How DAOs Are Shaking the Foundations of the Corporation

This article was inspired by the foreword I wrote to the new book, "How to DAO: Mastering the Future of Internet Coordination" (Owocki & Puncar, 2025).

For generations, the corporation has been the bedrock of production, the engine of wealth creation, and the foundation of prosperity. But now, blockchains, digital assets, and what we call Web3 are starting to change the deep structures of the firm, and how economies and people innovate and produce goods and services—for the better. A new model—the Decentralized Autonomous Organization (DAO)—is emerging, and I believe it will shake the windows and rattle the walls of every industry and every economy.

In my 1994 book, The Digital Economy: Promise and Peril in the Age of Networked Intelligence, I tried to make sense of how the then-nascent Internet and World Wide Web would transform business. Now it's time to revisit that question.

Howard Anderson, the 1970 founder of The Yankee Group, put it best when he told me, "If I know one thing, it’s that people learn through stories. When it comes to the digital age, there are so many stories to be told". And the story of the DAO is one that needs to be told and understood.

To understand the magnitude of the shift that DAOs represent, we need to go back to first principles, to a deceptively simple question posed by the Nobel Prize-winning economist Ronald Coase. In his 1937 paper, “The Nature of the Firm,” Coase asked: "Why do corporations exist?" After all, the marketplace was theoretically the best mechanism for equalizing supply and demand, establishing prices, and extracting maximum utility from finite resources. So why weren’t all individuals acting as individual buyers and sellers, rather than gathering in companies with tens of thousands of other co-workers and effectively suffocating competition within the corporate boundaries?

His answer? Transaction costs. Coase argued that the cost of transacting in an open market was more expensive than doing things inside the boundaries of the firm. He identified three types of costs in the economy:

1. Search: Finding all the right information, people, and resources to create something.
2. Coordination: Getting all these people to work together efficiently.
3. Contracting: Negotiating the costs for labor and materials for every activity in production, keeping trade secrets, and policing and enforcing these agreements.

He posited that a firm would expand until the cost of performing a transaction inside the firm exceeded the cost of performing the transaction outside the firm.

As a result, throughout the 20th century, firms were vertically integrated—they often did everything from soup to nuts. Henry Ford understood this and had, within the boundaries of the Ford Motor Corporation, a glass factory, a steel mill, a shipping company, and more. He even owned mahogany forests in Honduras to get wood for his dashboards. Why? Because the cost of transactions in the open market was greater than the cost of doing things inside the boundaries of his firm.

In The Digital Economy, I argued that the Internet would reduce a firm’s transaction costs and lead to more networked business models—and it did, somewhat. Google and search engines reduced the costs of search, and email, social media, and data processing applications reduced the costs of coordination. Firms began to outsource, crowdsource innovation, and eliminate middle managers and other intermediaries, thus freeing industries such as accounting, commercial banking, and even music, to consolidate assets and operations. Firms like Cisco created networked businesses with a mantra of focusing on "what we do best and partnering to do the rest," becoming the most valuable company in the world.

However, the surprising reality is that the Internet has had a peripheral impact on corporate architecture. The industrial-age hierarchy is pretty much intact as the recognizable foundation of capitalism—in part because the Internet dropped transaction costs inside the firm as well. So, companies today remain hierarchies, and most activities occur within corporate boundaries. Managers still view them as a better model for organizing talent and intangible assets such as brands, intellectual property, knowledge, and culture, as well as for motivating people. Corporate boards still compensate executives and CEOs far beyond any reasonable measure of the value they create.

The Internet also hasn’t dropped what financial economists Michael Jensen and William Meckling called “agency costs”—the cost of making sure that everybody inside the firm is acting in the owner’s interest. In fact, another Nobel Prize–winning economist, Joseph Stiglitz, argued that the sheer size and seeming complexity of these firms have increased agency costs even as a firm’s transaction costs have plummeted. Hence, the huge pay gap between CEO and the front-line employees. Stiglitz's term "managerial capitalism" describes this reality.

Not incidentally, the industrial complex continues to generate wealth, but not prosperity, as our economies are growing but the middle class is stalled or shrinking. There is a growing concentration of power and wealth which is creating significant economic and social problems.

