DAOs are the defining structure of everything that makes up the new decentralized internet or Web3 and the emerging cryptoeconomic system.
Decentralized Autonomous Organization (DAO) started out as a simple concept, envisioned as organizations created by an idea and driven by developers, that automate business functions and processes by leveraging smart contracts and all the fundamental principles of blockchain. The core idea is to flatten the complex business processes that various organizations are mired in and facilitate the transfer of assets into a very future-oriented digital interaction that does not require intermediaries – promising faster, cheaper and more transparent transaction processing.
By replacing many intermediaries, DAOs themselves act as digital intermediaries that provide transparency and scale, giving them the status of organizations without the traditional organizational structures of entities, groups, management, charters, and other forms of collective action. While traditional centralized organizational structures are being challenged, the key organizational elements that remain are driving a new economic revolution that is giving rise to a new creator economy and bringing together artists, lawyers, developers, and creators from around the world to create ideas and monetize them globally in a permissionless cryptoeconomic system based on blockchain and Web3 technologies - and fundamentally defining the future of work.
Reduced reliance on trusted parties, asset tokenization, and new stores of value enabled by blockchain technology can themselves enable new organizational structures and reduce the power of intermediaries. Ronald Coase’s famous essay on the raison d’être of the firm, “The Nature of the Firm,” explores why a firm exists and what makes it what it is.
From a transaction cost perspective, companies create an economic structure that reduces transaction costs within their borders through better control of standardized contracts with employees and resource ownership. As the cost of internalizing resources increases, contractual arrangements with other companies in specialized areas arise. Through decentralized verification and smart contracts supported by blockchain, the transaction costs associated with contracts can be greatly reduced.
While this was the original argument behind DAOs, with speed, efficiency, and cost being the primary goals, DAOs now represent a significant mindshare management and primary driver for extracting value from base layer or layer 1 blockchain platforms. These layer 1 blockchain platforms represent emerging Web3 technologies that seek to provide greater control to participants by fundamentally decentralizing computation, storage, and interconnectivity. Many DAOs will emerge, representing the ingenuity of a global talent pool, the collaboration of digital natives, and communities with a shared belief system — and bringing the word “organization” to life.
DAOs: The backbone of the creator economy
The broad definition of a DAO is an organization that records its members, rules, and responsibilities on an immutable ledger powered by blockchain technology. Its charter and evolution are public and cannot be altered. Generally speaking, joining requires resources and various community memberships in the form of tokens to participate or vote as a participant. Tokens are denominated in monetary assets (fungible or non-fungible tokens), whether cryptocurrencies or fiat currencies. In most cases, acquiring tokens requires time and talent to participate, or to buy them in with fiat or cryptocurrencies.
DAOs provide a unique structure that naturally supports a creator economy, where the economic model supports a structure through which you can rent your talents and time, gain flexibility and income, and use it to facilitate fractional ownership of systems that are supported and governed by the community. Blockchains and DAOs embody the natural governance structure for digital natives to collaborate online without boundaries on crypto native projects, which, by the way, can be leveraged by traditional organizations that embrace these principles, similar to how brick-and-mortar businesses found a digital equivalent entering the Web 2.0 era.
While questions remain around regulatory clarity and investor protection frameworks, these digital entities embody the digital reality of a nation — one that seeks to attract talent, capital, and innovation. While governance and participation rules may not be perfect, they are an ongoing experiment in innovation that seeks to change the way we live and empower every community willing to participate. While arguments for autonomy and collectivization are used to defend the lack of regulation, the ability to purchase voting rights and lack of protection provide a powerful rebuttal to this argument. If DAOs become digital analogs for existing corporate and organizational structures, will they continue to serve as pathways or facilitators for the Creator Economy and support Web3 principles?
The future of work
Web3 as a technology paradigm aims to provide rails for the creation, tokenization, and movement of value and assets. Web3 aims to solve the problem of content ownership and provide portability through tokenized digital assets, which paves the way for this tokenized value to be traded with other fungible tokenized assets, allowing creators to monetize the fruits of their work. This work may include (but is not limited to) mining and creating content such as art, music, and other forms of non-fungible tokens that represent shares in the ecosystem, just like game tokens.
In a future where dynamic, non-hierarchical, borderless organizations can undertake the majority of value creation, it is easier to imagine the provision of services through interconnected value networks, exchanges, and bridges that provide connectivity between these ecosystems. These decentralized exchanges or asset bridges not only provide a way to exchange various asset classes, but also facilitate the global flow of assets, thereby creating a truly global economy that attracts digital natives and talent pools.
Innovation driven by decentralized and transparent token economic models aims to provide excellent end-user and employee experiences while ensuring that organizations gain cost savings and competitive advantages from superior participant experiences. DAOs involving DeFi, NFTs, and various other Metaverse projects provide exactly this, with a small number of developers or founders conceiving initiatives through platform projects or crowdsourcing development and decentralized development through token incentives, where participants are not only consumers but also profit from their meaningful participation.
DAOs represent an emerging trend that is driving deep, lasting change in the workplace that combines cultural, digital, and philosophical belief systems. This is attracting investment from other token projects and talent from digital natives around the world to create an experience for all participants that results in a more resilient and capable workforce and greater community engagement.