One of the core aims of blockchain technology is decentralization, and one of the best examples of decentralization’s potential is Decentralized Autonomous Organizations (DAOs). DAOs are different from other organizations because they are operated by rule-based smart contracts that allow all members to participate directly and vote on initiatives without any centralized authority. Unlike traditional organizations, DAOs don’t rely on fixed hierarchies or managers.
Over the last few years, multiple DAO variations have emerged for different purposes, such as social DAOs, investment DAOs, collector DAOs, grant DAOs, protocol DAOs, and NFT DAOs.
Since DAOs are a relatively new concept, many misconceptions surround their structure and applications. To understand more about DAOs, we sat down with Yves La Rose, who serves as the CEO of EOS Foundation – the DAO that recently took control of the EOS blockchain from Block.one.
Please explain the concept of a DAO to people hearing or reading about it for the first time.
Yves: A decentralized autonomous organization (DAO) is an organization that distributes decision-making power among its members, often token holders, by using any of the various collective governance consensus algorithms that are available. This results in a more bottom-up, decentralized approach than the usual top-down, centralized corporate structure.
Common interests align members of a DAO and usually rely on the use of blockchain technology in combination with smart contracts that function as a programmatic means of voting, transferring property (tokens), and encoding new rules, all in a highly transparent manner.
What makes DAOs different from other structures or systems? What are the advantages of using a DAO to manage an organization?
Yves: Because DAOs distribute organizational power more horizontally and are not dependent upon a centralized entity for continued operation, they can potentially be more antifragile and sustainable in the long run and continue functioning as members come and go.
DAOs are also able to codify rules in immutable or tamper-evident smart contracts, which virtually eliminates the possibility of human error or abuse. DAOs can enable trustless coordination among members, reducing operational overhead and accounting.
Would you say a DAO is better suited for smaller organizations than large ones?
Yves: If you don’t have an efficient organization to begin with, then I think introducing a DAO is not suitable at all. The element of decentralization is something you add to an already functional organization.
If the premise is that you’ve got two well-oiled machines, one a large organization and the other a small organization, then a DAO would likely be better suited for the larger of the two, where any dramatic changes to the membership affect, proportionately, a smaller portion of the whole. In a smaller organization, fluctuations in membership tend to be more disruptive.
What do you think will happen to traditional hierarchical structures in the long run? Will the DAO become the corporate structure of the future?
Yves: No, I don’t believe so. I believe that traditional hierarchical structures, and traditional centralized entities, will still be present in the long run. The DAO will not simply erase people wanting to have a hierarchy, efficiency, speed, and agility at the onset of something. If you already have an efficient structure in place, you can add the DAO as an upgrade.
So, it’s something you could add to your toolkit to facilitate sustainability, antifragility, and those other qualities, at a more advanced stage of organizational development.
Will it become the corporate structure of the future? I don’t think it will. I think the majority will still remain centralized because of the efficiency, speed, and agility that centralization offers at the early stages. Humans tend to centralize because it is easy. I think starting out centralized and then decentralizing is the more efficient mode of development, and that is probably the way of the future.
Are there any disadvantages to running a purely democratic DAO, and can it end up acting as a barrier instead of a facilitator for progress?
Yves: Yes, we’ve seen this repeatedly. This idea that DAOs are the future, centralization is bad, and everything from the old system is bad and needs replacing, that I do not agree with. DAOs are an evolution, they are an extra thing that we can add, and they have disadvantages.
So as much as they can help with sustainability, resiliency, and anti-fragility, they’re also very messy, not as efficient up front, and they potentially can’t even get off the ground because they’re overly decentralized for those early stages of development.
Can it end up acting as a barrier instead of a facilitator of progress? Yes, and we’ve seen that over and over, where a good idea can be stifled because the structure in place is too decentralized from the get-go. EOS is a prime example of that. It was too decentralized early on, and it lacked any meaningful centralization.
Please shed some light on the DAO structure of the EOS Network and what role it plays in the ongoing decision-making process.
Yves: EOS is arguably the largest DAO in the world. Perhaps there are other large structures that are DAO-like that I’m not aware of, but EOS is a massive DAO.
With the EOS Network Foundation, we’ve introduced an element of centralization into our fully decentralized system. So, the role that the decentralized system plays in the ongoing decision-making process is to keep the ENF (EOS Network Foundation) accountable to the underlying decentralized entity. That is very clearly the role that it plays.
EOS is the first and only DAO that I am aware of that has appointed a centralized leadership. Since this happened, we have had a level of coordination, progress, and sustained momentum that would have seemed impossible previously.
Do you think EOS is well-equipped to provide the infrastructure to support organizations that are increasingly interested in integrating DAO models?
Yves: The permission structure set on EOS enables all of this on the back end, right out of the box. What we’re doing now is ensuring that we’re investing even more to support that functionality in the front end. Our goal is to make it as easy as possible for the EOS community to spin up DAOs without having to deploy their own smart contracts, UIs, or server infrastructure.
