Today we will speak about DAO, which means ‘decentralized autonomous organization’. This is not an organization that is ruled with the help of human beings but by computer programs. For sure, it has advantages concerning the possibility of functioning without the need for the certain authority. It is really autonomous.
Undoubtedly, a decentralized autonomous organization deals with external data and performs commands based on them. It cannot deny the fact that it is done via smart contracts. Blockchain keeps transaction data of a DAO. That stakeholders’ votes are usually decided on.
Some people argue that DAO can be compared to a corporation because of its similar functions. In addition, DAO behaves in a more decentralized way. Would you like to have a place without any hierarchical system? You are in the right place: every DAO has no hierarchy, including bureaucracy and loads of layers. DAO is famous for combining mechanisms that satisfy the needs of both the organization and its members.
It should be pointed out that DAOs are always decentralized and autonomous. No one entity owns the right to decide on anything. DAOx can work on their own that is why they are autonomous.
DAOs and the main-agent problem
A DAOs intercepts issues in economics that are known as the main-agent puzzle. When does it occur?
It happens when a person or entity (in other words ‘agent’) is able to make decisions and act on behalf of other people or entities (in other words ‘main’).
Supposing if the agent is motivated to operate based on its self-aims, perhaps it will neglect the aims of the main.
Such circumstances make the agent be able to dare on behalf of the principal. Of course, there are some issues concerning information asymmetry between the principal and the agent. In this case, the issue becomes even worse. To cut a long story short, the principal may never find out that it is being taken advantage of and has no way to be sure that the agent is acting in their best interest.
We can observe these examples of such problems with certain officials acting for citizens, brokers speaking for investors, or managers representing shareholders.
The directives of the arrangement are characterized by the Bitcoin protocol. Bitcoins, in its turn, come up with a motivation for people to assure the network and be sure that it is safe and secure. It shows that various members can work together so as to retain Bitcoin functioning as a decentralized autonomous organization.
What is the main aim regarding Bitcoin? In this case it will be storage and transmitting value without a central entity coordinating the system. It is not the only function of DAOs. Moreover, DAOs (if they are more difficult and have a more complex system) can be used for multiple use cases. For instance it can be token governance, decentralized venture funds, and social media platforms.
Additionally, we should mention Decentralized Autonomous Corporations (DACs in short). Their functions are similar to services of a usual company: it can be a ridesharing service. The main difference between them is that it functions without the corporate governance system observed in common businesses.
What issues are DAOs facing?
One of the main issues is that the environment (financial one) that surrounds DAOs cannot be named certain. There is no regulatory framework and they must be created based on jurisdictions, because it is a modern kind of organization, doubtlessly. Unfortunately, these issues may become a great point that prevents DAOs from being adopted.
The best friend in trying to keep aside traditional institutions for multiple organizations is a DAO without any doubt. We can enjoy the most beneficial outcome for networks thanks to it. Let’s try something new every day because only social barriers can be a real challenge facing the implementation of DAOs.