The potential of DAOs to reimagine society

DAOs are an innovative coordination tool that hold several implications for how we can imagine finance, work, the structure of organisations, and decentralised networked governance. In this article, we’ll cover their recent growth, potential applications and think about their role in governance.

Explosive development, early days

DAOs have recently experienced explosive growth but are nonetheless, still early in their development. We are yet to really see what their social impacts will be as they grown in popularity and acceptance, but we can speculate based upon their emerging and potential uses.

In 2022, Forbes magazine reported that DAOs were looking to be the cornerstone shaping the business of Web3 and of next generation digital infrastructure and the future of blockchain technologies. DAOs are being created to achieve purposes as diverse as investing, community networking, governing decentralised applications and driving social impact.

The World Economic Forum report on DAOs provides key insights about their timeline, growth and potential applications as we currently know them.

• In 2020 decentralised finance (DeFi) platforms took off and incorporated DAOs.
• In late 2021 DeepDAO, an analytics firm, reported the launch of over 2000 DAOs, which researchers attribute to a bull market.
• A year later in 2022, DeepDAO estimated that there were 4,228 DAOs in operation, ranging from large communities with multiple aims to applications that are nothing more than a “group chat[s] with a shared bank account”.

Strengths and weaknesses

The World Economic Forum report tells us about the key strengths and weaknesses of DAOs that are already emerging. When compared to traditional organisational forms such as corporations, DAOs may offer a way to achieve greater transparency, trust, adaptability and speed.

They also make possible rapid experimentation, rapid and transparent decision-making, and the potential to direct activity towards a multiplicity of goals. Their open, composable structure makes them simple to launch and customise with incentive structures. This flexibility suggests that there are many ways that DAOs can be utilised to reimagine society.

Let’s look at the creative industries. Musicians, performers and music communities have begun connecting NFTs, DAOs and the metaverse as a way to engage audiences with immersive performances (both physical and digital). A CoinTelegraph article on how the metaverse will change the live music experience gives the example of a music-focused DAO that could bulk-buy concert tickets, fund and curate events such as gigs and festivals including those in the digital realm, as well as purchase investable commodities such as first-edition LPs, artwork and instruments, while even functioning as fan-owned record labels and promotion outfits.

Now let’s look at digital organisation. Conceptually, DAOs offer us ways to think about new forms of digital organisation. This is particularly the case for governance models, which need to adapt to the technical innovations of the digital domain in general, and to the increasing use of blockchain technology in particular. Zwitter and Hazenberg (2020) take us into a deep discussion of this and you may want to have a look at their article to dive into this idea in detail. They put forward the idea of decentralised network governance in which governing tasks are distributed according to capability and exerted power, on a fluid basis. Roles vary according to the nature of the network and the relations within it. They believe that this new perspective on governance as networked but decentralised opens up new policy mechanisms such as the design of new platforms for counterbalancing emergent digital actors.

Future challenges for DAOs

DAOs have been promoted for their potential to realise greater efficiency, transparency and shared ownership. However, they have also been criticised for their risks and unknowns. There have already been several attacks, governance problems and other challenges in the DAO ecosystem.

DAOs face legal and regulatory risks concerning legal status, applicable laws and regulations, and jurisdictional uncertainty. Without clear legal status, DAOs cannot take advantage of the same protections as corporations, such as legal personhood, limited liability and simplified tax arrangements.