A Decentralized Autonomous Organization (DAO) is a entity without a central authority. Decisions are made from the bottom up and are governed by a community built around a set of rules integrated into blockchain technology.
DAOs are internet-based organizations owned by their members and collectively managed by them. With this model, founding members agree on rules and contracts encoded on the blockchain through smart contracts, and decisions are made collectively.
"Technology has come to change many of the ways to carry out highly routine activities. On that note, DAOs have been created as mechanisms for decentralized decision-making," says Hector Torres, managing partner of the firm, regarding the use of this entity.
While they started in internet forums and among enthusiasts of blockchain and cryptocurrencies, the structure of DAOs can be an excellent option for any company that will be distributed and guided.
"A DAO can perfectly be structured to fulfill the role of a Board of Directors for making strategic decisions in a business. In this way, technology makes the administration of an ordinary company more efficient," assures our specialist.
The fact is that there is no ordered organizational structure that a DAO must adhere to; they can be modified in their execution to fit the context and scale of different companies, from the corporate structure of a large company to small businesses.
"Many people liken it to a digital company, but if we look at it within our business structure, what we have is a form of decision-making," indicates our expert on New Technologies and companies.
To implement it, Torres explains that established objectives must be set, questions must be asked about which activities can be automated, and which areas of the organization cannot be subjected to the DAO.
Once the above is defined, certain mechanisms will be used to execute it. First, a smart contract must be created to define the ability to program actions and have them executed according to the established parameters.
The second tool is the consensus protocol to ensure that decisions are made within the DAO and that they are made collectively. This way, nothing outside the organization can influence the decision made. To comply with consensus, the company can issue a governance token that will be given to members of the organization, enabling them to vote on organizational decisions.
All decisions will be recorded on the blockchain, creating a digital ledger, ensuring security and clear registration of each change for everyone to see. While it is true that during the funding phase, the DAO will not be fully autonomous or independent from its creators, over time, all its processes are subject to the decisions of the main actors.
-Written by Torres Legal.