DAOs is the acronym for “Decentralized Autonomous Organization”.
Basically, we’re talking about companies without companies. At least, not the companies as we know them. That’s right. They’re DAOs. They stem from the concept that what companies do wouldn’t necessarily need to be done by structured companies as we have them today.
Crazy? Definitely. Impossible? Hmmm… maybe not so much.
What is a DAOs?
Let’s start by imagining a company like Apple, to take an easy and well-known example. It’s a decentralized company already, although it remains, well, a company.
However, it’s a company that produces cell phones and electronic devices without a single factory of its own. When they launched this production logistics, nobody was doing anything similar. Not the way Apple did it. But the point here isn’t Apple; it’s the concept of decentralization.
How does a DAO work?
The DAO concept takes this logic a few steps further. Based on a blockchain ledger and managed entirely by Artificial Intelligence and remote computers, the new “company” has no fixed employees, no classic bosses as we have today, and operates purely on demand. It produces what the market has already ordered, at the point of consumption and sale. These are pop-up companies. No fixed physical structures.
There will still be some form of management centering around this setup, but then we’re no longer talking about companies as we know them today. It’s something else entirely.
A set of pre-programmed rules determines how the company operates, and computers handle the rest.
Why manage a company with code, through a smart contract?
A study by Singularity University on DAOs explains that a fleet of autonomous taxis, for example, supported by a layer of smart contracts on blockchain, could operate 24/7, including driving to the workshop for maintenance, without any human involvement.
Someone will continue to make money from this, because someone has to finance and support the entire operation. But it’s a 4.0 business concept. DAOs aim to create productive systems for distribution and sales where the primary and almost sole external influence is the customers. And everything operates in a decentralized and virtual manner.
Machines will handle everything else, from order to delivery.
Crazy? Yes. Impossible? Hmmm… maybe not so much.
What are the risks of DAOs?
DAOs present risks that need careful consideration. Firstly, there are technical vulnerabilities, as evidenced by the case of “The DAO” in 2016, where a code flaw allowed the theft of $50 million. The immutability of the blockchain, while an advantage, also prevents quick error correction.
Furthermore, legal uncertainty is a critical issue, as most countries do not yet legally recognize DAOs. This can lead to legal uncertainties and difficulties in dispute resolution. Although some jurisdictions, such as the Marshall Islands and Wyoming, have started to recognize DAOs, the lack of global recognition limits their operation.
In summary, while DAOs offer promises of transparency and decentralization, addressing these risks is crucial to ensuring their long-term success.
Text by Pyr Marcondes, Senior Partner at Pipeline Capital.
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