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The crypto sector has had a profoundly disruptive impact on just about every sector in recent years. Now the industry is turning the fundamentals of running an organization upside down by codifying how they are governed in the blockchain.
Decentralized Autonomous Organizations (DAO) are owned and operated by their members, who can vote on operational decisions through a blockchain-based governance token. Unlike traditional companies, DAOs give just about anyone the opportunity to contribute to a shared project with other like-minded individuals and have a say in the direction of the project.
It is this user-centric and community-owned approach that underlies Web3’s ideals. But not everyone is convinced – especially when it comes to who is financing these new ventures.
The debate about Web3’s venture capital financing is very nuanced. While it can be a viable step for startups to scale quickly by leveraging the funds, operational support, and networking capabilities that VCs provide, it has its own caveats. One drawback in particular can be a major pain point for founding teams: how do startups keep the company on top of all relevant perspectives when VCs have the controlling share?
This debate was recently revived by Twitter founder – and former CEO – Jack Dorsey, who focused on the alleged overreach of the venture capital industry in Web3.
While Dorsey’s view that Web3 is just a toy for VCs is somewhat hyperbolic, the point still stands. Centralization of Web3 projects (whether business management or centralized infrastructure) poses problems for transparency and, most importantly, decentralization.
The argument for decentralized decision-making
Blockchain technology has led to the creation of companies that give users more control over the services they want to use. These emerging services are revolutionizing the top-down approach of traditional technology companies, enabling customers to have a say in the development of a new generation of web-based games, apps and businesses.
VCs currently have a monopoly on decision-making in their chosen investments, giving them the power to dictate critical assessments and the direction of these companies. While this sounds reasonable in theory — given the money they offer — it could also mean delaying critical decisions or completely deviating from the original vision for the company.
Under the Web3 model, however, it makes sense that important business decisions should be as decentralized as the infrastructure that underpins them. Decentralized voting through a symbolic governance structure means that everyone – regardless of their ethnicity, creed or financial status – can participate and benefit from being part of a like-minded community of like-minded people, removed from the hierarchical structure of the standard business model.
By adopting this new model and rejecting Web 2’s central gatekeepers, a new business form can emerge that is no longer controlled by a centralized entity. Additionally, it also levels the playing field with entrenched large tech companies by providing tangible incentives for platform usage and real governance over their chosen services.
A new look at democracy
ConstitutionDAO is a true underdog story that perfectly showcases this process and highlights what it really means to be part of a decentralized organization. Launched in November 2021 by a group of crypto enthusiasts, ConstitutionDAO was, as the name suggests, a bid by a DAO to buy the first printed version of the US Constitution.
ConstitutionDAO has raised nearly 11,000 ETH (then just over $45 million), more than double the estimated purchase price of $20 million. As the intense bidding war ended in a loss to ConstitutionDAO, the group made history by showing that a collective of like-minded individuals could come together and take on larger entities, completely governed by protocol that allows each member to have a say in the decision-making process. most important decisions.
The Aave Protocol is another such DAO, which uses its funds to build its community and nurture budding innovators and their projects. Aave allows its members to review the proposals that prospects submit and vote for or against funding their development.
Aiming to drive this community-first approach to business building, the Internet Computing, a public blockchain hosting smart contracts running at web speed, is preparing to roll out 1-click DAO governance and decentralized fundraising rails for Web3 dapps. This allows individual services building on the blockchain to turn themselves into DAOs and allow on-demand voting controls.
When a DAO is assigned to a dapp, it gives the community full control over future configurations and upgrades, and allows for a decentralized fundraiser, with funds held directly by the DAO.
As a result, startups can compete with established services on a level playing field by building a strong user base by incentivizing contributors and incentivizing network effects to increase their reach. DAO members are also empowered to express how they feel their treasury should be allocated.
DAO’s unique structure and values complement those of startups, making them a viable option for companies that lack the resources to scale.
Web 3 VC checking is only half the battle
In addition to rejecting the tired business models of big technology, the real threat to centralization is the fact that Web3, in its current format, is more like Web2.5. Many “decentralized” projects pretend to be web3 services, when in reality they rely heavily on cloud providers like Amazon Web Services to serve their frontends – unfortunately this includes Ethereum. The internet computer is the only blockchain that can serve web content directly to end users without using third-party cloud servers.
While we may be a long way from adopting and using this technology on a massive scale, it’s hard to ignore the implications that a working DAO has for larger institutional investors. By leveraging decentralized networks such as the Internet computer to form the foundation of a DAO, individuals gain access to opportunities previously reserved for VCs and family offices and encourage members to work side by side to achieve their common goal.
Josh Drake is the COO at DFINITY Foundation.
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This post DAOs could revolutionize the way startups are run was original published at “https://venturebeat.com/2022/04/02/daos-could-revolutionize-how-startups-are-run/”