Decentralisation is one of the key characteristics of digital currencies. Unlike traditional currencies, they are not governed by a single entity, such as a government or central bank. Instead, control is distributed across a network of computers, networks, and nodes. Inspired by this centralisation, a group of developers (the Ethereum Community) introduced the concept of a decentralised autonomous startup in 2016. A DAO aims to oversee and manage an entity in a manner similar to that of a corporation but without a central authority. Instead, a collective group of leaders and participants serves as the governing body.
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Understanding DAOs
DAOs, leveraging blockchain technology, are emerging as a transformative force. They are redefining governance, ownership, and collaboration and offering a new model for startups. These internet-native organisations operate without centralised leadership, using smart contracts on blockchain platforms to automate decision-making processes and governance. Members of a DOA hold governance tokens, which are essentially digital assets that grant them voting rights on proposals and decisions. This discentralised approach ensures transparency, reduces the risk of corruption, and empowers community-driven decision-making.
The growth of DAOs has been nothing short of exponential. According to the data from DeepDAO, as of February 2024, there are nearly 19,839 established DAOs, with over 10 million governance token holders and a collective treasury exceeding $30.3 billion. This rapid expansion is indicative of the increasing trust and reliance on decentralised governance models and the potential impact of DAOs on the startup ecosystem.
The Impact
Traditional startups often face significant barriers to accessing capital, relying heavily on venture capitalists and angel investors. DAOs democratise this process by allowing anyone with internet access to invest in and support projects. Platforms like Gitcoin and Seed Club enable startups to raise funds through community contributions, bypassing traditional gatekeepers. This democratisation nurtures a more inclusive startup ecosystem where innovative ideas can thrive regardless of geographic or socioeconomic barriers.
Another characteristic of DAOs is transparency. All transactions and decisions are recorded on the blockchain, making them publicly accessible and immutable. This level of transparency builds trust among stakeholders, as they can verify the integrity of the organisation’s operations. For startups, this means greater accountability and a stronger reputation, which can attract more investors and collaborators.
In traditional startups, decision-making is often concentrated in the hands of a few individuals. DAOs distribute this power among all token holders, ensuring that decisions reflect the collective will of the community. This decentralised approach can lead to more innovative and diverse solutions, as it incorporates a wider range of perspectives and expertise.
DAOs enable global collaboration by removing geographical barriers. Members from different parts of the world can contribute to and participate in a DAO, bringing diverse skills and knowledge to the table. This global reach enhances the potential for innovation and allows startups to tap into a broader talent pool. DAOs often use token-based incentives to encourage participation and contribution. Members are rewarded with tokens for their efforts, which can increase in value as the DAO grows. This incentivisation model aligns the members’ interests with the organisation’s success, fostering a more engaged and motivated community.
The Cases
An entity called PleasrDAO was formed by DeFi pioneers, early NFT collectors, and digital artists who acquire culturally significant pieces with a philanthropic angle. By leveraging the DAO model today, PleasrDAO has successfully pooled resources to make high-profile acquisitions, such as the original Doge meme NFT, and has used these assets to support various charitable causes.
Another case of DAOs is Gitcoin. It is a platform that supports open-source projects through community funding. By using a DAO structure, Gitcoin has facilitated the distribution of millions of dollars to developers and projects that contribute to the open-source ecosystem. This discentralised approach ensures that funding decisions are made by the community for the community.
The Future Outlook and Challenges Ahead
The future of DAOs looks promising. Gartner projects that the number of active DAOs will triple by 2025. As the regulatory framework evolves and more people become familiar with decentralised governance, DAOs are likely to become a mainstream model for startups and other organisations. While DAOs offer numerous benefits, they also face challenges. Regulatory uncertainty is a significant hurdle, as existing legal frameworks are not well equipped to handle decentralised entities. Additionally, low participation rates and the complexity of decision-making processes can hamper the efficiency of governance.
The emergence of DAOs represents a significant shift in the startup ecosystem. By democratising access to capital, enhancing transparency, enabling global collaboration, and incentivising participation, DAOs are empowering a new generation of startups. As the technology and regulatory landscape continue to evolve, DAOs have the potential to redefine how we think about organisations and governance in the digital age.
