Recently, we have rapidly started to work in a more decentralized way. No longer constantly at work, but much more or even completely at the home workplace. Major technology companies such as Facebook and Twitter have already indicated that they are fully committed to a ‘decentralized workforce’. The Dutch government has also started to regulate various activities in an increasingly decentralized manner. Decentralized autonomous organizations (DAOs) go much further. But what exactly are those? In this article all information about this new phenomenon.
As humans, we have been organizing ourselves in ever-changing, newer forms ever since we walked the Earth. In recent years, the accelerated digital transition has pushed more and more organizations into the cloud. Research shows that more than three quarters of internet users are now in an online community, and another survey shows that almost 80% of respondents indicate that the main community they are a member of operates online. We are even seeing all kinds of new organizational forms emerging, such as the sharing economy and content networks, that reward people for their contribution to a network.
The current dilemma: differences in wealth and profit maximization
Thus, over the past hundreds of years, corporations have played an important role in building our human civilization, which has never been so rich. But at the same time, they are now creating major problems that have a strong negative impact on our society. Such as large differences in wealth and the very negative social consequences that result from profit maximization.
The new organizational forms are also still centrally coordinated. This makes the differences between the participants within such an organization even greater. We see the large differences in pay between employees and drivers of Uber, but also, for example, that the top 1.4% of musicians on Spotify collect 90% of the royalties.
Where in the beginning companies provided structure in our society, this now seems to cause a divisiveness in various areas. This, combined with the rapidly increasing loneliness and ‘the great resignation’, has ensured that DAOs have become popular at a rapid pace. DAOs address many shortcomings of current companies, such as the maximum focus on profit, the barriers to entry and the large difference in remuneration between shareholders, management and employees.
What are decentralized autonomous organizations (DAOs)?
DAOs are basically programmed organizations on the blockchain. The rules are laid down in so-called ‘smart contracts’. Where Bitcoin makes (financial) intermediaries superfluous when sending and receiving money, DAO’s management makes it superfluous. Everything is done transparently and automatically, by the users themselves, together. There is therefore no hierarchy, but also no bureaucracy.
Often DAOs are set up by a worldwide community around a certain mission, who are jointly responsible for the programmed objectives. As a result, the whole works in a completely decentralized and democratic way. It provides an innovative, new way of organizing organizations on the web.
“Corporations organized the Industrial age, DAO’s will organize the Internet Age” — Aaron Wright
This way of working creates a solution for the ‘principal-agent theory’, where friction can arise between the principal (read: management) and the agent (read: employee), because the agent has no interest in performing the task as the principal intended him. Consider, for example, a commercial hospital, where management prefers to see as many treatments as possible, but doctors prefer to take the time to properly help a patient.
How do you encourage organizational members to manage and maintain the DAO?
DAOs often use their own digital token (or coin). This token gives the holders voting rights, and can also be obtained as a reward for working for the DAO. The smart contracts can make many of these payments happen automatically.
Suppose we turn Frankwatching into a DAO, and create the FrankCoin. We lay down the rules of participation and the reward system in advance in a ‘smart contract’. As a writer, for example, I can be automatically rewarded with FrankCoins for my blogs, based on the number of readers (I’m in favour!). But we can also reward other aspects, such as writing newsletters and maintaining the site. In addition, we as a community can vote on topics that we would like to see on the site and which we would not.
DAOs started in 2014 with an idea from Vitalik Buterin, who already gave the possibility to build smart contracts and decentralized applications (DApps) with his Ethereum blockchain. Today, there are 190 DAOs worldwide, with a total of more than 1.5 million members and worth billions of dollars. They build nicely on the ideology of Ricardo Semler, who wrote a book about this and about whom VPRO made a good documentary, and Nobel Prize winner Elinor Ostrom, who after decades of research and work experience came up with 8 powerful design principles for how common resources are sustainable and just. can be controlled in a group.
How will DAOs be deployed in 2022?
DAOs can be used for all types of organizations, from charities and freelancers working together to a political party. We now see them mainly arising around investments, fundraising, but also, for example, buying NFTs. For example, the JennyDao, which regulates fractional ownership of NFTs, bought an original track from DJ Steve Aoki. Elon Musk’s brother started the Big Green DAO, a charity focused on food justice, and there are also DAOs that support public services, for example.
Play to Earn (P2E)
The first Dutch DAOs are now also a fact, including IgniteDAO, which builds applications on the Zilliqa blockchain, and The Merit Circle, which responds to the ‘play-to-earn’ economy (P2E), which is rapidly growing. is. Where with traditional games you mainly see the value going to the maker of a game, P2E games reward the players for playing the game and their performance in it. This works like an economy.
In exchange for the time and energy they put into it, sometimes also accompanied by capital (such as an NFT), the DAO rewards them with the token of the game played. The most famous P2E game is now played daily by almost 2 million players. More than half of these players are from the Philippines. According to research, they thus earn more than a nominal salary.
Learn to Earn (L2E)
But don’t just play to earn, learn-to-earn (L2E) is also starting to emerge. In this new educational model, the DAO rewards an individual when they can demonstrate that they have learned something. This, of course, if he can demonstrate that it adds value to the DAO and the members of the DAO also see the value of this. A good example of this is RabbitHole, which provides gamification within a DAO. Users learn a new skill and get tokens for it, and crypto companies get trained users as a result.
But we’re not there yet
It’s really cool to see the rapid developments unfold within the DAO landscape. We’re really moving from the community-led organizations, like Etsy and Github, to community-owned organizations. Starting a DAO yourself is nowadays very easy via a platform such as Aragon or Colony.
But with the speed at which everything happens, several things also go wrong. One of the first DAOs, “TheDao,” which raised $150 million in investments, was hacked due to a code flaw. As a result, $70 million was stolen. Also, $130 million was recently stolen in the BadgerDAO hack. We are working hard on solutions to prevent hacks and to minimize the damage of a possible hack, but there is no watertight solution yet.
Also in the field of regulations, I can hear The Hague sighing again. Thirteen years after its inception, next year there will finally be legislation and regulations (MiCA) surrounding cryptocurrencies such as Bitcoin. But we have already seen so many new developments within blockchain technology, such as DeFi, NFTs, and now DAOs. It’s great that anyone worldwide can participate in a DAO, but what about contractually and fiscally, for example? What if things go wrong, like a hack? Is the system liable or a natural person?
They are big challenges.
Through damage and shame, more and more DAOs are becoming wise, also, for example, in the area of joint decisions. That can take a while if you have a few hundred thousand members. The first major steps have been taken, the first successful DAOs are a fact. Now that it is becoming easier and safer to set up a DAO, I am very curious about the developments in this area in the coming year.
Jan Scheele is active in the web3 (blockchain, crypto, NFTs, DeFi) industry since 2013. Besides (former) CEO of a web3 scaleup and founder of an advisory boutique (working for governments, family offices and several multinationals), he is Digital Leader at the World Economic Forum and Board Member at the Blockchain Netherlands Foundation (BCNL). He is writing, consulting, speaking and training regularly about everything web3, all over the world. Furthermore, he is currently finalizing his book about the rise and global impact of blockchain technology.
