As a researcher with a passion for AI, web3, finance, and computer science, I have always been drawn to the potential of decentralized autonomous organizations (DAOs). My journey into the world of DAOs began when I built a paper trading platform for cryptocurrency, aiming to introduce more people to this exciting digital landscape.

Ever since David Chaum’s 1982 thesis proposed decentralized blockchain technology, there has been a drive towards establishing systems that operate without the influence of a central authority, especially due to concerns about corruption. Nowadays, Decentralized Autonomous Organizations (DAOs) are coming into being as potential replacements for traditional organizational structures such as LLCs or non-profits.

Imagine a scenario where DAOs (Decentralized Autonomous Organizations) could collaborate with traditional, centralized institutions, yet preserve their inherent nature – being self-governed, decentralized bodies that make decisions collectively among their members.

The Wyoming DAO law 

2021 saw Wyoming pass the “DAO Supplement for Decentralized Autonomous Organizations.” This legislation acknowledges DAOs as Limited Liability Companies (LLCs), granting them the ability to engage in legal agreements and own property. This change eliminates the necessity of off-chain holding companies, thereby offering DAOs avenues to secure funding through token sales and conventional financing methods.

Furthermore, Decentralized Autonomous Organizations (DAOs) can now capitalize on research and development facilities, hire personnel, and make use of RegTech solutions, without compromising their core values of transparency, democracy, and decentralization. This legal acknowledgment provides DAOs with the opportunity to work harmoniously with traditional centralized entities, merging their unique advantages to drive innovation and expansion.

The benefits of collaboration explored

At first, blockchain initiatives were developed as one large unit, combining all components into a single system. Yet, as the technology evolved, it became essential to focus on specialization and enhancement at every layer to achieve better scalability and efficiency.

Decentralized Autonomous Organizations (DAOs) can greatly benefit from the advantages held by centralized organizations, such as abundant resources, defined procedures, and connections to conventional financing methods. These perks can greatly assist DAOs in expanding their activities and streamlining legal transactions.

In addition, one major advantage of these collaborations is improving the way decisions are made and governing projects. Decentralized Autonomous Organizations (DAOs) are particularly effective in this area due to their decentralized governance structure, allowing members to actively shape a project’s course. This broadens the range of perspectives involved. Moreover, employing various voting methods like Quadratic Voting ensures a more equitable representation among participants.

The opportunities are far from complete

To strengthen this partnership even more, let’s take advantage of one of the primary advantages of DAOs and blockchain technology: transparency. By merging DAOs with decentralized finance, we can establish systems where every transaction gets permanently documented and associated with a community vote. This means that all spending within an organization will be completely transparent and answerable to its members, promoting accountability.

Enhanced transparency could fundamentally shift the way conventional institutions manage expenses. It serves to detect fraudulent activities promptly and allows for clear visibility into how funds are being allocated. This becomes particularly crucial for non-profit organizations, as it enables members and contributors to trace their contributions directly, thereby avoiding cases similar to the Arts Center Scheme, where an employee at a low-level accounting position embezzled over $1.1 million.

A significant advantage lies in the implementation of smart contracts for automating various procedures. These smart contracts function by executing specific actions once certain requirements are fulfilled, thereby simplifying tasks and minimizing administrative workload and human mistakes. Moreover, they guarantee that all operations are conducted openly and in compliance with prearranged regulations, thereby enhancing trust and accountability across centralized and decentralized systems.

The potential shortcomings

As someone who has spent years working with both decentralized autonomous organizations (DAOs) and traditional centralized organizations, I have seen firsthand the challenges that can arise when attempting to combine these two systems. While there are certainly benefits to leveraging the best aspects of both, it’s important to recognize and address the potential issues before diving in headfirst.

One issue often discussed about Decentralized Autonomous Organizations (DAOs) is the expense associated with casting votes. As votes need to occur on the blockchain for a smart contract to be executed, the fees related to these transactions can accumulate swiftly, particularly when there are many proposals under consideration.

One proposed solution is voting off-chain. However, off-chain voting introduces the risk of manipulation and centralization. An alternative approach involves using zk-rollups, which execute transactions on a zk-rollup L2 chain. This method batches transactions and sends them to the L1 chain, drastically reducing fees and increasing efficiency.

A primary issue is that adding a centralized element to a decentralized network (like a DAO) can weaken its value and introduce substantial risks. Even though Wyoming’s DAO law doesn’t mandate the principal stakeholders to reveal their identities, it’s crucial to note that dealing with financial institutions or participating in regulated activities might necessitate personal identification due to operational and legal concerns.

The means for the future

The alliance between Decentralized Autonomous Organizations (DAOs) and traditional centralized entities presents a wealth of opportunities for shaping the future. This fusion might revolutionize aspects like governance, transparency, and operational effectiveness across multiple industries. By merging the decentralized characteristics of DAOs with the resources and established systems of centralized organizations, we reap the benefits of both models.

In the future, it’s likely that additional areas will establish laws akin to Wyoming’s DAO law, thereby granting Decentralized Autonomous Organizations (DAOs) the legal standing they require. This move would enable DAOs to coexist harmoniously with traditional entities, fostering effortless cooperation and encouraging technological advancement.

In this combined structure, we maintain the openness and democratic nature of Decentralized Autonomous Organizations (DAOs), all while incorporating the productivity and resources typically found in centralized entities. This unique fusion of decentralized and centralized systems could revolutionize how organizations function, leading to a more democratic and efficient future for governance and operations.

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2024-08-12 15:37