Revisiting 1602: Are DAOs the New Enterprise Paradigm?

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Original translation: Block unicorn

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In 1602, the Dutch East India Company was founded in what many believe to be the world's first initial public offering - allowing complete strangers to buy ownership of shares.Four centuries later, the joint-stock model—especially its embodiment as the modern business "corporation"—sets the pace for much of the economic world.

However, decentralized autonomous organizations (DAOs) may soon disrupt joint-stock or capitalized business models, just as the Dutch East India replaced limited partnerships at the time.

Or as some might say: "DAOs are the new limited liability companies (LLCs)," DAO investor Cooper Turley said of these leaderless internet-native entities whose key decisions are often made by consensus . “Five years from now, companies won’t have equity. They’ll have tokens, and they’ll be represented as DAOs,” added well-known investor Mark Cuban. “As DAOs take over traditional businesses, the company’s The future could be very different.” Others see DAOs challenging venture capital firms in the race to fund Web3 projects.

“I think DAOs are already displacing traditional corporations,” Sam Miorelli, an attorney who has been active in a number of DAOs, including Curve Finance, told the magazine. “The promise of a DAO is an opportunity to return to the historical norm of project-first, where smart people with great ideas can get funding and build communities around projects without first finding a legal budget.” These decentralized autonomous organizations have something unique Characteristics. According to law professor Aaron Wright:

"The DAO is not governed by a board or manager, but is designed to be governed by a democratic or highly participatory process or algorithm."

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DAOs in 2016

Back in 2016, things didn't look so rosy when one of the first decentralized autonomous organizations -- the unhelpfully named "The DAO" -- was launched on the Ethereum blockchain network. Months after its founding, “The DAO” was hacked, losing $60 million, causing a violent split in the still-nascent ethereum community, culminating in a “hard fork” to restore the stolen funds. For some time, "The DAO" has cast a pall over decentralized autonomous organizations.

Specific details about The DAO theftClick here

Today, these transparent community organizations still face serious regulatory and legal challenges. Do they need to pay taxes? Can they open a bank account or sign a legal agreement? Can they sue other DAOs?

"There is no 'Model DAO Act,' just as there is a 'Model Business Corporation Act,'" write attorneys Louis Lehot and Patrick D. Daugherty. They are "legally unprecedented." Key decisions, such as deciding how funds are spent, are typically voted on by thousands of members/owners. Needless to say, decision-making can be troublesome.

A couple of things about DAOs: They're typically cooperatives hosted on blockchains like Ethereum (but not Bitcoin) that work on blocks of software code called smart contracts that automatically execute when certain conditions are met. For example, if an airline flight is delayed by four hours (i.e. the condition), smart contract code is used to trigger a payment via mobile phone to a passenger who has purchased a flight insurance policy.

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A better business model?

“DAOs have a future,” Erik Vermeulen, a professor of business and financial law at Tilburg University, told the magazine, which means constantly exploring and testing for weaknesses, given their transparency, security, and open-source governance protocols. Furthermore, they discourage "rent-seeking," the manipulation of public policy or the economy to increase profits. It's akin to companies lobbying the government for subsidies. Due to their distributed nature, they are designed to discourage natural and political monopolies, Vermeulen added.

But are they really superior to traditional organizational business models? Not everyone agrees. “The current token system doesn’t necessarily prevent monopolies, because someone could own a large number of DAO tokens and thus could control the outcome of the vote,” Sarah Hammer, managing director of Wharton’s Stevens Center for Financial Innovation, told the magazine. Add to:

"All DAOs are different, some DAOs are structured to promote inclusivity, while others limit their membership in response to something called token gating. Token gating requires DAO members to Discord server or website before verifying that they hold the DAO’s NFT tokens in a crypto wallet.”

Eric Lim, a senior lecturer at the University of New South Wales, told the magazine: "The defining attribute that makes a DAO different from organizations of the past is the use of the blockchain as a root of trust," so that the input and output of decisions are immutable and auditable. ’ This represents an advance over traditional centralized organisations, which Eric Lim calls a ‘zero-sum game’.

Over the past year, DAOs have garnered more attention in the mainstream media, revealing their strengths and weaknesses. For example, ConstitutionDAO, launched on short notice in November, raised $47 million in a few days to bid on a rare first printed copy of the U.S. Constitution auctioned by Sotheby's.

Described as a “financial flash mob,” The DAO gathered more than 17,000 “donors” — a landmark achievement in the eyes of many, and one that, if successful, would hand over historic documents to the Many" (for example, in a museum), rather than one owning it and probably never displaying it again.

However, once bidding begins, it is clear that the DAO's transparent decentralized structure can be leveraged. Everyone knows how much ConstitutionDAO has raised and how much can/will be bid. “The problem with ConstitutionDAO is that the highest possible bid is completely transparent,” David Friedberg explained. “Sellers will only bid on the DAO to get their top bid.” Citadel CEO Ken Griffin went home with the rare document.

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growing pains

However, the experience has not discouraged DAO proponents, who assert that, as with any innovation, growth challenges are to be expected. These entities are designed to thrive in the Web3 era. Additionally, the DAO's decision-making process could be simplified by implementing digital-age variants such as delegated voting, so owners (i.e., token holders) busy researching the details or fine print of a proposal can assign their votes to trusted people. third party.

