DAO means Decentralized Autonomous Organization.
A DAO is a Smart Contract, or a set of Smart Contracts (computerized, autonomous, tamper-proof programmes) that evolve on a Blockchain.
To illustrate this simply, we need to look at how a so-called 'Stock' Company works which is centralized, because yes DAO are modeled on the same principle, but make some big changes which are much more interesting, including decentralization.
How does a 'Stock Company' work?
Let's take the case of any Enterprise, based on generic information.
In this kind of Company, everything is based on a Vertical Organization, which means :
- A CEO
- A Board of Directors
- Shareholders (who earn dividends based on the company's profits)
The Board of Directors is mainly composed of shareholders, who have a large amount of Shares, which is normal you will say. The more a person invests in a company, the more shares he or she owns, and it is therefore understandable that this person should have a say in the decisions to be taken.
So concretely :
- You need to own a relatively large number of shares to be able to give your opinion
- You also need a relatively large number of shares to submit an idea
- Therefore, only the Board of Directors can submit ideas, and vote on them.
Depending on the type of company, a small number of people, or even a single person, may demand changes, or submit a vote.
Once the vote is authorized, it is submitted to the shareholders (with sufficient voting rights), the result of which is recorded internally and must be processed manually.
Since it is centrally managed, it keeps the company's accounts and finances very secret, with only a few privileged people (board members) having access to this information. This can in rare cases lead to the manipulation of figures.
There is still far too much opacity about these kinds of companies.
How do DAO differ from these companies?
A 'Stock' Company is centralized. A DAO is by nature decentralized.
Firstly, it is a Horizontal Organization:
- No hierarchy, no CEO, no bosses ... (no one person or organization can control the entity).
- The DAO is based on a Distributed Governance system. The exercise of power within the Organization is collective.
- The DAO is not owned by one or a few people, but by all the people who have participated in its creation/funding.
- Because the DAO is decentralized, it can operate in a Supranational framework.
Secondly:
- Each person who has invested in the DAO holds a number of Tokens in proportion to his investment (which is normal, you might say). Tokens, just like Shares, allow to earn dividends according to the revenues of the DAO.
- Any Token holder has voting power, whether it is 1 Token or 1,000,000 Tokens, everyone has the right to vote.
- What is similar to a classic Enterprise is that the more Tokens a person has, the more weight their vote has (which is again normal).
Thirdly:
- The principles and rules of the DAO are written on the Blockchain, so that once they are online it is impossible to change them, just as it is impossible to stop it.
- The DAO works through Smart Contracts
- Once decisions are voted, they are automatically applied by a Smart Contract and are irreversible.
Fourth :
- Because the DAO is all its information is written on the Blockchain, and its operation is fully automated, all transactions are transparent and anyone can audit the organization and thus verify that everything is working well.
Fifth:
- Any Token holder can submit an idea or proposal to a Vote. Because of its decentralization, and the anonymity of the Token holders, once a vote is submitted to the community, no one can know if this request/proposal is issued by a single Token holder, or by the one who owns Millions. Thus the community studies this proposal from the point of view of its intrinsic value and independent of the status of the person who made it.
Conclusion
Could we say that DAO are the future of business? Or maybe DAO are even company 2.0? I don't know.
But what I do know is that DAO offer much more weight to the 'Shareholders' called 'Token Holders', by offering them a decision-making power (in proportion to the Tokens held)
DAO are decentralized, open to all and evolve in a Supranational framework, whereas so-called 'stock companies' are limited to a jurisdiction, restricted by legal constraints, and limit the power of investors, only the largest investors have power/voting rights.
A company is owned by an individual, a group of individuals or possibly a State, whereas a DAO is owned by all members who participate in its financing.
DAO democratizes decision-making power, whereas companies have a Board of Directors with a small number of members (the elected) deciding on the future and the projects/proposals to be adopted.
DAO, operating through Smart Contracts, can exist and evolve in a world of "Trustlessness", an environment where trust is no longer necessary, as created by the Blockchain. It is the same for Smart Contracts, they have been coded to define the rules of the organization and hold its treasury in such a way that it is impossible for anyone to touch that money without first submitting the proposal to a community vote.
And realistically, if we eliminate third party intervention, in the real world of centralisation
- we have to bring in experts,
- we have to manually request the release of funds,
- the time needed to draw up a report,
- and the delays/fees for the execution of the transfer orders by the bank
Decentralization makes all this automatic through Smart Contracts, transparent and auditable by everyone, thus saving a lot of money and time.
Image sources : Google
Christophe WILHELM