DAO: Characteristics, Challenges, and Strategies of a New Organizational Model

Introduction

The book "Reinventing Organizations" categorizes organizational models throughout human history into five types, among which the teal organization is regarded as the ideal organizational form for the future, 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 DAOs, the governance challenges they face, and the current strategies to address these challenges.

Definition and Characteristics of DAO

A DAO is an emerging digital organizational form based on blockchain, smart contracts, and cryptocurrency technology. As of August 2024, there are over 50,000 DAOs established globally, with more than 10 million governance token holders and a collective treasury amounting to over $21 billion.

The core features of a DAO include decentralization and autonomy, primarily reflected in the technical and governance aspects:

1. Technical Aspect:

   • Use blockchain technology for distributed storage
   • Automatically execute decisions using smart contracts
   • Follow the principle of "code is law"

2. Governance:

   • Decision-making power is shared among all members.
   • Democratization of the decision-making process
   • Issue governance tokens to ensure members' voting rights
   • Members autonomously participate in community building

The decision-making process of a DAO typically includes: forming proposals within the community, deliberating proposals in public forums, and voting on proposals on voting platforms.

There are various types of DAO, including investment, social, media, etc. They usually have dual goals of profitability and achieving a sustainable community.

Governance Challenges Facing DAO

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

1. Centralization trend of decision-making power:

   • Governance tokens are gradually being controlled by a few "whales" or voting alliances.
   • The organizational structure shows signs of power centralization.

2. Voter apathy and shorter lifecycles:

   • Most members do not participate in proposal discussions and voting.
   • The average lifespan of a DAO is only 18 months

3. Balancing Commercial Interests and Public Interests:

   • Some members only focus on short-term commercial returns, leading to the "free rider" problem.
   • There is a contradiction between pursuing efficiency and maintaining the public interest.

Coping Strategies

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

1. Improve the voting mechanism:

   • Introduce new voting models, such as quadratic voting, quorum voting, reputation-based voting, etc.
   • Implement delegated voting to promote liquid democracy

2. Optimize the economic incentive model:

   • Redistribute tokens through bounties, equity pools, rewards, and other means.

3. Enhance member communication mechanisms:

   • Enhance conflict resolution skills
   • Ensure the equality of the communication process
   • Improve the quality and efficiency of communication and negotiation

Conclusion

DAO represents humanity's exploration of better organizational forms, but there is still a gap between ideals and reality. No organizational design can be perfect; the key lies in the ongoing trade-offs and choices made during the governance process. In the future, we need to think about the applicable scenarios, boundaries, and optimization of decision-making mechanisms for DAOs. Although a perfect DAO may be difficult to achieve, the core values it pursues will continue to drive the optimization and advancement of human organizational forms.