The current DAO infrastructure is not truly decentralized, but it can

Explore the challenges and potential of decentralized autonomous organizations to transform traditional corporate structures.

Over the past few years, blockchain technology has paved the way for a new governance model known as a decentralized autonomous organization (DAO). The idea of a DAO is to do away with a centralized hierarchy that completely controls all decision-making within a given company. It upends traditional corporate structures and empowers shareholders to vote on future proposals for the organization.

Unfortunately, this doesn't work very well in practice. Early attempts were riddled with problems, many of which boiled down to the fact that these systems were not as decentralized as they seemed. Fortunately, DAOs were built in such a way that they could deliver on the promise of their predecessors, and now is the time to see this transformation in action.

An honest look at the first generation DAO

DAOs seem like an idea whose time has come. At first glance, the concept of an organization that grants voting rights to each member seems pretty fair. This also fits with the general sentiment behind the creation of blockchain technology. However, just because these organizations are designed to be decentralized doesn't mean that's how they operate in the field. In fact, the term DAO is often used loosely, and the reality of a given organization is far less decentralized than they advertise.

In many cases, a relatively small number of governance token holders actually control a significant portion of voting power. This can happen because of their deep pockets, or in the case of exchanges, because they control a large amount of user funds. Sometimes, the DAO community only has superficial control over smaller aspects of a project, making the whole practice a more or less hollow gesture.

Worse, sometimes centralized development teams make decisions regardless of community votes because the DAO has no tangible means of enforcing their wishes. When users start to find their voices diminished by such issues, it can lead to “voter apathy,” reducing engagement and further exacerbating the centralization problem.

On top of that, in some cases, architectures that are advertised as decentralized don't actually effectively eliminate the main benefits that DAOs can bring. However, there are ways around these issues.

What The DAO Needs To Be

Moving to purely decentralized DAO governance is one of the first changes every DAO should implement. This means that no core group of developers has a majority of minted tokens or unfettered power against the will of the community. Any contributor should be allowed to submit and vote on upgrade proposals. These recommendations should be forwarded to the entire community, independently of any other entity, giving all participants a voice. Additionally, the infrastructure needs to be in place to enforce these decisions, removing the power of developers over the community.

Of course, delegating roles and tasks is still necessary, but the DAO community can decide this too. Jobs can be posted publicly, and anyone can volunteer to take on the task. Eventually, other members can vote for the most suitable candidate, distributing work in an elitist fashion.

Another key element of a functional DAO framework is transparency. This is not to say that the manner in which individuals vote should be fully public, but that there needs to be explicit access to voting results and verifiable steps to enforce those decisions. There also needs to be clear communication channels that allow all members, developers and other stakeholders to get the latest news and information about the project, as well as define all the rules of the DAO itself. Building this level of transparency from the ground up is critical to building trust and loyalty among members, making it difficult for any participant on the network to abuse power.

Continuous Evolution

In order for community-controlled governance to be truly effective, there needs to be an ongoing dialogue about the evaluation and ongoing enhancement of DAO performance. These structures should never really be "finished" because future extenuating circumstances may always prompt the need for evolution and change. New risks may arise or unforeseen circumstances may arise in economic conditions. However, this is exactly why truly decentralized governance is so powerful. When a community is informed and has a voice, it can respond organically to new challenges and needs.

The DAO model could bring this technology to a global audience. Any business or project can be run in this way, and it will finally free these systems from the layered approach that leads to failure and corruption. Empowering the entire community with true democratic power and promoting transparent practices is the future of DAOs, and it is time for these organizations to make the shift.