DAO: A Decentralized Governance Layer for the Internet of Value

By George Samman and David Freuden who teamed up to co-author DAO: A Decentralized Governance Layer for the Internet of Value.

WHAT IS A DAO

A DAO, Decentralized Autonomous Organisation,  is a simplistic organizational structure and governance process that allows for the collective management of common goods which can be economic or non-economic.

There are many definitions, assumptions and new terminologies associated with DAOs, and they vary significantly depending on which group you are communicating with.

The purpose of this report is a deep dive into the DAO ecosystem and the roles decentralized governance and DeFi play in DAO construction, addressing the many misconceptions around what DAOs are and their purpose, as well providing an overview of the major current projects.

 

It is important to note, Bitcoin was the first DAO.  It is run without a central authority by a core team of developers who propose decisions on the future direction of the project, mainly through Bitcoin Improvement Proposals (BIPs) which need consensus from all network participants (though mainly miners and exchanges) for changes in the code to be made.

Additionally, DAOs are not radical or unique to blockchain technology. There is a long history of DAOs to improve governance structures, decentralized decision making, improve and enforce transparency and enable membership voting and active participation in decision making. Some examples of entities with DAO-like structures that have operated successfully include Co-op Unions, Credit Unions, Guilds and even the Green Bay Packers, a publicly held non-profit corporation that owns the Green Bay Packers football franchise of the National Football League (NFL).

The opportunities that are being explored and experimented with is how blockchain-enabled DAOs can challenge the traditional hierarchical and exclusive organizational structure as seen in many facets of the world today. Through “wisdom of the crowds” it is possible to have better collective decision making and therefore better run organizations.

One of the keys to leveraging this opportunity is in addressing and redesigning governance.

GOVERNANCE

The process of governance allows for the collective management of common goods, be they economic or non-economic.  DAOs are performing the biggest experiment in new forms of alternative governance.

One of the key areas that the report explores is that in a DAO, a triangle of tensions exists. All systems have trade-offs and using a triangle helps map these out.

There must be a balance to find an optimal outcome which allows the DAO to achieve its mandate.

• Exit (Individual)
• Voice (Governance) and
• Loyalty (Decentralization).

The tension triangle can be considered a balancing act between these three distinct yet equally important components.

It is important to note that this is not a traditional trilemma as much as a triangle of tensions. As you slide around, there are tensions that need to be ameliorated between all sides. While it is difficult at times, an optimal mix can be achieved if the dynamics are right. This sliding scale is not a static point in time so moving towards one side and away from another gives different degrees of interaction with each other. It is a balancing act which if approached properly will lead to the long-term success of the DAO.

Whilst governance is at the core of DAO, the 49-page report, DAO: A Decentralized Governance Layer for the Internet of Value  also provides insights into the future of DAO, how they work with DeFi (Decentralized Finance) and also introduces the 50 major players in the DAO ecosystem.

Authors:

George Samman: http://sammantics.com/

George can be found roaming through the crypto-verse. His current headspace is dedicated to decentralized governance, crypto-finance and investing in the ecosystem.

David Freuden: http://www.monsterplay.com.au/

David is principal at Monsterplay, working with entrepreneurs and their teams to commercialise and scale their businesses. Since 2016 he has been investing, advising and writing about blockchain and cryptocurrencies.

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