Gone are the days of a conventional business structure with a CEO and a board at the top. The hype surrounding Decentralised Autonomous Organisations (DAOs) has been overwhelming. But are they seriously going to conquer the business world, or will they truly remain a side experiment for those interested in crypto? Let’s cut through the noise and assess it’s potential in real-world terms.
Firstly, what is a DAO?
Forget the jargon; a DAO is really a community sticking together with a common treasury. Its members propose and vote on decisions using tokens. Votes can trigger automated actions via smart contracts on a blockchain, although that is not always representative of reality, where human intervention more often than not takes place.
The limited allure of decentralisation (so far)
The theoretical benefits are appealing: transparency, democracy, and efficiency. Conversely, the reality remains dimmer. A 2022 report by Chainalysis stated that DAOs are very centralised in practice, with the majority voting power being concentrated in the hands of a few token holders (Chainalysis, 2022). This weakens and undermines the very essence and objective of decentralisation.
DAOs: What’s the prediction?
It is more reasonable to expect DAOs to create niches for themselves in focused sectors, than to replace traditional organisational structures. They could become more relevant where community governance and transparency are regarded very highly.
Think:
- Decentralised Finance (DeFi): DAOs will likely remain key to governing DeFi protocols but will face increasing regulatory scrutiny.
- Creator Economy: DAOs might become more prevalent in managing fan communities and funding independent projects.
- Specific Niche Areas: Expect to see experimentation in areas like open-source software development and decentralised research.
The lingering challenges: what still needs to be solved?
Many of the problems DAOs are facing today will probably still hold:
- Legal Uncertainty: In many jurisdictions, we will likely still see murkiness in terms of status relative to the law, and this will impact the legal ability of DAOs to conduct activities traditionally associated with the world of business.
- Security Risks: Gaps in smart contract security will remain areas of concern, together with the need for proper security audits and bug bounty programs.
- Governance Issues: Voter apathy, whale dominance, and reaching consensus from a large number of people will remain a problem. As Primavera De Filippi (2018) wrote in Blockchain and the Law, governance is still one major hurdle for decentralised systems.
- Accountability & Responsibility: Without clear legal frameworks, holding individuals accountable for DAO decisions will remain a significant issue.
Will DAOs ever truly scale?
The replacement of big corporates by DAOs is not likely to take place anytime soon. The overheads in decentralised decision making and undefined legal structures, plus the coordination of very large crowds, make them ill-suited for all the complexities of a hierarchical organisation. As Linda Xie (2021), co-founder of Scalar Capital, succinctly puts it, “DAOs are great for certain things, but not everything. They’re not a one-size-fits-all solution.”
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The Verdict: useful tool, not a revolution
DAOs will continue to evolve and find their niche, but they are not going to take over the business world (just yet). They will still be a useful tool for certain purposes, particularly where transparency and community governance are important.
