For the uninitiated, ConstitutionDAO could be considered the latest and the most egalitarian form of crowdfunding as it enabled crypto enthusiasts from around the world to pool their capital in a bid for a rare copy of the U.S. Constitution. Remarkably enough, the DAO was able to raise a staggering $47 million in Ether (ETH) hoping to secure the U.S. Constitution and give a fitting end to a story for the ages.
Unfortunately, however, ConstitutionDAO got outbid by an entity that could only be termed its only legit competition in terms of ethos and principles, a hedge fund. Specifically, the rare copy of the Constitution was scooped by the Chicago hedge fund billionaire Kenneth Griffin who made the winning bid of $43.2 million at a Sotheby’s auction. Griffin added that he plans to lend the rare copy to a free art museum in Arkansas.
You might wonder how come a bid of $47 million in ETH lost to a $43 million bid? The answer, at least officially, is that had the DAO won the bid, it would be left with very few funds to manage the upkeep of the DAO.
Although ConstitutionDAO could not win the rare copy of the historical artifact, it did, however, give us all a glimpse into the future of crowdsourcing and the potential that DAOs hold to level the playing field for all contributors regardless of where they come from or who they are.
In this article, we will delve into the world of DAOs and explore the various kind of opportunities that this new form of organizational structure could unlock in the future across industries. We will explore the benefits of DAOs and their future in the regulatory circles.
So, let us jump right into the fascinating world of DAOs.
What are DAOs and How do they Work?
A decentralized autonomous organization (DAO) is a new form of organization that was made possible due to blockchain technology and digital currencies that signify a certain degree of ownership of the said organization.
DAOs differ from the traditional hierarchy-based organizational models in that they do not have a presiding CEO or a Board of Directors to chart the future course of the organization. Rather, governance decisions are taken by DAO members who typically own the governing tokens of the DAO. The higher the number of tokens held by a member, the more power he or she possesses while voting on protocol proposals.
To no one’s surprise, DAOs are becoming an increasingly popular model of organizational structure as they do not suffer from the quintessential pain points facing the legacy organizations such as strict hierarchies, nepotism, favoritism, unclear communication channels, and others.
What are the Benefits of DAOs?
As you might have estimated by now, DAOs offer a wide array of benefits compared to legacy organizations. Let us quickly sift through some of the major benefits provided by DAOs over the currently prevailing organizational structure.
Better Transparency and Accountability
Unlike traditional organizations where key decisions are made behind closed doors with only a handful of people privy to the matter at hand, DAOs offer unparalleled transparency and accountability as all the proposals are discussed by all DAO members before they are passed. Such a decision-making mechanism gives ample opportunity to everyone associated with the DAO, irrespective of the number of tokens they hold, to voice their opinion on the proposal.
Further, all the governance decisions in a DAO are taken on-chain and can be verified later via the blockchain that is publicly accessible to everyone.
DAOs’ on-chain governance ensures that the community is at the center of all decision-making in the organization. Decisions about the expenditure of treasury funds, yield farming, airdrops, rebranding, partnership with other protocols, and others, are taken collectively by the community, indicating a holistic and inclusive attitude toward all the stakeholders of the DAO.
DAOs do away with the bureaucracy and red-tapism often found in traditional, centralized organizations that often lead to stifling their growth in the long term.
Greater Capital Efficiency
Last but not the least, DAOs enable greater capital efficiency in that they can tap the idle funds lying in the treasury to earn extra yields via DeFi platforms such as Aave, Yearn.Finance, Sushi, Uniswap, and others. However, the decision to deploy the idle capital into DeFi protocols lies with the DAOs community and would only materialize should the proposal for the same get passed by the DAO stakeholders.
What Does the Future of DAOs Look Like?
Although DAOs are still a relatively novel concept, if the recent regulatory and policy developments are anything to go by, the future looks promising for the community-based, on-chain governance model.
Earlier this year, the state of Wyoming in the US set a precedent for governments around the world when it approved a first-of-its-kind bill to grant legal company status to DAOs.
Similarly, in October a group of lawyers from Australia welcomed a new report shared by the Senate committee that recommends the government introduce new legislation to cement DAO as a company structure.
The aforementioned examples of governments and policymakers slowly warming up to DAOs due to their clear benefits over the existing organizational systems hint that a DAO-dominated world might not be a distant dream for long.