What is DAO?

A decentralized autonomous organization (DAO) is an organization that is decentralized – meaning it is not controlled by any individual, country, or physical location – and autonomous – meaning it self-governs by making decisions through computer programs or smart contracts.

DAO is a form of organization that gives users completely new opportunities when it comes to managing the structures of a company or association. DAO supporters even claim that they will radically change the way you do business. These decentralized autonomous organizations do not have a corporate headquarters and replace the traditional hierarchy with flat, distributed structures. They are managed by cryptocurrency holders and rely on rules that are automatically enforced on the blockchain through smart contracts. Members of such organizations use management tokens to vote and make decisions.

Advantages of DAO:

There are many advantages to running an organization as a DAO. These include:

No physical location – A DAO does not need to have a physical location. This can benefit the sustainability of the organization, as well as its reach.

No leader can jeopardize the organization – Since a DAO is run by code, the leaders of the organization cannot make poor executive decisions that could cause harm to the organization, as can occur in a traditional organization where a human leader can make disastrous decisions such as embezzlement, corruption, and other illegal practices.

Simple structure – Since a DAO has a simple structure – computers run the organization's code to perform tasks – it has lower overhead and less bureaucracy than a traditional organization. This leads to faster, more efficient work. Greater social impact – Since a DAO's reach is not limited by geography and its physical location is virtual, its work can benefit millions of people.

Resilience - one of the most impressive qualities of a DAO is its ability to be resilient in the face of change and disruption. Its codebase is its identity, and since code can\'t lie, a DAO is immune to the emotional fallibility of its human creators. This means that a DAO can confidently make organizational decisions based on logic and the strength of its code, rather than the reputation or motivational state of its human contributors.

Increased motivation - people work harder when they have complete control over their decisions and actions. There are no corporate big wigs to keep you in line or tell you what to do. You decide. That’s pretty motivating, right?

Drawbacks of a DAO

While DAOs have great potential, not all problems can be solved by a DAO. Here are some examples:

Human resources – While a DAO doesn't have to worry about a human leader embezzling funds, it does need to worry about recruiting and retaining valuable people to work on its projects. This can be challenging since people aren’t working in the same location.

Legal structure – While a DAO does not have a physical location, it may need to be formally registered with some jurisdiction if its work is intended to generate revenue. This can complicate the work of a DAO that intends to work internationally.

Taxation – Similarly, a DAO needs to consider how its work will be taxed.

Governance – While a DAO does not require a physical location or human leader, it does require some form of governance to make decisions and execute its code. This can be challenging since the DAO cannot meet in the same physical space to discuss an issue. In some cases, a consortium or foundation may be needed to support a DAO.

Legal structure of a DAO

Although a DAO is a complicated digital entity, like other legal entities, such as corporations, partnerships, and nonprofit organizations, a DAO has its own legal structure which determines its identity and the way it operates. A good example of a DAO is Distributed Organization LLC (DOLLC), which is a Delaware limited liability company consisting of code and online participants. Although there is still debate about the legal status of DAOs, they are generally considered to be separate from their physical creators or contributors. This means that the organization itself is considered to be an independent entity that can act, sign contracts, own assets, get loans, apply for grants, etc. without the interference of its creators.

Regulation

One of the challenges both fledgling DAOs and firms planning to become DAOs face is the regulatory complexity surrounding their legality - a potentially powerful obstacle to universal utility. While there is no law that prohibits anyone from gathering online with others to complete a project, things get tough when money is at stake. Some DAOs require real-world connections. You need, for example, bank accounts or physical assets that function outside the Internet space.

In this regard, Wyoming has become the world leader in the legal recognition of DAO. In March 2021, lawmakers passed a law allowing DAOs to be officially registered in their state. The law grants DAO the same privileges and obligations as a limited liability company.

Fortunately, US domestic politics is also slowly entering the DAO world. Andrew Yang, a former US presidential candidate and mayor of New York City, created Lobby3 DAO. Its purpose is to "show people the benefits of decentralized technologies" in the real world. Member participation Although a DAO can completely delegate tasks to its smart contracts, most DAOs allow human members to contribute by volunteering or being paid for their work. A member may also leave the DAO if they are not aligned with its goals. This is one of the advantages of a DAO; it is able to curate a highly motivated and talented group of people to work on projects.

How to Run Your Company as a DAO

There are a few steps you can take to run your company as a DAO. These include: Become a decentralized team. In practice, this means removing any centralized hierarchy and replacing it with a decentralized structure. This can include delegating duties to other employees regardless of their rank or location. It can also mean giving all employees, even interns, equal say in major decisions.

Use smart contracts A smart contract is a contract that is carried out without the need for a physical presence or a third party to enforce the agreement. This can include the terms of an employment agreement, payments, or even an audit.

Use open-source software Most software is under lock and key. If you want to run your company as a DAO, this is not ideal. You’re far more likely to achieve success by using open-source software that you can access and improve upon. You can also consider using a blockchain-based platform for your company.

Use proof of execution Rather than relying on centralized management to assign work and evaluate its completion, some organizations instead use proof of execution (POE) systems. These determine if tasks are completed successfully by measuring progress in terms of time, resources used, and quality. The most common examples of POE include curating content on a website or rating user feedback on a platform that provides micro loans.

Pay intermediaries sparingly Intermediaries, such as accountants, lawyers, or consultants, are essential to running a successful business. However, it’s best to keep expenses with these professionals to a minimum. This includes avoiding franchise laws that require all franchisees in a chain to follow the same rules and procedures. Also, avoid vendors that add hidden fees and charges to their products. Instead, choose a product or service that comes with transparent costs.

Liquidity If you have your token, take care of your community and investors, and let them trade your coin with a tight spread, which means low costs for them. Therefore especially in the initial phase consider cooperation with crypto market makers

Be patient! Running your company as a DAO is new, and it takes time to find best practices that work for your organization. Rome wasn’t built in a day, and you won’t revolutionize your business instantly. Be patient and keep experimenting with new tactics and strategies.

Hope this was helpful! If you’re interested in running your business as a DAO, you should do it! It’s the future. Go ahead and be one! Best of luck!