Is it possible to run a business, a foundation, an NGO, or any other type of group without the traditional organisational structure? How would that look and function? What would be the benefits and burdens of running an organisation in this new way? What can this new kind of organisation be used for?

Structure

DAO stands for Decentralised Autonomous Organisation. Let’s deconstruct that a bit further; the following is a diagram of the traditional organisational structure:

 

TRADITIONAL TOP-DOWN MANAGEMENT STRUCTURE

CEO

UPPER MANAGEMENT EXECUTIVES

MIDDLE MANAGEMENT

SUPERVISORS or CONSULTANTS

EMPLOYEES or PARTICIPANTS

The long-established norm in a variety of businesses, governments, NGOs or charities has been a top-down structure as shown above. A DAO would remove those layers and replace them with something quite revolutionary – an organisation that has no hierarchy.

Instead of the top-down management structure seen above, a DAO is structured according to the following components:

  • founding members
  • a general agreement of governance by the founding members
  • a blockchain and the computer software to run it
  • smart contracts embedded in the blockchain
  • stakeholders/shareholders who own shares/tokens in the organisation
  • equal voting rights for proposals presented to all stakeholders
  • short-term contractors who work on projects with a defined time period instead of full-time employees

Contractors are only awarded a project after a successful round of voting among the stakeholders who approve the necessary funding for the project. Contractors must then be self-motivated and able to produce the results that they have pitched to the DAO group in their proposed project. If the desired results for a project are not subsequently achieved, contractors are not fired as they would be in the traditional top-down management structure. Instead, the approval vote and funding are revoked.2-3

Versatility

Through its structure, DAOs can work on projects as diverse as keeping medical health records or voter records management and can be the underlying structure for taxi dispatch companies, educational institutions, arts and music groups, software development firms and so much more. It is through these following features that DAOs are so versatile:

  • an irreversible record of transactions on the blockchain
  • no need for trusted third parties to act as an intermediary
  • smart contracts
  • no layers of management staff

However, with its versatility comes some vulnerabilities:

  • vulnerable to hacking and draining of assets
  • delays due to low voter activity
  • difficulty in changing the code of already-enacted smart contracts3

While these vulnerabilities may have led to incidents such as the serious security breach in a promising DAO in 2016, encountering and working past these vulnerabilities are parts of the process of creating new technologies and getting the public to accept them.5

Yet despite these vulnerabilities, DAOs can prove successful when its democratic structure is in place from the beginning. With this democratic structure, contractors are given the opportunity to offer their best ideas and budgets. The stakeholders can then use their votes to pick the best proposals, which are awarded the necessary tokens to begin work.4 However, for this democratic structure to be effective, there may be a greater need for education about the DAOs before the general public, who are meant to be voting on proposed projects, can fully understand what they are voting on.6

DAO as Charity

A scholarly paper for the Technische Universitat Berlin contained some rather daunting statistics. Since the projection was made in 2008, the rate of the increase in the number of disasters that need to be addressed will be five times higher than the current rate within the next 50 years. Also,  it’s unlikely that disaster or humanitarian relief funding can keep up with that level of challenge. Furthermore, barriers to coordination between two or more humanitarian organisations who are working in the same geographical humanitarian relief area need to be lessened or removed. Donors, both current and potential, want to see a coordinated effort at these relief locations instead of a duplication of efforts that waste time and money.10-12

When the logistics to gather and deliver relief efforts comprises 80% of the available budget, it is clear that solutions need to be enacted. This is exactly where blockchain solutions provide options. The DAO option would also allow the staff already in the field to engage in timely decision-making about staffing and asset allocation.

The Charities Aid Foundation makes it clear that they regard the disruption of old ways of thinking and administering aid as a positive step forward. Rhodri Davies, the head of policy, gave an address at the end of 2017 that covered DAOs and several important issues:

  • The effects of new methods on environmental and social problems
  • Competition between new startups and existing charities
  • Problems cause by new high-tech solutions
  • Cost-effectiveness of new solutions
  • Effects of new technology on existing charities with regards to organisational structure, the finding of new donors and engaging existing donors
  • The nature of donations to disruptive technology
  • The viability of cryptocurrency
  • The effects of crypto-libertarian philosophies

Also, as early as mid-2016, UNICEF was seeking a developer to create an open source solution called the Innovation Fund with a stated intention to benefit children in need. Consultation with tech professionals and academic specialists would be offered. The new fund would cover some of the key features of a DAO, alongside digital identity solutions and ideas for cash remittance.8

Given its structure and versatility, DAOs can become agents of change that significantly affect the world for generations to come.

REFERENCES

  1. Epstein, Jeremy (2017, April 23). Companies of the future: no CEO, no boss, managed by blockchain. Retrieved from https://medium.com/@luisfernandomolina/fermat-distributed-governance-model-1d90538d1bbc
  2. Molina, Luis (2016, Nov. 28). Fermat Distributed Governance Model. Retrieved from https://venturebeat.com/2017/04/23/companies-of-the-future-no-ceo-no-boss-managed-by-blockchain/
  3. Decentralized autonomous organization – What is a DAO company? (2017, Nov. 28). Retrieved from https://medium.com/universablockchain/decentralized-autonomous-organization-what-is-a-dao-company-eb99e472f23e
  4. Decentralized autonomous organizations. (n.d.) Retrieved from http://complexitylabs.io/decentralized-autonomous-organizations-2/
  5. Ayton, Nick (2017, March 20). Is the Decentralized Autonomous Organization (DAO)  the Next Trusted Evolution of Online Casinos? Retrieved from https://hacked.com/decentralised-autonomous-organisation-dao-next-trusted-evolution-online-casinos/
  6. Levine, Matt (2016, May 17). Blockchain Company Wants To Reinvent Companies. Retrieved from https://www.bloomberg.com/view/articles/2016-05-17/blockchain-company-wants-to-reinvent-companies
  7. Davies, Rhodri (2017, Nov. 17). Tech Support: Why Philanthropic Funders Should Care About Disruptive Technology and What To Do About It. Retrieved from https://www.cafonline.org/about-us/blog-home/giving-thought/the-future-of-doing-good/tech-support-why-philanthropic-funders-should-care-about-disruptive-technology-and-what-to-do-about-it
  8. UNICEF Seeks Developer for Innovation Projects Including Blockchain’s Humanitarian Uses. (2016, Aug. 16). Retrieved from https://www.ccn.com/unicef-seeks-developer-for-innovation-projects-including-blockchains-humanitarian-uses/
  9. Buntix, J.P. (2017, May 28). Decentralized Organization vs. Decentralized Autonomous Organization. Retrieved from https://themerkle.com/decentralized-organization-vs-decentralized-autonomous-organization/
  10. Schulz, Sabine F. and Blecken, Alexander (2017, Oct. 25). Horizontal cooperation in disaster relief logistics. Retrieved from https://www.depositonce.tu-berlin.de/bitstream/11303/7031/1/schulz_etal.pdf
  11. Nagurney, Anna. (2012) Fundamental Issues in Humanitarian Logistics. Retrieved from https://supernet.isenberg.umass.edu/courses/SC-MGMT597LG-Spring12/Nagurney_Humanitarian_Logistics_Lecture_4.pdf
  12. World Food Programme: Equador Report 2015. Retrieved from https://www.wfp.org/sites/default/files/Annual%20Report%20Ecuador%202015.pdf