As a new way of social division of labor and cooperation, DAO has been incorporated into many project management. Although there are still many defects and incomplete rules, the huge tension it brings makes people see the future potential of this emerging governance method. Below we will introduce what DAO is? And why it can become the next generation of organizational form.
What is DAO?
The company system is a form of legal operation and income generation for modern corporate teams. The laws of various countries stipulate the relevant rights and obligations of enterprises or entities. However, there are two problems in the implementation of the rules: the first is that the parties do not always abide by the rules, and the second is that they do not always agree with each other before enforcing the regulations. So who is most affected? Stakeholders who have little power to participate in governance decisions, or stakeholders who do not have the power to discover problems, are prone to financial mismanagement and capital loss.
Is there a solution to this problem? Of course there is. With the innovation of blockchain technology, a new governance model has begun to emerge, namely the decentralized autonomous organization (DAO).
One of the advantages of DAO is transparency, which is a way to solve the principal-agent problem (more on this later). But what is DAO? Distributed ledger technology known as blockchain and smart contracts are at the heart of the DAO ecosystem, where governance rules are written, automated, and enforced through software, and participants oversee the contributed funds, eliminating the need for third-party involvement.
Users must first join a DAO by purchasing its native cryptocurrency to become a member. However, the virtual e-commerce network BitShares was the first successful DAO. Bitshares is known as a decentralized autonomous company, a term coined by Dan Larimer (founder of the company).
How do DAOs work?
Smart contracts are used to build the rules of a DAO, which are set by a core team of community members. These smart contracts are visible, verifiable, and publicly auditable, laying the foundation for the operation of a DAO. They enable any potential member to fully understand how the protocol works at any time.
Next, a DAO will look at how to obtain financing and how to govern once these rules are formally written on the blockchain. This is usually achieved using a token issuance method, where the protocol sells tokens to raise funds and replenish the DAO’s funds. Token holders exchange their money for voting rights, which are usually proportional to the tokens they hold.
Once the funds are in place, the DAO can be deployed. Once the code is deployed to production, it can no longer be modified without consensus from a vote of the members; that is, no specific body has the power to change the rules of the DAO. This is entirely determined by the token holders of the DAO.
What preparations are needed to launch a DAO?
Build a solid foundation
The first step is to discuss with peers to determine why a DAO is needed, what role it will play, and how it will operate. To develop a DAO, human decision-making is required to identify opportunities, perhaps recruit collaborators, verify requirements, and outline processes that can be automated and incorporated into smart contracts.
It is crucial to clarify goals with other DAO enthusiasts to avoid any disagreements on the DAO governance structure. In addition, you need to have a crypto wallet for transactions and storage. Before investing in any business, the first question that investors or funders consider is the source of income. So, how does a DAO make money? Dividends are the main source of income for DAOs. DAOs make investments, which in turn earn dividends. DAO creators can also make money by convincing their peers to invest in the DAO based on their business ideas.
Determine ownership
There are many ways in which a DAO can transfer ownership to its members, as ownership is often tokenized. Two standard methods used by DAOs are “airdrops” and “bounties.” With airdrops, tokens will be distributed to members based on their contributions and community behavior. Bounties are bonuses paid to members who complete tasks and goals. Members gain ownership by receiving rewards based on native tokens.
Establishing a governance structure
At this stage, it is decided how decisions will be made after the DAO is established. “Token-weighted voting” is the most common method for establishing decision-making rules. Voters are token holders, and each token represents one vote. Members submit ideas using tools such as Snapshot, and then vote based on the preferences of other members, and the results are automatically executed through smart contracts.
Setting rewards and incentives
Setting rewards and incentives as various benefits provided to DAO members and contributors can build trust. Native governance tokens will be distributed to members and contributors who have ever used the DeFi protocol under consideration. These tokens represent ownership, but they do not have any market value.
Why do companies need governance?
The principal-agent dilemma occurs when a person or central entity (the agent) makes choices and executes plans on behalf of another person or entity (the principal), just like in traditional organizations. Moral hazard issues arise when agents seek to maximize their own interests in ways that may conflict with their own principles.
The recent widespread buybacks of stock by public companies that disproportionately enrich agents through incentives at the expense of the long-term health of the company is an example of this behavior. DAOs must therefore be organized so that management can properly incentivize themselves to operate in the long-term interests of the DAO and all of its stakeholders. Otherwise, they risk supporting the principal-agent problem that has become endemic in many businesses.
The Future of DAOs
In the future, it is unlikely that ordinary people will work for companies anymore. Instead, people will earn money in unconventional ways, such as learning new skills, creating art, playing video games, or collating information.
The networks that have grown around cryptographic protocols are emerging as new ways to coordinate, quantify, implement, and reward contributions, and are enabling this novel future of work.
DAOs are becoming increasingly common, and it is an exciting time for industry and organizational experts to address this new phenomenon with new theories and empirical research. In addition, brands must keep up with current developments that may affect how they interact with their customers and vice versa. While DAOs have yet to become widespread, they appear to be attracting many optimistic creators.
About Starcoin
Starcoin provides the utmost security from the origin via its enhanced PoW consensus and Secure smart contract, using the language of Move. Through layered and flexible interoperability, it optimizes the building of ecosystems such as DeFi, NFTs, Gaming, etc., with higher efficiency and convenience. This process redefines value by empowering every participant in the ecosystem to enjoy the multiplication of values.
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