The concept of DAO encapsulates the Web3 ethos of ownership and participation of all stakeholders in a project.
The Web3 space is not only revolutionizing the economy but also making its mark in the governance of an organization.
Traditional Governance Structure
In the traditional organizational structure, every stakeholder follows a hierarchy of power. Those at the top wield a lot more power than the ones lying at the bottom.
This asymmetric power-sharing coupled with the possibility of corruption causes problems. Humans are corruptible and can misuse their power.
What is a DAO?
To solve the aforementioned problems, the concept of Decentralized Autonomous Organization (DAO) emerged.
Here every stakeholder whether a developer or user can own a stake in the whole project.
It makes sure that power does not concentrate in the hands of a few who can take arbitrary decisions.
DAOs are run through source code (smart contracts) and governance tokens. There are no formal heads other than the early developers of the project who may function like promoters. Smart contracts ensure that rules are followed without any human intervention. Hence, it is ‘autonomous’.
The code has rules which automatically run the DAO in a permissionless way.
DAOs perfectly encapsulate the Web3 ethos that users should own the product and hold the developers accountable for their actions and also participate in the decision-making process.
This is reminiscent of the old days of direct democracy in the Greek city-states.
DAOs have their native token called the governance token. These tokens can be used by the users in the decision-making process. So, whoever holds the governance token is a part-owner of a given project.
Governance token provides the holders voting power to vote on decisions.
This ensures the decentralization of power. Governance tokens are reminiscent of stocks, as they also allow part ownership. But stockholders cannot vote on every major decision of a company.
The concept of a decentralized organization is not new. In India, AMUL is a well-known brand that is not owned by a single owner. It is a cooperative organization of milk producers. DAOs are different from it in the sense that the developers and users both own the product. Further, the project is governed through smart contracts.
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