The future is now, it's 2020 and Decentralized Autonomous Organizations (DAOs) are experiencing a Cambrian explosion.
Typically in an enterprise, you have top-down hierarchies as the mechanism of control. Let's look at a quick example of how a DAO works differently in action.
Imagine you’re building a startup, except at this startup, there is a clear sense of organization without humans organizing other humans. It all runs organically, and it's generative in nature, meaning it evolves, innovates and experiences high growth from within.
How is such a way of working together achieved?
Through active participation from interested parties who share common values, missions and objectives. People-driven autonomous organizations happen mostly through voting on decisions that are proposed by other community members.
You can propose, vote and discuss decisions as a team without having to have a singular authority to report to. Resulting in new ideas being seeded and proposed from within the organization to solve mission-critical challenges that the DAO is facing.
It's really a synthesis of innovation and ambition, it's great!
With that said there are certainly some balanced benefits and drawbacks about this model that we should explore.
For the moment DAOs function in a fairly binary nature, you vote on proposals that you or others have submitted, typically these votes take place on blockchains by signing a transaction with your crypto wallet. That means the current state of DAOs is experiencing the highest growth in the blockchain industry. So whilst DAOs are now, they might be somewhat gravitating around the future of money.
However crypto-centric it is right now, it is definitely laying out an exceptional framework that any organization type could be built upon. We are seeing many other non-crypto DAOs emerge too, using platforms like Aragon to create a DAO in minutes on the blockchain. This is achieved by creating a Governance Token on the Ethereum blockchain. When users hold these Governance Tokens they can vote on proposals put forward to the community.
These communities can even have treasuries where the DAO can organize their finances. For example, members that hold these Governance Tokens can suggest making a payment, creating a vote inside the community so it can be approved or denied collectively.
There are many lessons to learn about how to coordinate large groups of self-interested people.
I recently wrote an article, "Failure shows us the way", where I outlined my thesis on how I think we can even coordinate groups who don't explicitly share the same values, they instead just share the same mission. It's going to be very interesting to see what unfolds with the DAOs that are experimenting right now.
Why are DAOs exploding right now?
Basically there is an entire unstoppable movement happening because of projects offering up a Governance Token as a bonus to those who are using some Decentralized Finance (DeFi) applications.
I've heard many stories from folks achieving incredible results in less than 5 days. For example, "With YFI I earned like $3.5k on $24k", one community member shared with me.
That example is a 14.58% increase in capital in just five days, no wonder it's getting attention.
Wait, how are people making money from these Governance Tokens?
In the DeFi world, there is a new meme known as Yield Farming 👨🌾 its technical name is Liquidity Mining.
This is where a user deposits crypto stablecoins like USDC, DAI & USDT to earn a reasonably safe and secure return, which lately seems to be roughly 8% APY. As well as this, these DeFi applications which have newly formed their own DAOs to oversee their protocols, are rewarding users with Governance Tokens when they have funds deposited into their various DeFi products.
This has added rocket fuel to the DeFi community, with an explosive $3 Billion USD flowing into projects in just the last couple of weeks. This doesn't stop here either, there are many more DAO innovations that will be made known during this wave of Governance Tokens. One example is Referral Yield Farming, where you can earn Governance Tokens for referring people to DeFi platforms without having to deposit any funds of your own.
What does the future of DAOs look like?
Imo I think it's only a matter of months, maximum 1-2 years that we will see this business model having explosive growth in other industry verticals.
The future is bright, but so is right now. I hope you are able to get involved so you can propose, vote and prosper too!