DAOs (Decentralized Autonomous Organization)
DAOs operate as blockchain-based entities, sharing a fundamental organizational principle with traditional counterparts: they must serve a defined purpose. The distinctive nature of DAOs lies in their inherently decentralized nature enabled by smart contracts and other on-chain functionalities that also make them autonomous to a certain degree. However, they rely on individuals for tasks beyond their automated capabilities. As such, they involve a community of DAO members, often referred to as internal stakeholders, who are fundamental for the operation, governance, and development of the DAO.
From an organizational perspective, DAOs can be broken down into fundamental elements that influence their overall design. The abovementioned purpose is intricately tied to the use case, a crucial factor influencing various layers of the DAOs’ structure. Additionally, the legal structure adopted by a DAO can significantly impact its organizational design, with some DAOs opting for a council vested with special decision-making powers. Recognizing the profound influence of Purpose, Use Case, and Legislation, these elements take on a special role, affecting all organizational layers. Therefore, these elements form the constituent elements in our design framework.
Three Constituent Elements
DAOs utilize blockchain technology to coordinate and manage activities through self-executing computer programs, bypassing the need for traditional management or employees.
Purpose
DAOs can be understood like any other organization as a group of people (membership) who organize themselves in a specific way (governance) with the aim to achieve a shared mission (purpose). This shared purpose is important in guiding participants. With the definition of a clear organizational purpose, the goal is given towards which all decisions and activities of the organization should be directed.
Use Case
By introducing decentralized decision-making and empowering community members to collaboratively shape a DAO’s use case, DAOs introduce the notion of inclusivity within their value creation. Hence, DAOs represent a paradigm shift in organizational design, offering new possibilities for co-creation and enabling shared revenue generation through various services and avenues within their ecosystem.
Legislation
Some DAOs are structured without a legal entity, offering participants greater control over decision-making processes and reducing reliance on centralized authorities. Since it may pose challenges in terms of legal recognition, regulatory compliance, accountability, and liability and with the aim of creating legal certainty and protection, many communities therefore decide to wrap their DAO in a legally recognized organizational entity, such as an association or foundation.
Five structural elements
In a DAO, the structural elements of organizational bodies, decision-making, tokens, treasury, and communication form a complex interplay that supports operations and viability. These elements are closely interlinked as they each affect and are affected by the others.
The organizational bodies in particular have a profound influence on the entire DAO structure, as the design of the bodies also determines the rights and responsibilities of the members, how decisions are made, and resources are managed in DAOs. Decision-making processes in DAOs further depend on transparent participation and fairness, which requires clear communication channels facilitated by the organizational framework. The flexibility of these processes is crucial to effectively adapt to changes in DAO objectives, member dynamics or governance structures. Tokens, which are an integral part of DAO functionality, incentivize member engagement, allocate economic rewards, and grant voting rights.
Organizational Bodies
An organization must establish its boundaries by defining its members, often referred to as the ‘community’ in DAOs. This community can be further categorized into subcommunities or organizational bodies, each with specific roles, functions, and rights.
Token
In DAOs tokens primarily serve as a central element for governance, incentivization and operational structuring. Tokens help encode the rules and protocols of a DAO using smart contracts on a blockchain, reflecting the organizational structure.
Communication
Clear and transparent communication channels are essential for building trust among participants, especially in the early stages when decisions are often made by a centralized founding team aligned with the DAO’s mission. At this early stage, the role of communication is clearly focused on articulating the common purpose and aligning members with the collective goal.
Decision-Making
The involvement of a broad community is one of the key aspects, which requires closer consideration due to its central role in shaping the blockchain-based governance paradigm. In traditional organizational structures, decision-making power is often hierarchically centralized, whereas DAOs distribute this power among its members and foster a culture of collective participation within its community.
Treasury
The treasury is another key structural element in the design and operation of DAOs. It comprises the management and allocation of the DAO’s financial resources, which usually consist of digital assets such as cryptocurrencies and NFTs but also potentially fiat money or real-world assets.