DDecentralized Autonomous Entities (DAOs) have been around for a few years, but they are only beginning to increase their impact on how organizations around the world govern themselves. As DAOs spread, they will usher in a new way of working and a fierce new era of digital competition, and in the process, transform traditional organizations.
One of the most visible early effects of DAOs will be the extreme transparency they bring to business operations. Almost any stakeholder in most DAOs can submit a governance proposal and vote on it. More often than not, these proposals resemble shareholder resolutions of large corporations, although they can be much more specific. Project teams were summarily fired and people were dismissed for behavior outside of work.
Paul Brody is EY’s global blockchain leader and a CoinDesk columnist.
The termination of a project team in an established DAO provides a good example of such termination. Voters tabled and passed a motion to end the budget allocation for this team because it had made no useful progress in a significant period of time. I tried to sort out the claims and counterclaims and was unsuccessful. The team had few clear, published measures of success, but the discussion of the proposal turned out to be highly subjective.
We are still in the early days of these kinds of governance battles, but what I immediately realized was that if I was working for a DAO, I would want to have clear metrics and good documentation. Such extreme transparency would help make people more responsive. A ruthless, never-ending feedback cycle is one of the reasons ride-sharing services are still good, despite crowdsourcing.
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Not only will extreme transparency transform the way people work, it will also transform the competition. The product delivered by many DAOs is a protocol. And while software may be copyrighted, the underlying logic of protocols isn’t something you can hide. From incentive structures to key algorithms, almost everything provided by DAOs is entirely public. This means that good ideas spread quickly and innovators quickly build on each other.
The result could be a more ruthlessly competitive digital market than ever before. The permissionless, decentralized, and interoperable nature of blockchain ecosystems means companies have much less lock-in power over their customers. When a competing protocol or service is available and performs better, changes in market share can follow quickly. Recent developments in decentralized forex markets show that even small improvements in performance or cost have disrupted market share. It will be remarkably difficult for blockchain entities to project themselves into the future based on the strength of past work.
Another way DAOs have the potential to transform organizations is to enable more engaged governance systems. The ability to delegate voting rights is a breakthrough because most stakeholders (and most shareholders in traditional businesses) don’t have the time or ability to keep track of the various issues that arise. With delegated voting, people can focus on specific areas or businesses, leading to higher levels of engagement.
In democracies, Fortune 500 companies, blockchain DAOs, and other large organizations, few stakeholders actually contribute thoughtfully to governance. It is not a moral fault; it is more of a practical challenge. For example, I own shares in the S&P 500 index funds, but I couldn’t track the range of open issues for even a fraction of the companies in the funds.
Read more: DOH! to DAO: The Rise of Decentralized Organizations
I prefer to delegate my voting rights to experts. I also prefer to give my votes to people who care about the same issues I do, including fossil fuels and equal opportunity. I want my voice as a shareholder to count more than it does today.
All this is not entirely new. Partnerships, cooperatives, and collaborative governance models, among other organizations, have been around for a long time and have their merits. Partnerships and cooperatives tend to be long-lasting, and they don’t seem to fall victim to empire-building CEOs or giant egos when people can debate and vote on big issues.
Partnerships already have a powerful staking model. Believe me, borrowing several hundred thousand dollars to buy a partnership is as valid as any other staking methodology. The difference is that new digital voting tools and delegation capabilities make being a partner or stakeholder a more convenient and scalable option than in the past.
Sometimes you need new technology to make old ideas powerful again.
Read more: How the “Big Short DAO” Bet Against the Crypto Market and Won
The views expressed in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.