Governance and ownership

D.A.O. Decentralised. Autonomous. Organization. According to Monsterplay blockchain consultancy founder David Freuden, “The whole phrase is a misnomer. They’re not decentralised, not autonomous, and they are not organisations”, .

Freuden co-authored a 51 page report on DAOs in May 2020 in an attempt to help realise their potential.

“We need DAOs,” he explains. The “idea of ‘shareholder first’ is only a 1980s/90s concept. Companies became about profits not products”.

He saw big things for DAOs and much has changed nearly 2 years later. By the end of 2021, DAOs have more than 1.6 million participants, up from just 13,000 at the start of the previous year. In 2021 the US state of Wyoming legislated for legal recognition of DAOs, so too has the Marshall Islands and since 2022 Australia has been considering doing the same.

Yeah, but what is a DAO?

In short, a DAO is a governance model popularised in the decentralised finance sector (DeFi), where members buy (or are rewarded with) governance tokens to vote on how the DAO operates and spends its money. “DAOs were born from DeFi as an investment vehicle. So you can’t separate a DAO from tokenomics” says Freuden.

DAOs are usually built around a mission, which can be a promise, a social cause but usually still involves a desire to profit. “If you can’t answer the why, the DAO won’t be sustainable,” he says. And “if you don’t have tokenomics, it’s a co-op not a DAO.”

DAOs come in a range of types that now include operating system DAOs, protocol DAOs, investment DAOs, grant DAOs, service DAOs, social DAOs, collector DAOs and media DAOs.

Yet it was the idea that people could be galvanised around a positive cause that was very attractive to Freuden. And DAOs can move fast.

A DAO can adapt quickly to local conditions, as a quick way to spin up a governance mechanism. It’s a knowledge coordination tool, so that decisions can be made collectively and fast. For example, UkraineDAO, spun up rapidly by a Russian feminist punk band, Pussy Riot Founder, artist Trippy Labs, and digital artist collective PleasrDAO in response to Putin’s invasion of the Ukraine. The DAO quickly sought to support Ukrainian charities by selling NFTs of the Ukrainian flag.

For Adam Miller, founder of DAOplatform.io and MIDAO Directory Services, there are three key elements according to Miller. “Firstly, tokenization, for which there are many methods and tools, secondly governance mechanisms, on chain or off chain, and connected to the DAO’s treasury. And finally community”.