Community DAOs: Rules over profit

Explore Community DAOs, where governance rules over profit. Learn how decentralized efforts are reshaping businesses and non-profits.

People chatting about a community DAO

Decentralized autonomous organizations are revolutionizing community organizations within usual community structures. This term denotes a community pursuing a common goal governed without standard centralized leadership. DAO community members vote on significant organizational matters, such as monetary allocation or product development.

This structure uses blockchain technology to deliver a more democratic management process for projects, businesses, and communities, enhancing collaboration among creators, developers, and investors. Moreover, groups don't have to originate as DAOs; it is possible to incorporate these principles into pre-existing community structures.

Although intended to challenge conventional business governance models, DAOs have difficulties. This article examines DAOs as community-centric entities, evaluating their advantages and shortcomings to ascertain whether this novel business model can be broadly adopted and, if so, how to facilitate it.

What is a community DAO?

A community DAO is much like a typical decentralized autonomous organization, whereas it functions without a central authority, employing a bottom-up approach. Token ownership within a DAO enables community members to vote on different initiatives. Smart contracts are utilized, and the code-directing operations are publicly available.

DAOs greatly improve organizational agility, enabling community participants to collaborate, develop products and exploit new markets and emerging trends much faster than conventional corporations.

Why are communities so pivotal to DAOs?

A DAO's emphasis transitions from a hierarchical and vertical construct to a community-driven organization that disregards managerial roles, favoring instead encoded rules that permit the entity to operate independently from its members.

Referred to as 'decentralized governance,' this approach contrasts sharply with a centralized structure where executives and shareholders often wield excessive power and control.

Owing to this unique system, DAOs pledge to foster a community-centered focus, where individuals develop collectively rather than prioritizing profit that permits only a few shareholders to distribute the earnings.

Benefits of DAO communities

DAO automation

Community-oriented DAOs benefit from extensive automation, freeing individuals from onerous and distressing tasks connected to cumbersome bureaucracy, thus facilitating prompt decision-making.

This structure allows DAOs to be sustained by a community of individuals working remotely from any global location without requiring a physical base. In the progressively digitized age underpinned by blockchain technology, this represents a distinct advantage and affirms an unexplored working culture.

Such geographical decentralization ensures that the DAO is not confined to a particular country or jurisdiction, granting additional autonomy in processes, regulations, and control and greater ease in conducting international operations.

Communities can do more

Automating operational tasks eases community coordination, which can be notably tricky in sizable centralized corporations where managing extensive groups may be intricate. Without the direction of leaders, managers, or executives, these substantial groups of workers (or donors, as may be the case in DAOs) may find it challenging and costly to collaborate effectively towards a shared objective.

The automation within DAOs, termed programmable coordination, has the potential to significantly diminish operational and functional costs. Simultaneously, it can boost motivation and productivity among members, instilling a sense of ownership and pride.

DAO tokens for the community

Blockchain and DAOs are inherently interconnected, as the most promising DAOs utilize blockchain technology for task automation and native crypto tokens for operation. Issuing a project's native tokens is a crucial component of DAOs, enabling communities to enjoy rights like voting, proposing, and generating revenue.

Community crowdfunding can be arranged using native tokens with relative speed. This process contrasts with the potential delays in securing venture capital (VC) funding, which might be more challenging to obtain quickly.

Aid community causes

DAOs, often seen as the future of businesses, can also embody non-profit philanthropic organizations, including charities. These generally consist of vast groups or communities with aligned principles and goals and can thrive through the automated efficiency, decentralization, and transparency characteristics of DAOs.

Transparent crowdfunding facilitated by DAOs can swiftly aid good causes, rendering processes and objectives more lucid and efficient.

Community governance

DAO platforms enable businesses and organizations to partake in a fruitful, collective experience free from central management. Participants contribute to and support the company, sharing the profits directly.

DAO governance varies, but the prevalent method involves issuing governance tokens.

For instance, quantitative tools can facilitate community governance in evaluating and managing risk. Various approaches concerning system metrics allow for assessing value, liquidation, and collateral risks.

Participants can avail themselves of open-source templates tailored to their business requirements, such as record-keeping. Adapting a template to match a business's needs may necessitate modifications to a smart contract code. This change is relatively straightforward and enables the company to maintain its autonomy without engaging third parties.

Concerns about community DAOs

Despite these benefits and many others like them, there is still no internationally agreed-upon regulatory approach to DAOs. There are about 13,000 DAOs, with a combined total treasury (invested funds and liquid assets) of nearly US$23 billion as of May 2023. This means that without great care, participants are exposed to high legal and tax risk levels. There is also an ongoing debate about the evolution of DAOs and whether it is necessary for DAOs to sacrifice a level of autonomy and decentralization to fit within existing legal and regulatory frameworks.

Some examples include Friends with Benefits (FWB), Bored Ape Yacht Club, LexDAO, Bankless, CityDAO and INO.

While the decentralized nature of DAOs is revolutionary, it's not without its challenges. And that's where the importance of setting standards comes into play.

The Road Ahead for Community DAOs

DAOs are projects with significant potential to enhance organizational methods, yet they may not be prepared for broad adoption.

For example, early-stage entrepreneurs seek more than merely funding; they desire expertise within their teams to prosper. Critics question whether the DAO model can simultaneously supply capital and know-how to burgeoning businesses. Nevertheless, emerging projects, even those that may fail, contribute to resolving technological and systematic challenges inherent in every innovation.

For DAOs to truly thrive and gain mainstream adoption, there needs to be a clear set of guidelines or standards. This ensures that DAOs operate within the bounds of legality and fosters trust among its members and the broader community.

Enter INO (Internet Native Organization).

Our mission is to provide these much-needed standards. By aligning with our guidelines, DAOs can ensure they're built on a foundation of trust, transparency, and innovation. And it's not just about setting the bar; it's about raising it.

This post was published by David Bailey — a digital marketing expert and contributor to Internet Native Organization.