Crypto series — WTF is DAO?

Apparently, we have been witnessing the process of digitalization of the whole world lately and we don’t know how long the process will be completed. It’s supposed to be a gradually progressive process and it might take a few decades. In the scope of Web 3.0, we have discussed some topics such as cryptocurrency, NFT and Metaverse. And today we are going to introduce a new way of how to organize people to achieve a shared goal. It is DAO.

What is DAO?

DAO stands for Decentralized Autonomous Organization. Sound like a liberal political term? Actually, it could be but it doesn’t derive from the political field. Let’s break it down for the word of DAO.

1. Decentralized: According to Wikipedia, decentralization is the process by which the activities of an organization (regarding planning and decision making) are distributed or delegated away from a central, authoritative location or group. In a nutshell, you make more people to involve in making decision in the organization.

2. Autonomous: Self-organized. It is straightforward. Just you make your people have the power to make their own decision.

3. Organization: It’s an entity — such as a company, an institution, or an association — comprising one or more people and having a particular purpose.

In brief, DAO is an organization that allow their members to make their own decision. The organization structure is not hierarchy but heterarchy. Everyone in the group share the power to decide their own future, but how the DAO unite people together and stabilize the group of people? Smart contract!

What is Smart Contract?

A smart contract basically is a line of codes saved in block chain which is intended to automatically execute, control or record legally relevant events or actions. The objective is to reduce the intermediaries, enforcement cost, fraud losses or any accidental exceptions. You can regard it as a virtual vending machine. Every rule is designed and regulated in advance, and any specific input trigger corresponding output. The most important of all, it’s totally transparent, traceable and irreversible.

With a smart contract, you don’t need to worry about unfair incident like someone gain the benefit sneakily because he or she know the important key person or your work performance are undervalued because of your race, region or gender. The rules are black and white saved and operated in block chain.

The Pros of DAO

We know there are some benefits of transforming an organization from traditional one to DAO including much fairer working environment, no discrimination against race, ethnicity, gender or religion and so on. And all of the advantages mentioned above exist is based on the transparent and clear incentive system that everyone can rely on without being worried about anyone to arbitrarily change it. Also, having the power to decide on the organization’s future collectively is also critical.

The Cons of DAO

There are some reasons why the concept of DAO has not been adopted widely. We can capsulate in the following items:

Decision-making Dilemma in DAO

As we know, one of the best parts of DAO is people share power to make organization decisions, but it also makes it hard to quickly respond to the issue they are trying to grapple. Making an agreement takes time and making people get involve in decision making process takes people’s energy. Especially in the early stage of creating organization, there are a lot to be decided and done. You need to propose a complete framework that the organization can operate automatically and majority of the member need to agree on the proposal. In this situation, centralized decision making process seems more efficient and time-saving speed.

Measurement of Performance

In the real working environment, it is really hard to measure the performance only by the quantitative data and it is difficult to define the job description and performance valuation black and white. Most labor still requires some centralized human judgement to effectively allocate resources.

Just imagine when you step in the office, there is no one bossing your around, you can decide what you need to do and completely take responsibility for yourself. Sounds like a perfect working environment, right? Yes, but it also requires high self-discipline and strong responsibility to deliver the result you proposed and planned in the beginning.

Reference:
The Slow Death of the Firm
The meaning of decentralization
What is DAO

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Jimmy Hsu

Marketer who likes to understand the world better by reading.