DAO: Core Characteristics, Governance Challenges, and Response Strategies of the Emerging Organizational Paradigm

Preface

The book "Reinventing Organizations" summarizes the organizational paradigms in human history into five colors and provides an in-depth analysis of their characteristics. Among them, the teal organization is regarded as the ideal form of future organizations, characterized by distributed decision-making, self-management, and evolutionary purpose. In recent years, the rise of Decentralized Autonomous Organizations (DAO) represents the cutting-edge practice of the teal organization concept. This article will explore the core characteristics of DAO, the governance challenges it faces, and the current strategies to address these challenges.

Definition and Characteristics of DAO

A DAO is an emerging digital organization paradigm rooted in cryptocurrency and blockchain technology. As of August 2024, there are over 50,000 DAOs established globally, with more than 10 million governance token holders and a total treasury amount exceeding $21 billion. DAOs demonstrate significant potential to reshape the way humans organize and collaborate.

The core characteristics of a DAO mainly revolve around decentralization and autonomy, involving both technical and governance aspects:

1. Technical aspect:

   • Blockchain-based distributed storage
   • Smart contracts that can automatically execute decisions
   • The practice of the "code is law" concept

2. Governance Level:

   • Decision-making power is shared among all members
   • The democratic nature of the decision-making process
   • Use governance tokens to ensure members share voting rights
   • Follow the principles of consultative and voting democracy
   • Members participate autonomously

The organizational goals of a DAO combine both profit and the achievement of a sustainable community. In summary, a DAO can be defined as: a form of organization based on blockchain, smart contracts, and cryptocurrency technology, where decision-making power is shared among all members, with community members voluntarily participating in proposal-based democratic decision-making, aimed at achieving business profits and common community interests.

The Governance Dilemma Faced by DAO

Despite the inspiring vision and advanced organizational concepts of the DAO, it still faces numerous challenges in practice:

1. Centralization trend of decision-making authority:

   • Governance tokens are gradually being controlled by a few "whales" or voter alliances.
   • Different permission levels appear in the organizational structure
   • Establishment of central authority institutions (such as committees, central councils)

2. Voter apathy and shorter lifecycles:

   • Low participation rate in the governance process
   • The average lifespan of most DAOs is only 18 months.

3. Balancing Commercial Interests and Public Interests:

   • The "ride-sharing" issue occurs frequently.
   • The contradiction between pursuing efficiency and democratization

Strategies for Achieving Sustainable Governance

To address the governance issues mentioned above, the DAO is exploring various strategies:

1. Innovation of the voting mechanism:

   • Quadratic voting
   • Legal quorum voting
   • Reputation-based voting
   • Delegated Voting (The Practice of Liquid Democracy)

2. Improvement of economic incentive and distribution models:

   • Bounty System
   • Equity Pool
   • Reward Mechanism
   • Tip system
   • Employment Contract

3. Enhance the communication mechanism for members:

   • Enhance the ability to resolve conflicts in decision-making communication
   • Ensure the equality of communication processes among members
   • Improve the quality and efficiency of communication and negotiation.

Conclusion

DAO carries humanity's hopes for better organizational forms, but there is a gap between ideals and reality. The fundamental issue faced by organizations has always been how to achieve and maintain effective governance. DAO is not the ultimate answer to all organizational governance problems; instead, we should explore some practical issues: under what circumstances is it necessary to organize people in a DAO manner? What are the boundaries of DAO? In a DAO, which decisions are suitable for "collective brainstorming," and which require "a final say"?

Although these issues may not have standard answers, the core values pursued by the DAO are the true driving force behind the continuous optimization of human organizational forms.