Civilization has pushed humanity to evolve through innovation and technology such as DAO. The way we work and collaborate is constantly evolving and strongly linked with technological advances. Also, innovations like the internet has created unlimited possibilities in communication. It has also transformed completely how we treat information. Every aspect of technological advances resulted to a significantly higher level of individual prosperity and well-being. Popular instances of such developments were witnessed during the first and second industrial revolutions.
However, the industrial revolutions were not all about raising the living standard, they also brought about other remarkable stuffs. The revolutions also resulted in noticeable paradigm shifts in organizational structures and corporate governance. It is believed that early adopters of new technologies usually benefit strongly in the long-run. They benefit either by using the innovation as part of the business model or within the organization. Therefore, it is important for today’s leaders to anticipate the required corporate governance of the future. This would allow them to drive their organizations in the right direction. Also, corporate leaders need to be aware of technologies that can cause significant paradigm shifts in governance in the near future.
Recently, Distributed Ledger Technologies (DLTs) such as the Bitcoin blockchain have earned an enormous amount of interest. One specific application of DLTs is what is called ‘’Decentralized Autonomous Organization’’ (DAO). Some researchers argued that DAO has a huge potential to disrupt corporate governance. In a simple term, DAO is just like an organization that governs itself through automated code and distributed consensus mechanisms. In theory, the technology shifts governance from human responsibility to software code. And this would therefore empower you to build more efficient organizations.
Blockchain technology is a new technology that’s still undergoing development. The period that we found ourselves right now could be described as a ‘’fourth industrial revolution’’. This current period comes with increasing automation of complex tasks, internet-of-things (IoT) technologies, and artificial intelligence (AI). This raises concerns about the influence of current technological developments on corporate governance. Maybe DAOs are the next governance technologies for the future.
DAOs are quite different when compared with the conventional organizations. DAO is owned by token holders and allows anyone to participate. It is governed through distributed decision-making, leveraging collective intelligence. It’s fully transparent and therefore required no information asymmetries. DAO is a ‘’trust-less’’ system and distributed consensus algorithms with no hierarchy and no politics. It helps eliminate agency cost and the governance rules are being set through immutable code which are self-executing. To make DAOs work towards a common goal, having an incentive system that aligns its actor’s interest becomes a necessity.
Blockchain technology is considered as the enabler of great things to come. Found at the center stage of the blockchain technology are ‘’smart contracts.’’ Smart contracts are like pre-programmed rules that govern the activities of a system towards achieving a common goal. They consist of code that’s transparent, immutable and self-executing. Smart contracts make it possible to run a system on its own more effectively and efficiently.
Smart contracts also help power the Distributed Applications (DApps) and DAOs that run on top of blockchains, formalizing their governance. This is particular useful when there’s a conventional contracts document agreement between two or more parties. Thus, if one party failed to fulfil its part of the contract, the other parties could take legal action against such party. This could be to enforce the agreements or to get some kind of compensation from the defaulting party. But, smart contracts are limited to agreements that can be executed by software code. A prominent example of smart contracts are initial coin offerings (ICOs) based on Ethereum.
The following are few ways that the DAO is enabling us to improve on the governance of today’s organizations:
Tokenization and Eliminating Managerial Waste
In many organizations, managers are encouraged to not innovate. Their main focus is placed on hitting numbers and performance goals only. This has become the biggest problem faced by many organizations operating today. Efforts toward innovation are constantly taking away focus from selling current products. Work and success are now measures of short-term performance. Therefore, tokenization is viewed as a mechanism for aligning incentives for work and the future success of the organization.
Also, DAOs could exist within and across DAOs. This means that each department in your organization may have its own way of leveraging collective intelligence across a distributed network of contributors. The DAOs functionality within and across large-scale organizations aligns with the future of leadership that incentivize employees to innovate. Via various DAOs, organization could easily be optimized for short-term needs and moonshot innovation and special projects.
A Robust New Decentralized World
There are various ways for organizations to customize how DAOs might be implemented. These entail every aspect of the organization’s plan, including making the employees’ payment and budgeting more transparent. They also cover managing R&D budgets for moonshot innovation and special projects and government encouraging direct participation in democratic decision-making. All these would ensure that the society functions in ways that’s in line with a consensus of the greater good.
DAOs and blockchain technology are gaining more traction and use cases within larger organization. Today, many organizations rely hugely on them to solving more complicated problems. DAOs have opened up an opportunity for organizations to harness unprecedented levels of creativity, innovation, and collective intelligence to solve some of the world’s biggest problems.
Maximum Security Assurance
Parties that interact on a blockchain don’t need to worry about security concerns. They don’t even have to trust each other. That’s because of the technology ‘’trust-less’’ networks and distributed consensus algorithms. Thus, data integrity is secured by the network and its distributed consensus algorithms at all time. This makes it very difficult or nearly impossible for bad actors to forge balances or manipulate transactions. This will therefore eliminate the need for a trusted third party. Different consensus algorithms exist, including Proof-of-Work (PoW), Proof-of-Stake (PoS), and Delegated-Proof-of-Stake (DPos). They all form the basis of governance in their respective blockchain.
Historically, humans have depended on systems of pyramidal hierarchy to coordinate large groups of people. They also relied on this systems to point people toward collective action. However these top-down hierarchies contain concentrated points of failure such as centralized power, bad influence, bad acting, and bad judgment, among others.
As a result of this failure, an exciting alternative has emerged in the form of a movement toward decentralization. One such type of organization is commonly known today as a DAO. By automating governance, DAOs could be the next logical step in the evolution of corporate governance. Also, DAO could be the ‘’invisible hand’’ of the 21st century, making centralized management defunct.