DAO: Mismatch of Technology and Objectives

www.nesta.org.uk/report/dao-mismatch-technology-and-objectives/
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Our second prize winner, Grace (Rebecca) Rachmany, presents a slightly contrarian perspective, making the case that decentralisation is not a better way to run businesses and that many developers have been blinded by a naïve techno-optimism. Instead, she argues, the principles of decentralisation should be applied to areas such as climate change, preservation of cultures and cross-border disputes areas where centralised organisations are failing, where collective intelligence is needed and where everyone’s interest is at stake and therefore everyone should have a say.

The enthusiasm for decentralised autonomous organisations (DAOs) continues to gain momentum as the crypto industry recognises that monetary systems need governance; yet the gap between promise and implementation is demonstrated by the incidence of rage quitting, forking (where a blockchain splits in two because the existing protocol is changed) and abandonment of DAOs. Despite millions of dollars having been invested in development, DAOs suffer from a failure to find product – market fit. How did this happen?

It starts with the emphasis on revenue and profit-making.

DAO technology is not a better way to run businesses. Businesses are running just fine. It’s not a better way to raise or allocate money. People know how to raise and allocate money. DAO technology should be applied to areas we haven’t solved yet, areas where everyone’s interest is at stake and therefore everyone should have a say.

People are seeking new forms of organisation in areas where hierarchical organisations are failing: public health, climate change, preservation of cultures, inequality, etc. DAOs offer the potential to organise collective intelligence to address complex questions and manage shared resources. In a recent talk at ETHDenver, DAOstack Founder Matan Field announced the move towards governance of common resources rather than businesses, and The Commons Stack has the word ‘commons’ in its name, signalling a clear aim of creating tools to maintain the commons. Yet the actual tech still falls short.

In 2019 and early 2020, the blockchain industry observed dozens of attempts at creating DAOs, most of them ending in failures or partial solutions, as reviewed in recent DAO case study research by the author, funded through the Genesis DAO. The source of these failures was twofold: application of DAO technology to organisations that don’t need a DAO; and limiting the capabilities to budget allocation and voting. Because of their myopic focus on ‘on-chain’ governance of blockchains, the DAO technologists have failed to create compelling technology for the problems that society is facing.