Beyond the Firm: DAOs Challenging Industries

This all began to change with the rise of blockchain. In our 2016 book, Blockchain Revolution, Alex Tapscott and I argued that this new "Internet of value" could demolish transaction costs in an open market and eliminate agency costs altogether. The upshot is radically new models of how we orchestrate resources in our economy and society. Networks can do what corporations once did, and in many cases, a lot better.

That is happening today, and the DAO is the most important new entity. Unimaginably a few decades ago, it is now possible to create truly decentralized organizations, based on powerful networks that are owned by their participants and act autonomously without a central authority.

Consider the impact of smart contracts—blockchain-based software that essentially automates many search, contracting, and coordination activities. Smart contracts encode, monitor, and self-police agreements between people and organizations and, because they essentially contain a bank within them, automatically execute payments when milestones are met.

Similarly, tokens—which can be thought of as containers for value—provide a mechanism for contributors to participate in decision-making and receive compensation for the value that they create. Blockchain contributes to transparency, something the traditional firm lacks and which has been found to reduce many transaction costs and help build trust. Our work at the Blockchain Research Institute (BRI) provides strong evidence that DAOs are not just better vehicles for innovation, collaboration, and wealth creation; they can be key to making an economy that is fairer, more democratic, and where prosperity is distributed.

The implications of DAOs are staggering—not just for the firm but for many entire industries. Now, software can do what most banks do. This isn't so-called "fintech," which is simply a new coat of paint on the walls of the old industry. It's an entirely new industry called Decentralized Finance or DeFi.

Or take science, which is arguably broken, opaque and lacking collaboration. Research in everything from medical products and pharmaceuticals to AI is typically hierarchical and proprietary—like the old model of the firm. Decentralized Science (DeSci) is a new approach based on the principles of transparency, decentralization, cooperation, and new token-based incentives to power human effort.

The list goes on. DePin refers to Decentralized Physical Infrastructure—networks connecting the physical world to blockchain through incentives that reward the owners of digital or physical resources, like computing power or storage, for contributing to a decentralized network. Or, rather than the Mark Zuckerberg view of the Metaverse—as a theme park which he owns, rules, and prospers from—a DAO like Decentraland empowers participants to benefit from the value they create, make changes to the world and change the smart contract rules, and retain control over their digital identities, assets, and experiences.

Rethinking Management Science

Management science and our best practices for governing and managing today assume the traditional concept of the firm. There are thousands of professors, hundreds of business schools, and probably 10,000 management books that are based upon an organizational archetype that is being obviated. How many of these leading thinkers are aware that management as we know it is about to change?

Consider these questions:

• How can a DAO adopt an effective strategy without a top decision-maker?
• How is Project Planning done?
• What are the new rules for HR?
• What happens to the four Rs of Human Resources – Recruit, Retrain, Retain, and Reward in a decentralized firm?
• How does governance work – big decisions traditionally made by a Board of Directors?

Which is where the book How to DAO comes in. The book is presented as a practical handbook for this new model of value creation, offering examples and advice on how to create and operate a DAO effectively. It is an early contribution to rethinking business strategy and management science in the context of decentralized organizations.

Conclusion

The rise of DAOs is not just an incremental innovation; it is a seismic shift that challenges the very foundations of how we organize and create value. Just as the industrial-age corporation shaped the last century, DAOs have the potential to define the next—offering a more open, transparent, and equitable model for economic coordination. But as with any transformative change, we must proceed with both optimism and caution.

James Baldwin once said, “If you know from whence you came, there are no limitations to where you can go.” To build a better future with DAOs, we must first understand the past—the corporate structures, incentive systems, and economic forces that brought us to this moment. Only then can we navigate the road ahead with clarity and purpose.

We need to rethink leadership and governance for an era of mass collaboration. We need to remain vigilant about unintended consequences and the dark side of disruption. And we need to ensure that the promise of decentralization—greater economic inclusion, autonomy, and shared prosperity—is realized rather than squandered. Just as the innovations envisioned at Bell Labs reshaped the world in ways no one fully anticipated, so too will DAOs. But the outcome is not predetermined. If technology alone doesn’t dictate the future, our choices do. The question is: how will we choose to shape this revolution?

Don Tapscott is author of 16 widely read books about technology in business and society, including the best-seller Blockchain Revolution, which he co-authored with his son Alex Tapscott.? He is Co-Founder of BRI, an Adjunct Professor at INSEAD, Chancellor Emeritus of Trent University and a Member of the Order of Canada.