Decentralized Autonomous Organisations (DAOs) are transforming the democracy of decision making and ownership, both for businesses and for personal use. Here we’ll cover DAO’s adoption and the possibilities that blockchain voting and contracts can bring.
Everywhere you look on the internet, there are new communities forming. You’ve likely heard of wallstreetbets, a reddit group debating which stocks to trade, these types of organised groups are forming on many platforms such as Instagram, Whatsapp, and Facebook.
There’s something intriguing going on in these online communities: they’re not only communicating, but they’re also making choices, similar to an organization or a firm.
Lets take the Gamestop situation as an example. Hundreds of Reddit users chose to acquire shares in the (then unprofitable) video game store, with the hopes of squeezing out hedge funders who held a short position on the stock. This proved to be a success.
With the Gamestop phenomenon, individuals chose to buy shares with their own accounts, on other platforms, people are diving deeper and allowing group members to hold ownership and governance for a business.
The various procedures and rules for the governing groups are written in computer code, and ran through a decentralized network. These are called ‘Decentralised autonomous organizations’ (DAOs).
Use Case for DAO’s
DAO’s are effective because they allow groups of individuals who have common interests to make choices, vote, and act. They have built-in treasuries that may only be accessed with the approval of the organization. Voting systems are used to make decisions, ensuring that everyone has a say.
Jumping back to wallstreetbets as an example, this group might use a DAO to not only discuss which stocks members should buy, but also to let members contribute cash to the DAO and invest the resources following a vote. A sporting team may create a DAO that allows members to vote on what kind of soccer gear the budget goes towards.
DAO regulations are transparent, as they allow code to establish confidence and security, rather than entrusting judgment to an unknown management team or individual. All expenditures are logged, decision-making is transparent, and the DAO’s ruling code is available for everyone to inspect.
How do DAO’s work?
Thousands of DAOs have been established on the Ethereum blockchain, a distributed network providing the ability for “smart contracts” that codify and implement business rules. Ethereum blockchain allows greater functionality than the blockchain that runs bitcoin crypto. Ethereum’s strength lies in its ability to create “smart contracts” that codify and implement business rules.
Some of well-known DAOs are making their debut in the financial services industry, in DeFi. Some popular ones include Synthetix, Uniswap and Compound. There have been others developed in the following industries: social media, gaming, grants, collectibles, and computer operating systems.
If passed into legislation, Australia may be the first country to recognize DAO’s as a legal entity.
How DAO’s Could Change the Way We Do Business
These new models have also created risk for developers and community members in the DAO. These organisations are in a seemingly black hole-like space, where they’re not recognised under current laws as an entity. This makes it difficult to hire employees, rent space, obtain insurance, and find investors. The more worrisome aspect potential legal liability- if the law treats DAO’s as partnerships, members will be jointly and severally responsible for losses.
The Australian Senate committee aims to end the ambiguity by mainstreaming DAO’s. Australia might be the first country to recognize the DAO as a legal structure if it becomes legislation. By recognizing the model as a legal entity, it would give limited liability protection to people engaged, as well as opening pools of institutional funding.
Chris Berg, associate professor at RMIT University says “It is astoundingly forward-thinking…A company has a mandate to operate on behalf of its shareholder, but a DAO is its shareholders.”
By legislating DAO’s, Australia would give entrepreneurs a new corporate structuring option to decentralise operations and provide legal security for investors, group members, and employees.
“There are billions of dollars and many DAOs set up purely on Ethereum that are looking for a jurisdiction to anchor themselves to, which provides a court system, enforcement, and a reasonable tax rate. A few DAOs have looked to places like Switzerland, but Australia, if appropriate regulation comes into place, could be an attractive place for DAOs to ‘safe harbour’ and anchor into, which in our eyes is extremely positive,” Pat McNab, co-founder of Mycelium, states.
“It borrowed the best of both worlds, from the corporation and the partnership… It offers limited liability for shareholders and informal procedures for decision-making by partners.” says Michael Bacina, a partner at Piper Alderman.
DAOs are ideal for collaboratively generating and deploying money, managing fast-moving marketplaces, and underpinning much of the decentralised financial infrastructure that is undermining traditional banks, according to the report. There’s still a long way to go, but the early signs prove to be promising for the entrepreneurs of Australia.
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