature that makes possible a decentralized governance of a community between members who do not have to know each other or have another formal link«, explains David Martín, Product Manager in the Connectivity Innovation area, to Think Big.

It is in this context that the governance token emerges. These tokens are used to regulate voting, through rules programmed in a smart contract in the block chain. The voting strategies used can implement mechanisms to control centralization that can be carried out by a member who owns many tokens. Furthermore, it is common that these organizations may have different tokens to separate the governance plane from other utilities within the community.

Web3, the perfect ecosystem for a DAO

Along these lines, it is clear that DAOs are native web3 organizations that do not need a physical site to be bornjust for a common purpose. For example, a Twitter conversation between several people can be the beginning of a decentralized organization. In fact, as David explains, with the spread of remote work in the labor market, “there are many offers to work with decentralized teams around the world, but there is also a lack of global technical talent.”

DAOs offer an attractive model for freelancers with the promise of more control over their work and exposure to the projects they work on. All this creates the perfect breeding ground to create a decentralized work model. David confesses that web3 is going to accumulate quite a lot of technical talent in the coming yearswhile the DAOs will be incorporated as mechanisms to bring together that talent.

The applications of DAOs are almost infinite and they are becoming a social phenomenon. For example, one of the most notorious cases is that of ConstitutionDAO. This initiative was conceived to obtain the purchase of the last original copy of the Constitution of the United States in private hands. This movement managed to sneak into word of mouth and become a trending topic, managing to raise more than 48 million dollars in just a couple of days, coming from thousands of people, to participate in the auction of the aforementioned document. Although they ultimately failed to acquire the Constitution, it put on the table the power of these decentralized cooperatives to attract capital and attention.

But what would happen if we extrapolated this model to a traditional company? It simply would not be possible and the reason is very simple: “Today, a DAO cannot carry out basic operations, such as paying taxes or issuing invoices. The regulatory framework and the DAOs must evolve for these decentralized organizations to be viable”, says David.

In fact, there are already countries that are taking steps towards this model. The National Assembly of Panama approved, at the end of April, a law to regulate cryptocurrencies and DAOs in its territory. The same has happened in the United States, in the State of Wyoming.

Characteristics that define a DAO

Decentralized organizations have been going strong. Not only because of the reduction of long bureaucratic systems, if we compare them with a traditional company, but because of more features. David mentions that among the main advantages of DAOs we can find the following:

However, as with any new or developing process, there are some aspects to improve. Like the following:

These ideas make it clear that DAOs are in their early life stage and we still have a lot to see. At the moment, decentralized organizations do not seem to be a threat to current companies. However, already «there are niches where its value is being demonstrated, such as Uniswap or PleasrDAO. In the coming months and years we will discover more, “says David.

Braintrust: a success story of a decentralized organization

One decentralized organization that has proven successful is Braintrust. A DAO that brings users closer to the best freelance jobs of the world. This decentralized organization is carving out a significant niche for itself in this ecosystem, thanks to its value proposition, both for job seekers and for the companies themselves. Positioning yourself as a competitor for the Fiverr company. As David tells it, Braintrust, as a platform that connects talent and companies, charges only 10% of the fees paid by the client. A very low amount if we compare it with 30% and 60% of other platforms of freelancers.

This DAO offers advantages to both stakeholders:

Braintrust is a success story that has managed to attract and retain talent from the web3 ecosystem on its platform. «This is a good niche in which to climb, because they are highly demanded profiles today. The question is whether it will be able to scale beyond these types of profilesDavid concludes. Along with it, there are other different success stories, not only ConstitutionDAO, despite the controversy in which it was involved for the return of money to investors. If not, also PleasrDAO, a group of artists, entrepreneurs and investors from the world of cryptocurrency who come together to participate in auctions of works by recognized digital artists.

To summarize what we have seen throughout the article: the future of DAOs remains to be seen. In these months we have witnessed the success in the strategy of some decentralized organizations, but it is still a model that is in its infancy. Which means that we will have to wait a while to see how this social phenomenon progresses and see their evolution to see how they fit in with the regulation and more traditional organizations.

The mechanisms introduced by the DAOs are situated as a progress at the level of strategy and disruption in the hierarchy of organizations. For now, we can only wait to see how web3 evolves and, with it, decentralized organizations.