What is a DAO?

The impact of DAOs: Collaborative commons and the age of customer centricity.

Amidst all the changes that blockchain technology has inspired, one of the more intriguing is a new form of organization known as a DAO. DAOs run the world of crypto, forming the basis of some of the most impactful projects in the space, including community based games like Axie Infinity. They are also crucial governance engines for community driven business models like Bored Ape Yacht Club’s ApeCoin DAO.

Alright, but what is a DAO?

Let’s start with the literal definition: DAO stands for Decentralized Autonomous Organization.

Okay, what does that mean? Historically, people rely on central authorities to make rules for the community to follow, whether that’s a local government, a company’s management, or a parent in a household. DAOs present a new model of organization, where the community determines how things are run and there is, theoretically, no need for an authority.?

Members can make proposals for improvements to the community, and all members of the DAO can vote. This is decentralized because the power to make decisions does not rest on a central figure and anyone can participate regardless of background or identity- the only form of screening is token ownership. Anyone who holds the token of a DAO becomes a voting member.

This structure allows the organization to be autonomous, it takes on an identity of its own and can “run itself” without a guiding hand. It’s no longer a reflection of the wishes or thoughts of a select few, or of a single CEO at the helm- it is now a reflection of the collective.

DAOs are made possible by smart contracts

Think about how a firm is run and why central authority is needed. A firm is basically a body of several cells, each performing a specific function. Operations keep the firm moving, Human Resources acquires talent and addresses their needs, Legal protects the body from harm, and so on. Roles and responsibilities are divided and conquered, and each cell is the authority in its respective area of expertise. At the top of the pyramid rests a central authority, a board, that keeps everything coordinated, like a brain to the body.?

In this structure, central authority is important to keep everything running smoothly. But DAOs don’t need to do this, because smart contracts can be used in place of people to perform specific functions. So instead of dividing the organization into specialized cells of authority, smart contracts are created to perform roles. This frees people up to have a say in the overall direction of the organization, creating a larger collective “brain” without a hierarchy.

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What do DAOs mean for us?

DAOs are an experimental form of governance that is possible thanks to new technology. Not every business will become a DAO, nor should they. Some forms of governance are more effective at certain things than others. DAOs that have been highly successful in some aspects of running an organization have been wildly unsuccessful in others. For example, one such organization called “The DAO,” raised $168 million in 2016 in one of the largest crowdfunding projects in history. But, it was also hacked for $50 million when attackers exploited a bug in the organization’s smart contracts.

As with all new and shiny things, we can expect that this form of governance does not come without its flaws, and for certain aspects of organizational leadership, such as security, sometimes unilateral direction is a strength and reliance on smart contracts can be a weakness.

However, there is no doubt that the emergence of DAOs is having a cultural impact that will only continue to grow. They are part of a larger trend that has been well underway for the past decade or more. It is changing the way people think about working together.

The next evolution of collaborative commons?

That trend is the widespread evolution of collaborative commons.?

Instead of owning a car and driving yourself places, it has become commonplace to call an Uber or Grab and have someone else drive you in their car. The same goes for delivery services. You order delivery with a tap of a button and someone else is now doing that service for you. They are happy to do it because they are fairly paid and you are happy to pay, because it frees up your time and makes your life easier. Collaborative commons create win-win outcomes.

Collaborative commons refers to sharing goods and services between consumers. This creates more value for the community by cutting costs while providing everyone access to services, as in the examples above. Due to collaborative commons, buying a car is not a necessity these days, since you can easily “share” someone else’s car to pick up food or drive you places. Car owners can also earn extra income by “sharing” their vehicle. We only have these mutual benefits today because apps exist to let us share our resources without being exploited. In other words, technology enables us to trust each other.

Smart contracts and the DAO model will only accelerate that transformation. At the foundation of blockchain tech and smart contracts lies trust. We can trust smart contracts to do precisely what they are coded to do, and that trust is secured with the transparency of distributed ledgers, which show a living proof of activity. Sure, smart contracts can be exploited when there are holes in their code, but that is not the result of the smart contract changing sides- it’s simply doing what it was programmed to. The error, ultimately, is human. Well-written smart contracts can mediate agreements in definite terms with a clear and transparent record that cannot be manipulated by the parties involved in the agreement. In other words, when done right, it allows us to trust on a much larger scale.

As collaborative commons become more sophisticated, the capabilities of smart contracts and DAOs will make growth possible. The collective autonomy of DAOs takes the guiding principles behind collaborative commons to a higher level. Sharing virtual assets, or creating communities that share time, expertise, and insights with one another across the globe in real time, will generate levels of collaboration on a scale we’ve never seen before. And all this because technology allows us to finally trust people we’ve only ever met online.

The deconstruction of the firm

What does that mean for traditional firms and the way people organize in general? It means- and we’re seeing it today- increasing fractionalization, outsourcing and deconstruction of the old school firm model. Firms might not be adopting the DAO model, but they are being influenced by the philosophy of DAOs and the rising collaborative trends. More and more, we see firms deconstructing and remodeling to keep up with the changing times.

We’ve been witnessing the rise of the gig economy through the advent of platform based business models (AirBnB, Uber, etc). Once the ideal form of employment, 9-5 office jobs have since lost appeal, and for those who have a hard time securing full time employment, gig work is now a lifeline. This has steadily contributed to the dissolution of the traditional firm model, with gig worker rates rising 15% since 2010.

The deconstruction of the firm means that the cells of the firm are being outsourced. Rather than relying on centrally run services, firms engage external resources like contractors or software services that can accomplish those same functions. And those resources are yet another expression of collaborative commons- rather than paying to share someone’s car, firms pay for automated and externalized CRM services, marketing services, or even human resources and payroll services. Multiple corporations often “share” the same service provider. It’s happening right now; collaborative commons has become the industry standard. While firms may not venture into the uncharted territory of DAOs, they are certainly taking notes.

Customer centricity?

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These changes mean that firms will become more customer centric.?

As elements of the DAO model become increasingly standardized, the nucleus of the firm grows less important and less powerful. With the decline of a central authority, people working for a firm are less motivated to “keep the boss happy.” In fact, the definition of “the boss” changes. By shifting away from centrality, the customers become the focal point and have more influence on the direction of organizations that serve them.

In a collaborative commons based economy, the services that last are the ones that bring most value to users. Uber isn’t working? The costs are too high? Download Lyft. Call a Grab instead. Rent a scooter. The community will lead the way in deciding what is and is not worthwhile, which is central to the principles of a DAO. That competitive, customer-centric environment breeds innovation like nothing else, and we all stand to benefit.

In conclusion, it’s about time.

These changes might sound scary to some. “Will smart contracts replace my job?” is a common concern, but it’s also a sentiment that has been around since the invention of the wheel. The short answer is yes, it likely will. But the more exciting question is, what will that enable us to do instead? What more can we achieve, how much better will our shared resources be in this industry, in this country, or on this planet as a whole thanks to this revolution??

Ten or fifteen years ago, if you needed groceries, you had to get them yourself. Now, with the touch of a finger, it arrives at your door in minutes. Time is the one resource we can never replicate or reclaim, and by sharing our other resources, we can all have more of it. What does that freedom of time mean to you?