Two Cents: So what exactly is a DAO and do you need one?

For the uninitiated, DAO stands for Decentralised Autonomous Organisation. It’s a bit of a convoluted moniker but it refers to a flatline company structure with one major difference, notably no management.

A traditional company is based on a rigid hierarchical management structure much like a pyramid. Sitting at the apex is the CEO as the big boss, followed by the executive board. Then comes the upper and middle management followed by the workforce at the base. Many feel this classic corporate model is due for an upgrade.

Within a DAO, things look very different. There is no such thing as the traditional form of the management hierarchy as upper and middle management are deemed surplus to requirements. In their place is an autonomous self-managed organisation with employees given significant authority.

This decentralized decision-making and power may be a little scary for some (particularly those bosses and middle managers who would be made redundant) but the DAO concept is gaining traction, especially in influential circles within Silicon Valley. As companies rethink how to design their workforces during this next industrial revolution (Industry 4.0), everything is on the table.

DAOs are not exactly new. They emerged out of the 2008 Global Financial Crisis more than a decade ago as the platform for cryptocurrency economies. Genuine DAOs are built on blockchain technology where all members work in a peer-to-peer manner through smart contracts. Decision-making is spread across stakeholders, and the organisation is essentially leaderless.

Given its roots, DAOs have been widely adopted by a number of cryptocurrency networks including Bitcoin. But DAOs are still in their infancy in terms of development. Like all new technologies, glitches and flaws appear that need to be ironed out. For DAO, it was the 2016 hack of a smart contract on the ethereum blockchain which exposed critical vulnerabilities, proving these systems are not immune from rogue activity. But this only caused a short-term dent in their popularity and actually raised awareness of this new corporate organisational structure.

One of the biggest challenges (and also opportunities) for DAOs is the process of developing new governance protocols. Then there’s the seismic change in attitudes in how companies should be structured.  DAOs require adopting entirely new ways of thinking and won’t work for all types of organisation. Even in a small, agile startup, being decentralized and autonomous may not work if the building blocks aren’t in place.

As your starting point, you have to believe wholeheartedly in autonomy, privacy and open source. This is all very different from today’s paternal and top-down power structure. But the rewards could be huge in terms of increased productivity, higher profits and more engaged employees who are all equally vested in the organisation.