From its inception, many have been debating the need for decentralized autonomous organizations (DAOs) and the true benefits that these entities bring to the Web3 ecosystem. Early 2016 saw the hack of The DAO, which led to significant financial losses for the Ethereum ecosystem and eventually divided the Ethereum community between Ethereum and Ethereum Classic. Today, DAOs are gaining significant popularity and adoption, but remain subject to significant regulatory uncertainty due to the lack of clarity on their legal status and regulatory framework that ensures their compliance with existing securities laws.
Governed by a set of rules enforced on the blockchain, DAOs serve many purposes and offer a multitude of benefits such as the optimization of community collaboration and a new, leaderless structure that allows decisions to flow from the community upwards. What was once considered a theoretical consideration and a potential use case has emerged to become one of the most innovative vehicles in crypto that will spur the next wave of user adoption in Web3.
The power of collective collaboration
Without a traditional hierarchical structure and power dynamics that are typically observed in Web2 organizational structures, DAOs have the potential to create new opportunities for collaboration and coordination on a global scale with increased transparency and accountability. The autonomy of action that DAOs hold enables the community to unlock innovation, which is otherwise missed in hierarchical setups, through the power of collective collaboration. The decentralized nature of DAOs also allows for the community to redistribute ownership, empower communities, and ultimately gain significant waves of fractal growth that would otherwise not be possible. As different needs emerge, members are empowered to make contributions and leverage the decentralized network to gain influence, win bounties and earn voting power.
While there is no one-size-fits-all model of decentralized governance to follow, DAOs have several unique advantages when it comes to empowering the ecosystem for infrastructure building, including a multitude of ways that allow the community to fully optimize resources and allocate them adequately towards building both technology and ecosystem. As such, without effective governance, DAOs would be ill-equipped to make the decisions necessary to achieve their goals.
Similar to any other organization, navigating complex technological developments and making informed decisions that would benefit the ecosystem requires a high degree of expertise and effort. A clearly defined goal is the glue that keeps everyone within the community together as it incentivizes members to attain and materialize their vision of a democratized Web3, and levels the playing field as they create shared values and build trust with one another. These shared values can vary — for example, take PleasrDAO, an investment and art acquisition collective, which aims to reinvent the community art ownership model, or EduDAO, which aims to strengthen blockchain education initiatives at the university level to train tomorrow’s dev talent. Overall, the underlying goal at the heart of a DAO is its core growth driver, effectively giving its members something to believe in and work towards.
With their growth trajectories in mind, the community is constantly engaged to foster a culture of innovation and collaboration, which further underscores the importance of community-building. Ultimately, this results in a win-win situation for all as members are actively contributing to an ever-growing ecosystem that would in turn generate a multitude of new opportunities for economic growth, be it funds, project grants, or opportunities to work on projects as developers and creators. With Web3 being the next iteration of the internet that promotes interoperability between systems and networks, DAOs are well-positioned to create a seamless, integrated ecosystem that ensures greater transparency and capital efficiency.
Current state of DAOs
The sheer number of participants in DAOs grew in 2021 from 13,000 to 1.7 million people around the world, further cementing its role as a key accelerator in the future of a decentralized Web3 ecosystem. The Web3 space has undeniably advanced by leaps and bounds, but there is still so much room to grow as we accelerate toward making Web3 accessible to the masses and driving mainstream adoption. As networks and systems become increasingly interconnected, the development of decentralized apps within the ecosystem will contribute to a robust infrastructure for blockchain technologies to survive and thrive in today’s economy. However, as the strong pool of blockchain developer communities converges towards making a decentralized Web3 ecosystem a reality, it is critical for the community to look beyond siloed ecosystems and recognize that interoperability is key in unlocking the true potential of Web3 and decentralized finance (DeFi). To enable the creation of powerful, interoperable dApps, community-owned DAOs must take advantage of the existing ecosystem of builders, entrepreneurs and developers, and support their collective potential.
Economy on the horizon
As DAOs are increasingly recognized for their abilities to create new forms of collaboration and serve as a unified platform that supports the growth of Ethereum, blockchain, and Web3 ecosystems, this will only continue to drive the emergence and advancements of high-performance blockchains and naturally support a creator economy, as DAOs have the ability to facilitate fractional ownership in a system that is supported and governed by the community. More developers and builders will continue to rise to create the most dynamic dApps, protocols and other bridging tools within the ecosystem layer, while others focus on building the best-in-class infrastructure needed to allow them to thrive and generate economic value. This orthogonal approach will enable developers, builders and creators to unlock tremendous value and potential for a new creator economy that will create limitless opportunities and mold the future of Web3.
Ultimately, while there is no perfect governance system, DAOs do offer builders, developers and creators the opportunity to experiment and be one step closer to creating products, tools, solutions and protocols that are increasingly transparent and dynamic.