As Paul Brody, EY’s global blockchain leader, explained, shareholders in large companies today can vote out management if it underperforms. In practice, this rarely happens, but delegated voting changes everything. "Delegated voting rights will be a revolution, not just for DAOs,” Brody told the magazine, adding:

“With widespread investment in blockchain and traditional stock markets, it becomes possible to track key issues ranging from executive compensation to carbon footprint. Delegating your vote to competent experts in the industry will put owners in these There is a stronger and clearer voice in the management of the company."

“Smart contract-based voting schemes could allow more people to participate in decision-making, at least compared to more cumbersome and expensive systems for collecting and validating votes,” Wright said. “The availability of smart contract voting protocols may allow some businesses to adopt their own tailor-made distribution of decision-making power among participants.”

DAOs can also change who a project hires and how they are paid. "There's no doubt that DAOs are the future of work," Anne Connelly, a faculty member at Boston University's Questrom School of Business, told the magazine. "In an increasingly global society, the benefits of being able to recruit internationally and pay across borders in cryptocurrencies will provide an unprecedented competitive advantage." Connelly said these autonomous organizations provide participants with greater more powers that may be possessed in the Workers "have more autonomy over the outcomes of their work, and workers in developing countries will be less likely to fall prey to geographic class divides."

Others, however, are more cautious. “We’re not quite there yet,” Vermeulen said, adding that DAOs still have technical and operational flaws and could be vulnerable to “Sybil attacks” and “51% attacks,” while Guillaume added that “DAOs may not replace Traditional corporations but offering new alternatives to existing corporate and social organisations. They will be the organization of choice for a particular case, but this will be greatly influenced by legislation and how DAOs are legally treated,” further explaining:

“Entrepreneurs and others looking for a legal structure to launch new ventures may be more inclined to choose to create a DAO if this type of organization has legal personality and provides limited liability for its members.”

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Governance challenges remain

DAOs need to overcome some key hurdles — like decentralized governance structures that sometimes don’t handle conflict or competition well. "Coordinating and organizing events in dispersed communities is definitely difficult, complex and clumsy," Lin said. Meanwhile, Guillaume added: “The DAO governance structure needs to reach a point where managing resources with smart contracts is easier and more adaptable than using traditional organizational structures.”

However, DAOs cannot completely remove the human element and all the limitations implied in it. “DAOs cannot solve human organizational problems, but neither can corporations. There is no legal or organizational structure that can eliminate human conflict,” Miorelli said, adding that any well-organized effort can try to manage these conflicts.

Before declaring that DAOs are the future of organizational business models, there are other reasons to hesitate. There is a danger of converging, e.g. DAOs morphing into companies that resemble traditional top-down management. Here's a question on Brody's mind: "When does a DAO stop being a true participatory ecosystem and start looking like just another style of shareholder-now stakeholder-owned company that owns A full-time management team and a very corporate - like hierarchy?"

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More regulation on the horizon?

Additionally, some DAOs seem too good to be true — such as OlympusDAO, which at one point paid 2,681.5% APY for those willing to stake their OHM tokens. Some see The DAO as nothing more than a Ponzi scheme, others think it could be the future of DeFi. But the hubbub surrounding it suggests that more regulation of these internet-native entities is likely. Will this secure the DAO's future?

The answer is not clear. Hammer noted that while some U.S. states, such as Wyoming, have enacted legislation on DAOs, "many other states have not done so. Additionally, some DAOs may specifically address federal regulations and securities laws."

"I don't think DAOs will replace traditional corporate forms anytime soon," Hammer told the magazine. For example, traditional corporations formed under Delaware corporation law "contain structures, though imperfect—such as proxy voting—that have stood the test of time."

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Cross-border cooperation

Overall, there is a lot of excitement about DAOs. "The DAO is the first structure that enables large groups to collaborate digitally with full trust and transparency."

“Using blockchain, a large group of geographically dispersed people—many of whom can remain anonymous—can now collaborate while trusting that any decisions made are the genuine will of the community,” Connelly told the magazine.

It also involves "a cool blockchain technology that treats everyone in the community equally" and allows for "a different incentive structure than we're used to." It’s about inclusive ownership and doing what’s right for the community,” Eric Lim added. Still, it’s unlikely that DAOs will completely shy away from governance challenges that challenge traditional commercial organizations, Miorelli warned:

“The entire university sector is focused on optimizing the organization, and I don’t think a DAO will require any less discipline than a traditional corporation. Regardless of the legal structure or name, it’s the people that matter.”

DAOs also require a consensus mindset, which may take some getting used to. Eric Lim has experimented with several DAOs, which he says stand in stark contrast to how universities operate. "In a DAO, I have to convince almost anyone to fund a project," he said. “Also, people are motivated to talk to me. There is a consensus that if projects that provide value to the community are funded, the community will grow.”

So, does DAO really represent an improvement on something that already exists?

Eric Lim said: "I'm an optimist and I believe in the intrinsic value proposition of DAOs. People criticize DAOs - they are clumsy, messy and unmanageable, the same as people criticize the philosophy of democracy. In my opinion , both are permanent works in progress."