DAOs: An Institutional Guide to Decentralized Governance

In our recently published paper, Arca provides fundamental information about decentralized autonomous organizations (DAOs) for institutions transitioning into the age of tokenized ecosystems. This guide explores the components, purpose, functions, and practical applications of these nascent entities and the opportunities and challenges for this compelling governance approach.

In recent years, civil unrest, wars, financial downturns, and a pandemic have rattled confidence in traditional institutions, energizing the search for new possibilities. Technological advances have often satisfied that pursuit; blockchain technology, in particular, has stimulated innovations that disrupt established ideas and practices—especially those pertaining to centralization. Powered by blockchain and Web3, DAOs seek to modernize the formation of talent and capital as a means to efficient and democratic collaboration. 

DAOs are blockchain-based, self-governing organizations that enable participants to work toward a common goal on a trustless network. They offer a novel way of attracting, governing, and incentivizing talent by integrating blockchain into the organizational framework. DAOs start with an idea, are organized using smart contracts, and stimulate action by granting access, voting rights, and ownership to contributors in exchange for governance tokens. Participants then use tokens to vote on topics relevant to the DAO’s mission.

DAOs are early in their lifecycle, and many applications are theoretical, but the earliest models demonstrate how DAOs could enhance resource coordination, human organization, and idea generation. Here are 3 practical applications of DAOs: 

1. Raising Capital: DAOs can help raise capital more efficiently due to blockchain’s global reach and peer-to-peer transfer function expanding the pool of available resources. Example: ConstitutionDAO raised $47 million from 17 thousand people, with a median contribution of just $206. Such efforts could signal a shift to individual investors, as DAOs unlock access to private investment opportunities.
2.  Recruiting and Retaining Talent: DAOs, as labor organizers, aim to solve personnel issues by aligning mission with value. DAOs attract self-motivated talent by concentrating on a specific goal and inviting individuals to engage based on that shared value. In addition, they strengthen involvement by compensating with ownership and influence, incentivizing workers to engage to make the project successful. Example: Coordinape, a platform for DAOs to easily and fairly distribute resources to contributors, offers a feature that allows members to send tokens to contributors based on their work’s perceived value.
3. Spreading Ideology: DAOs inspire camaraderie as people connect over shared interests and find personal enrichment. While idea generation and dissemination are challenging to monetize and take considerable time, DAOs encourage the spread of information through active engagement and continuous involvement. DAOs integrate humanity and technology to present a method of monetizing ideas. Example: Bankless DAO, an organization focused on the importance of decentralization, coordination, and self-sovereignty, is on a mission to onboard one billion people to open money systems like Bitcoin and Ethereum.

Blockchain technology developed as an answer to the exploitation of centralized power and process inefficiency. Innovations like DAOs challenge conventional ideas of centralization and may inspire a generation of global citizens who prioritize autonomy, ownership, and democratization.

Read the full guide, DAOs: An Institutional Guide to Decentralized Governance and visit our website to learn more about Decentralized Governance.

This post is commissioned by Arca and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.