What holds DAO down?[Opinion]| coindesk JAPAN | Coindesk Japan

In 2021, DAOs (Decentralized Autonomous Organizations) jumped out of the blockchain world and spread into the real world. Until then, most DAOs were limited to managing financial protocols and digital assets.

Backed by newly enacted DAO laws in Wyoming, Vermont, and Tennessee, the DAO can acquire real-world assets such as rare artwork, golf courses, original copies of the U.S. Constitution, NBA teams, and real estate. I started aiming. CityDAO, which I founded, also purchased 40 acres of land in Wyoming.

Costs that outweigh the benefits

However, as soon as DAOs launched into the real world, powerful new vehicles for crowdfunding and organizing, DAOs faced significant cost constraints in terms of coordination and regulation that offset the benefits of using DAOs in the first place. was found to receive By understanding these costs, entrepreneurs, researchers and regulators can help the DAO realize its goal of creating a fairer internet.

Coordination can limit the use of resources by requiring members to pass proposals. Most DAOs in existence today are subject to what Ethereum creator Vitalik Buterin calls “vetocracy”. None of the proposals can garner enough support, and all proposals are rejected. Sometimes democratic processes create limitations, but this is a feature, not a bug.

For a financial protocol entrusted with millions of dollars in user funds, it should be difficult to make changes that affect tens of thousands of users. But in the early stages of value creation, the core team should have the power to take a number of small actions toward a goal without being restricted to formulating proposals.

Many projects relinquish such powers early in their lifecycle, call themselves “DAOs”, and shoulder the burden of coordinating hundreds of people to take even the tiniest step to garner community enthusiasm. It’s gone.

Furthermore, most DAO infrastructure and tools are built on the premise that DAOs will primarily interact with smart contracts, with little assumption that members will take action in the real world.

On the regulatory side, getting started with a DAO is easy. Multisig wallets that require multiple signatures for transactions can be created in minutes. But the cost of starting a law-abiding DAO is enormous.

From incorporating an organization to paying contributors around the world, legal work can take weeks and cost a lot. The idea of ​​starting a DAO almost seems futile. The barriers to entry are huge if lawyers and accountants are required to run a DAO.

As for fundraising, vague securities laws may make crowdfunding a risky endeavor. For off-chain spending, the DAO would need to open a trading account for the organization, which could take months.

If the DAO owns real-world assets such as land and trademarks, splitting groups that disagree with the main group becomes much more difficult or impossible.

To make DAO successful

The costs associated with these adjustments and regulations can be resolved through innovation. Entrepreneurs are developing tools to ease the burden of DAO labor costs, compliance and governance.

Some of the hurdles will have to be addressed at the policy level, for example by clarifying DAO-related laws and securities laws. Furthermore, more research is needed on governance mechanisms to move DAOs from bitocracy to meritocracy.

But sometimes the high costs of coordination and regulation are worth paying. For example, important elements of the Internet infrastructure that affect many people’s lives should be decentralized.

MakerDAO, the maker of the stablecoin Dai (DAI), is a good example of decentralization. Trust in protocols is established by the fact that they are (theoretically) controlled by a large group and are not subject to the whims of a single person. The success of Bitcoin, Ethereum, and the Internet is largely due to decentralization, which has created robust and engaged communities.

Making the DAO fully functional is an important project for humanity. Because the DAO promises us a democratic future in which we can own and control the Internet, the central square of the future.

One thing is clear. The demand for democratic systems is growing, and people are skeptical of a few platforms dominating the internet.

By lowering the costs of coordination and regulation, we can make DAOs a more viable option, level the playing field, and support the DAO’s original vision of creating a more democratic internet.

Mr. Scott Fitsimones: Founder of CityDAO and author of “The DAO Handbook”.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original: What’s Holding DAOs Back?