DAOs could revolutionize how startups are run

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The crypto sector has had a profoundly disruptive effect on almost every industry in the last few years. Now, the sector is turning the basic principles of running an organization on its head by codifying how they operate in a blockchain.

Decentralized Autonomous Organizations (DAOs) are owned and operated by their members, who can vote on operational decisions through blockchain-based governance tokens. Unlike traditional companies, DAOs offer almost anyone the opportunity to contribute to a shared project with other like-minded individuals and provide feedback on the direction of the project.

It is this user-first and community-owned approach that supports Web3’s ideals. But not everyone agrees – especially when it comes to funding these novel ventures.

The discussion on Web3’s venture capital funding is subtle. While it may be a viable step for startups to scale quickly, taking advantage of the funding, operational support and networking opportunities that VC offers, this comes with its own warnings. One drawback, in particular, can be a significant pain point for founding teams – how do startups make sure the business is aware of all relevant perspectives when VC is in control?

This was the discussion Recently revived By Jack Dorsey, the founder and former CEO of Twitter, who aims to reach out to Web 3 in the venture capital sector.

While Dorsey’s position that Web 3 is just a game for VC is somewhat hyperbolic – the issue still stands. The centralization of Web 3 projects (be it corporate control or centralized infrastructure) poses a problem for transparency and, more importantly, decentralization.

Argument for decentralized decision making

Blockchain technology has created businesses that give users greater control over the services they choose to use. These emerging services turn the traditional tech companies’ top-down approach on its head, allowing proponents to speak out in the development of a new generation of Web3-based games, apps and companies.

VCs currently have a monopoly on their chosen investments, which gives them the power to make decisive decisions and determine the direction of these companies. While this theory seems reasonable – given the money they provide – it could also mean that critical decisions are slowed down, or the original vision for the company is completely different.

However, under the Web 3 model, it makes sense that major business decisions should be as decentralized as the ones that support them. Decentralized voting through a token governance structure means that anyone – regardless of their ethnicity, denomination or financial status – can participate and benefit from being part of a like-minded community of peers, far removed from the hierarchical framework of the standard business model.

By adopting this new model, and rejecting the central gatekeepers of Web2, a new form of business may emerge that is no longer governed by a centralized organization. Moreover, it is also to level the playing field with the big tech companies by providing tangible incentives for the use of this platform and real control over the services they choose.

Rethinking democracy

Constitution DAO is a true underdog story that perfectly illustrates this process, highlighting what it really means to be part of a decentralized organization. Initiated by a group of crypto enthusiasts in November 2021, Constitution DAO, as its name implies, was bid by DAO to purchase the first printed version of the US Constitution.

Constitution DAO raised about 11,000 ETHs (just over $ 45 million at the time), more than double the estimated purchase price of $ 20 million. When the intense bidding war ended in a loss for the constitution DAO, the group made history by showing that a group of like-minded individuals could come together and confront larger organizations, governed entirely by a protocol that allowed each member to have a say. Is. Decisions

The Aave Protocol is another such DAO that uses its funds to build its community and nurture emerging researchers and their projects. Aave allows its members to view proposals that potentially submit and vote against funding their development.

Aiming to galvanize this community-first approach to business creation, Internet Computer, a public blockchain that hosts web-based smart contracts, is preparing to roll out derailment funding for 1-click DAO governance and Web3 dapps. Is. This will allow personal services built on the blockchain to turn themselves into DAOs and allow voting restrictions on demand.

When the DAO is assigned to the DAP, it gives the community complete control over future configurations and upgrades, and enables decentralized fundraising, with funding held directly by the DAO.

As a result, startups can compete with existing services on a level playing field by encouraging contributors and building a strong user base by running network effects to increase their reach. DAO members are also empowered to give voice to how they believe their treasury should be allocated.

DAO’s unique structure and values ​​complement startups, making them a viable option for companies that lack the resources to scale them.

Web 3’s VC control is only half the battle

In addition to rejecting the tired tech models of big tech, the danger of true centralization is the fact that Web3, in its current format, is similar to Web2.5. While many “decentralized” projects masquerade as web 3 services, in reality, they rely heavily on cloud providers like Amazon web services to serve their frontline – these, unfortunately, include Etherium. Internet computers are the only blockchain capable of providing web content directly to end users without employing third-party cloud servers.

While we may be reluctant to accept and use this tech collectively, it is difficult to ignore the impact that working DAOs have on large institutional investors. Using decentralized networks such as Internet computers to build the foundation of DAOs allows individuals to access previously reserved opportunities for VCs and family offices and encourages members to work together to reach their common goal.

Josh Drake is COO at the DFINITY Foundation.

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