What to expect from DAOs in the future
This article looks at the role DAOs will play in the future of Web3 and the advantages of DAOs. We'll also look at some of the difficulties these groups encounter and talk about solutions.
Decentralized autonomous organizations have a highly promising future. These businesses, supported by blockchain technology, have the opportunity to alter how we conduct business fundamentally.
A novel organizational structure that operates as code on blockchains is called a Decentralized Autonomous Organization (DAO). They are owned and operated by members who typically possess tokens that grant the organization's ability to make decisions or economic rights.
DAOs now have 1.7 million participants worldwide, up from 13,000 in 2021, becoming a more contentious topic. It is important to consider DAOs' growing significance since there are issues with accountability, how the developing Web3 area should be controlled, and how they might be used as a platform for digital entrepreneurship.
DAOs allow participants worldwide to pool funds and create rules for how to distribute the funds. Code is intended to automate and decentralize governance (in other words, no one can tamper with the rules). As long as governance smart contract technology is still in its infancy, most of this will stay theoretical.
Web3's potential future: DAOs
Web3 will use DAOs to promote open services driven by decentralized protocols rather than centralized apps governed by tech behemoths, something that the internet has so far failed to do. Users can link programs and content directly, eschewing centralized intermediaries, in Web3, which can be seen as the "read/write/own" version of the internet. Web3-based open services encourage permissionless entrance, maximize value, and ensure verifiability. These services are much more dependable, equitable, and moral.
Users take part in the governance and management of the protocols themselves rather than using tech platforms in exchange for monthly payments and personal data. Participants are genuine network stakeholders as opposed to merely clients or products that are exploited by market forces.
Tokens or cryptocurrencies, in this context, symbolize the ownership, control, and accessibility of decentralized networks. In Web3, you are the owner as opposed to Web2, where you are the product.
Many well-known industry goliaths in tech and payments are switching to different Web3 applications. This adoption is being led by NFTs (non-fungible tokens), while the subsequent wave of user adoption in Web3 will be driven by DAOs (decentralized autonomous organizations).
The Advantages of DAO Use
They are decentralized, which means they are not dependent on a single person or group. They become more resistant to political meddling and corruption as a result.
Also, being independent allows it to function without requiring constant input from others. This enables them to carry on even if essential personnel disappears or is not accessible.
Because DAOs are transparent, all decisions and acts are visible to the public. Greater accountability is made possible by doing this, which also makes fraud less likely.
They are also impervious to tampering, so once a choice has been taken, it cannot be reversed. This guarantees that the DAO's choices are final and irreversible.
Lastly, DAOs are robust, which means they can carry on even if a portion of the network falls. They become immune to censorship and downtime as a result.
Significant adoption difficulties for DAOs
DAOs usually issue tokens instead of traditional equity. In reality, many token owners and creators anticipate economic or governance benefits from their holdings. However, token holders and DAOs frequently have no formal legal link. This poses a danger to token holders.
The legal structure of a DAO is a source of concern. In DAOs, there are frequently no formal company structures, no clear definitions of member responsibilities, and no explicit provisions for liability protection. Instead, owners of governance tokens can vote on and suggest actions to the DAO. DAOs' member liability cannot be determined without a comprehensive understanding of their legal structure, which puts members at serious risk.
DAOs still need intermediaries to execute the decisions that were voted on. Coding the operations into automatic smart contracts could do away with the requirement for executive representation if the treasury of a DAO is made up of on-chain assets in a digital wallet (like cryptocurrency). For instance, DeFi DAO treasuries are frequently managed by people who must take the required activities to carry out DAO decisions that have been approved.
Individual liability of DAO members is not clearly defined, especially if they disregard the directives of approved proposals. As a result, some areas are outside of on-chain contexts where DAOs cannot operate. There are still unanswered questions about the bridges that must be built to off-chain assets.
Most nations prohibit DAOs from filing taxes in the same ways as established commercial companies or from sharing the tax benefits of those entities. DAOs may be taxed as pass-through entities or as separate corporations. It is not yet known. This implies that for anyone who invests in DAOs, DAO membership may result in a direct tax obligation in many jurisdictions.
Despite these difficulties, DAOs present a distinctive and promising framework for an online organization that is certain to develop further in the years to come.
The Future of DAOs
TheDAO, Aragon, and MakerDAO are just a handful of the successful DAOs that have emerged in recent years.
DAOs can also be used as a direct route for investments and the quickening of DeFi adoption (decentralized finance). DAOs that use cryptocurrencies enable inexpensive, nearly immediate peer-to-peer transactions that are not constrained by the rules of conventional financial institutions. Members can earn higher returns through lending or transaction fees than if they had kept their assets in a conventional financial institution. There are no immediate indications that the rate of growth in this area will slow.
The creator economy is further supported by NFTs and the use of DAOs to buy and store these digital assets, given this generation's strong emphasis on social media and content production. Since the worth of a creator's work is correlated with the value of their organization, fan base, and brand, creators directly profit from their creative output.
We may anticipate that DAOs will eventually make it simple for people to access Web3, just as so many significant businesses and organizations are already doing. Thus, seeing even more significant and innovative DAOs arise as the technology develops. DAOs, therefore, have the potential to completely transform how we live and collaborate because of their capacity to build enormous networks of connected individuals and organizations.
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PUBLISHED 14TH SEPTEMBER 2022
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