Why do we need DAOs?

Problem statement

Common corporate entities such as the Limited Liability Company (LLC) have served us for many decades. With the advent of the World Wide Web and the increased international cooperation that came alongside it, nationally registered corporate entities seem like relics from the past**.**

Some benefits that DAOs offer compared to traditional organizations.


=> Corporate entities are registered on a national level, and it is tedious (and costly) to set-up international corporate structures. Also they are often opaque black-box entities - adding new people or engaging in global corporate endeavors may take years of legal proceedings.

Solution: DAOs are able to operate globally, in any time zone without the need to produce a complicated bureaucratic processes - leveraging auditable smart contract tooling users may engage with DAOs with confidence in their ability to be remunerated in a secure and timely manner.


=> Corporate structures often tend to focus on maximizing profits around a service, neglecting long-term social and environmental impacts.

Solution: DAOs allow people to come together and work on common missions just as easy as joining a chat group. By formalizing a contractually binding work statement people collaborating may confidently proceed in their work, knowing that compliance and regulation within the organization is mandated.


=> Most people in organizations are employees who dedicate a large part of their life to an organization but never receive a (real) share of it, or get a real vote in it.

Solution: DAOs are driven by democracy and remove some of the principal-agent based systems from the organization. DAO-native-tokens give them the share and the voting power.


=> Except for finance departments and management, it is hard to know how exactly what funds are available and how they are managed. This opens the door for mismanagement of funds and even to fraud and corruption.

Solution: In DAOs the fund are transparently stored in publicly auditable blockchains - the community votes on how the funds are distributed. Various degrees of anonymity may exist depending on underlying infrastructure, but ultimately all transactions and contracts are auditable on their respective chains.

Governance in DAOs

Comparison between DAOs and traditional organizations and governing processes.

DAOA traditional organization

Voting required by members for any changes to be implemented.

Depending on structure, changes can be demanded from a sole party, or voting may be offered.

Votes tallied, and outcome implemented automatically without intermediary.

If voting is allowed, votes are tallied internally, and an outcome of voting must be handled manually.

Activity is transparent and fully public.

Activity is typically private, and limited to the public.


What are DAOs?

Crypto tokens and decentralised financial applications

Blockchains, Smart Contracts, Decentralised Autonomous Organisations and the Law **** p. 19

The Rise of Decentralized Autonomous Organizations: Opportunities and Challenges p. 163

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