Why Decentralized Autonomous Organizations Matter

What Is a DAO?

A DAO has no central governing body for the organization—no CEO or board of directors making all the decisions. It's also autonomous, meaning that the people who buy into the DAO have a say in what happens within it, where funding is allocated, and the future direction of the organization.

You might hear words like decentralized and autonomous and think that means non-profit organizations but the system also works very well for for-profit organizations. A DAO stands out because of the smart contracts that it's built on.

With centralized organizations, those who hold the biggest stake in the company can determine its direction. And that means, generally speaking, that at any time, someone can come in and purchase a large share of a company to change its direction. With a DAO, that's not possible.

The direction and role of the company are predetermined and written into the smart contract. Anyone interested in buying into the DAO must agree to those terms before making their purchase. This means that a singular entity, whether a person or a committee, can't buy into a DAO and make decisions driven primarily by self-interest. Rather, everyone who buys into a DAO is doing so to further the mission and goals of that organization.

For example, the Friends with Benefits DAO is a community of people who are passionate about decentralization and want to help shape the future of the technology.

Imagine if you wanted your company to work for a specific cause and every investor in your company was furthering that cause. They wouldn't be able to knock you off course or tell you to change the focus or your cause. And this is just one example of what a DAO can do as an organization.

Why Businesses Should Consider DAOs

DAOs are what businesses and organizations will likely look like in the future. This is because a DAO democratizes the direction of the organization itself, allowing members of the organization—no matter the role they play—a vote or a say in what the organization does moving forward.

For example, in a traditional limited liability corporation (LLC), the person who formed the LLC is sitting at the top making all of the decisions, and then staff and employees follow a chain. The further down the chain you go, the less say you have and the less influence you hold over where that organization goes. All or most of the power within the organization lies at the top, which means that the mission of the organization can change at any point.

In a DAO, everybody from the creator to the newest members who purchased into the DAO has a say and vote in any changes made within the organization. You have to agree to the current terms and direction to buy into the organization, which brings like-minded people and investors together to form the DAO, and once in, any changes can only come about through a majority consensus of all the members.

One of the major benefits of a DAO is that it brings like-minded individuals together to fund and support your organization, which ensures that your goals are shared by your investors.

It also removes a lot of intermediary positions, saving you money. As you're forming the DAO, you don't have to rely on a lot of third parties to make decisions or ensure that things will go a certain way, including legal costs and other typical startup costs. Essentially, you can build a smart contract to help you automate everything that's happening based on the decisions being made by the votes as they take place.

Once something is voted on, it automatically goes into effect thanks to these smart contracts. So you don't need a third-party mediator, which is going to help cut out a lot of costs.

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This is really going to be a big deal for creative entrepreneurs such as musicians and artists who can essentially become the governing body over their own art.

If you're a musician, you can create a smart contract that someone can buy into to receive access to your music. You would receive the money directly from them, rather than other centralized organizations making money off of your music without having to take part in its creation. Musicians will be in control of who has access to their music and who makes money off of their music and in what ratios.

By building a DAO, you build a foundation where you, as the business owner, are in a direct transactional relationship with your audience without the need for handlers and middlemen taking a cut.

What Is a Bounty and How Does It Work?

A bounty works very similarly to an affiliate code. When you have a bounty code, you can attach it to a smart contract, which will then track your referral for that contract. Should someone take you up on your referral and purchase into the DAO, then the smart contract would automatically send you your referral fee, usually somewhere around 2%-5%, depending on the contract.

And again, this is done automatically and almost instantly.

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What You Need to Think About When Structuring a DAO

If you're thinking about creating a DAO, then one of the factors you'll want to consider is how you plan on structuring it. A DAO can be structured on tokens, quite often NFTs, that have those smart contracts built into them.

One of the great things about blockchain itself is that it's all open source. So you can take the code from an existing platform that already does what you want to do with your DAO, see how they're doing it, and then tweak the code and change it into what works for you.

Right now there's still a lot of legal gray area but there are sources for consulting as you start building your DAO.

In the meantime, you can start by determining what the DAO's goal would be.

For example, if the goal of your DAO is to build a virtual museum like EpicNFTs, then you would want to structure your smart contracts to send funding over to the museum as people purchase the tokens into your DAO.

Because this is something that has to be determined before you can build and structure the DAO, it's not a mission that can be adopted later. That will help ensure that people who buy into the DAO hold the same interests you do. This means, of course, doing your research to know that there are like-minded people out there who are ready to buy into your mission and join your DAO.

You'll also want to take some time building out your communications hub or your community. This is where the members of your DAO can gather, online or in person, to keep up with news and updates. And again, the membership and access into this community can also be handled automatically with the smart contract coded into the token, making building the community fairly simple.

Where DAOs Are Headed in the Future

As we mentioned earlier, the DAO is shaping up to be how many businesses will run in the future. Organizations will start joining their physical products and services with their audiences' virtual realities.

For example, identification cards, real estate deeds, and art will be sold as digital NFTs funding the DAO while providing people with digital proof of ownership of these things. And because everything on the blockchain is instant and transparent, this is going to put a huge amount of power back into the hands of the people who use those things.

Because of this transparency, nothing can be hidden. Every change is out in the open. Every time a house has been worked on, appraised, or renovated—it would all be available inside the token automatically and no one would be able to remove it. This means the person buying that property would know everything involved and the seller wouldn't be able to hide any of it. Similarly, any transaction that would go through escrow would be transformed because the third-party intermediary (such as an escrow officer) would be baked into the token.

Additionally, through the advent of DAOs, people are going to have much more purchasing power. Because they can come together into a DAO, they can fund the organization with other like-minded people. We'll see fewer and fewer organizations being managed by a single individual or group that's able to make decisions based on self-interest instead of the organization's mission.

Other Notes From This Episode

• Check out OpenSea and Friends With Benefits.
• Connect with Michael Stelzner at @Stelzner on Instagram.
• Watch the interviews on the Crypto Business YouTube channel.