A Brief Introduction of DAOs and Their Importance
What Are DAOs?
DAOs are similar to traditional organizations — communities of people working together to achieve a common goal. The key difference is that DAOs allow us to create agreements (or frameworks for agreements) written in code rather than in words. By replacing paper/legal contracts with smart contracts verifiable by blockchain consensus, trust between participants no longer becomes a prerequisite for contracts to execute.
A DAO offers its members ownership of its internal capital (e.g. a treasury) through a token which often holds governance rights, allowing token holders to propose changes to the code of a project and vote on proposals. These include but are not limited to: smart contract upgrades, launching new products and treasury allocations.
Users and contributors are the investors and owners, prioritizing member ownership and maximizing stakeholder value.
Why Are DAOs Important?
My passion for start-ups and innovation has led me to leave Italy at a young age because the country is dominated by bureaucracy, a lack of meritocracy, and a legal system that makes it extremely hard to start a company — a huge barrier for local entrepreneurs.
DAOs do not only remove many of these frictions by lowering external transaction costs, they also open up endless possibilities in terms of the different forms an organization could take, from micro communities the size of a 3-person WhatsApp group, to mega organizations constituted by thousands, if not millions, of people.
This is exciting because we haven’t seen much innovation in the way corporations work since they first emerged. Cooperatives — the structures which most resemble DAOs — have existed for a long time but they have never been very popular due to their complicated and challenging structure. DAOs make it easier to bring people together across jurisdictions: the Internet provides almost instant communication and low barriers to entry on a global scale and public blockchains add a layer of trust, value and transparency.
Just like cooperatives are driven by values, not just profit, DAOs are driven by their communities and the beliefs propagated by their early members.
If you’re interested in learning more about DAO tools which have emerged to tackle different aspects of DAO management and ensure well-functioning communities, check out my post for Forefront:
Some useful resources: