Decentralized autonomous organizations (DAO) have existed for a few years, but they are only just starting to increase their impact on how the world’s organizations govern themselves. As DAOs spread, they will usher in a new way of working and a fierce new era of digital competition, and in doing so transform traditional organizations.
One of the first, most visible effects of DAOs will be the extreme transparency they bring to business operations. Almost any stakeholder in most DAOs can table a governance proposal and vote on it. More often than not, these proposals resemble shareholder resolutions for large enterprises, although they can get a lot more specific. Project teams have been summarily terminated, and individuals have been removed from their jobs for behavior outside of work.
Paul Brody is EY's global blockchain leader and a CoinDesk columnist.
The termination of a project team at an established DAO offers a good example of one such termination. Voters passed a proposal to end the budget allocation for this team because it had made no useful progress in a significant period of time. I tried to sort through the claims and counterclaims and wasn’t successful. The team had few clear, published success metrics, but the debate on the proposal ended up being highly subjective.
We remain in the early days of these kinds of governance battles, but my immediate takeaway was that if I was working for a DAO, I’d want to have clear metrics and good documentation. Such extreme transparency would help make people more responsive. A ruthless and never-ending feedback cycle is one of the reasons why ride-sharing services are consistently good, despite being crowdsourced.
Read More: What Is a DAO?
Not only will extreme transparency transform how people work, it will also transform competition. The product delivered by many DAOs is a protocol. And while software can be copyrighted, the underlying logic of protocols isn’t something you can hide. From incentive structures to key algorithms, nearly everything delivered by DAOs is fully public. That means that good ideas spread quickly and innovators build upon each other with speed.
The result could be a more ruthlessly competitive digital market than ever before. The permissionless, decentralized and interoperable nature of blockchain ecosystems means that companies have far less lock-in power over their clients. When a competing protocol or service is available and delivers a better result, market share changes may follow quickly. Recent developments in decentralized exchange markets shows that even small performance or cost improvements have turned market-share upside down. It will be remarkably hard for blockchain entities to coast into the future based on the strength of past work.
Another way in which DAOs are likely to transform organizations is by allowing for more engaged systems of governance. The ability to delegate voting power is a breakthrough because most stakeholders (and most shareholders in traditional companies) don’t have the time or the capacity to follow different issues that arise. With delegated voting, people can focus on specific areas or enterprises, leading to higher levels of engagement.
In democracies, Fortune 500 companies, blockchain DAOs, and other large organizations, few stakeholders actually contribute thoughtfully to governance. This isn’t a moral failing; rather, it’s a practical challenge. For example, I own shares in S&P 500 index funds but I couldn’t possibly track the range of open issues at even a fraction of companies in the funds.
I prefer to delegate my voting rights to experts. I also prefer to assign my votes to people who care about the same issues I do including fossil fuels and equal opportunities. I want my shareholder voice to count more than it does today.
All this isn’t entirely new ground. Partnerships, co-ops and collaborative governance models, among other organizations have been around for a long time and have their merits. Partnerships and co-ops tend to endure a long time and they don’t seem to fall victim to empire-building CEOs or giant egos when people get to debate and vote on big issues.
Partnerships already have a powerful staking model. Trust me, borrowing several hundred thousand dollars to buy into a partnership is as valid as any other staking methodology. The difference is that new digital voting tools and delegation capabilities make being a partner or stakeholder a more practical, scalable option than in the past.
Sometimes, you need new technology to make old ideas powerful again.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.