The arrival of the Blockchain and its proposal of decentralized, democratic networks, in which each node of the network cannot vary by itself the content housed in the chain of blocks without the consensus of the rest, is a clear commitment to the decentralization of applications. By decentralization we mean a system in which there is no entity that directs the other members of that system. In a decentralized system, decisions are not taken from the top down, but horizontally and through the consensus of all the members of that system.

Is it possible that a decentralized model based on Blockchain could be applied to the enterprise? Could enterprises, hierarchical institutions par excellence, renounce organizations based on command and the establishment of organizational levels? This is what, in essence, the proponents of Decentralized Autonomous Organizations or DAOs propose.

What is a Decentralized Autonomous Organization?

A DAO is an organization in which the relationships among the members of the organization are not based on a traditional governance structure, as in any other organization, but the functioning of the organization is based on consensus among its members.

In order to reach such a consensus, the Blockchain is used, which, as we already know, is a network of interconnected nodes that cannot alter the content of said network without the approval of other members of this one.

Thus, a DAO is configured as a horizontal organization in which the command posts are conspicuous by their absence, in which the government of the organization and its legal cohesion is not based on work contracts or other types of contracts but on compliance with those established in Smart Contracts that are also stored in the Blockchain network.

The DAOs are open-source organizations, and therefore transparent and in theory incorruptible. All transactions of the organization are recorded in the Blockchain network. The propositions of the members are the way the decisions are made, if they are voted by the majority of the members of the organization.

Thus a DAO can be an organization that lives on the Internet autonomously, relying on the role of specialized individuals or smaller organizations that perform tasks that cannot be carried out through automation.

In summary, we can state that the main features of a CAD are as follows:

  • The consensus of the members for decision making. Voting rights in a DAO are acquired through the purchase of tokens in funding rounds.
  • The use of Smart Contracts, which will record the rules of the organization and establish its operation.
  • Use of tokens as a means of rewarding DAO members’ participation or as a means of funding.
  • Based on open source codes. Once your programming is complete, your creator moves from code holder to one more DAO member. In addition, being open source, anyone can access the network.
  • Blockchain is the technology that makes all of the above possible, creating transparent, immutable and incorruptible organizations.

 

DAO

 

With the advent of Ethereum and its Blockchain network, the concept of CAD evolved from a type of organization based on Blockchain to one based on Smart Contracts, which facilitate the creation of CADs without the need to create a new Blockchain network.

Some examples of CADs

It could be said that the first CAD was the Bitcoin network as it was the first organization based on a decentralized network with autonomous operation. In the Bitcoin network, the Blockchain ensures decentralization and network security.

Another example, more in line with what is now understood as DAO, is The DAO, an organization that proposed the creation of an autonomous investment fund in which investment decisions would be made by the majority of network participants.

The DAO, launched in 2016 in an Ethereum-based network, allowed access to anyone in exchange for future members buying tokens. Such tokens could then be sold or transferred to third parties.

The idea was that every member who had a token could participate in decision-making, although the importance of members’ votes varied depending on the number of tokens they had.

In its market launch, The DAO raised $150 million by selling tokens.

Since The DAO’s success there have been many such projects. One example is Gitcoin, a platform where software developers can upload their own open source projects.

The idea behind GitCoin is to help the sustainability of open source projects by allowing network members to reward the projects they are most interested in.

 

 

Another example of DAO is MakerDAO, a stablecoin in the Ethereum network whose objective is to minimize the volatility of the price of cryptodivisas with respect to the dollar. The crytodoux, called Dai, can be bought by anyone at any time. Maker through a system called Dai Savings Rate allows those who have Dais in their wallets to get a small return on their investment.

MakerDAO and others are part of what is called #DeFi or Decentralized finance, a movement that promotes the disruption of the financial sector in the manner of fintech, but without centralized organizations and with projects based on open source.

Towards social change?

So far we have talked about how some economic activities can be organised through DAOs, but their possible scope of action is not limited to economic organisations.

Starting from ideas such as decentralisation, consensus and the incorruptibility of Smart Contracts and Blockchain, CADs could be applied in other types of organisations.

One example is governments. Will we see in the future how some governments create DAOs so that it is the majority of citizens who decide almost at the moment on matters of importance? If this were so, some bodies of political representation of modern democracies, such as senates and congresses, would lose part of their powers.

Of course, no organization is exempt from being decentralized and if CADs are finally adopted en masse, the social implications would be realignment with the interests of the network user (in the case of a corporate CAD from the purchaser of the tokens. In the case of a governmental DAO of the citizens), reduce friction in decision making since the Blockchain, the Ethereum and the Smart Contracts allow the automatic application of the agreed changes and the disappearance of intermediaries.

Conclusions

Thanks to the arrival of Blockchain and Ethereum new organizational forms are possible. The decentralised nature, based on consensus and the security of these networks, allows the creation of DAOs, organisations in which hierarchies are altered from pyramidal structures to horizontal and democratic networks.

DAOs, open source organizations that anyone can join, are presented as an alternative to traditional organizational models and the first organizations of this type are already operational.

The application of DAOs to the financial sector has given rise to what is known as #DeFi or decentralized finance, a disruptive movement that seeks to offer financial services through decentralized, accessible and transparent networks.