DAO in "CRYPTO THESES 2024"

Previous chapters of the report:

Today, we will cover the last chapter of the content: DAO

In the utopian future vision of crypto, DAOs (Decentralized Autonomous Organizations) are seen as benevolent, AI-driven protocol governors that operate with clear objectives and make excellent resource allocation decisions.

However, the actual operation of a DAO is as follows:

A founder or a small group of founders creates a project. A DAO is essentially a group chat with a bank account.
The founding team launches a token that grants holders certain governance rights over the project's assets, as well as potential economic rights. They will make initial decisions on how to distribute the token and who will manage the distribution:

a "lab" company
a foundation
A DAO governed by tokens
or a combination of the above three

These three types of entities are at the core of token projects, and most of them are unsupervised. DAOs themselves are viewed as "unincorporated associations" by U.S. courts, which exposes their contributors to unlimited personal liability.

Protocol governance is an emerging field without established standards, and legal and regulatory uncertainties often create headwinds for better governance. The courts have effectively made representative democracy unattainable.

These dynamics lead to corruption, security issues, and poor performance due to "mob rule."

In general, despite the revolutionary potential and idealistic vision of DAOs, they still face significant challenges and limitations in practice. These issues include a lack of transparency, difficulty in achieving effective regulation and management, as well as legal and regulatory uncertainty. To realize the true potential of DAOs, further innovation, standardization, legalization, and continuous cooperation and communication within the community are required.

Early cryptocurrency governance was a mix of early American federalism and Silicon Valley boardroom drama. It was chaotic, but also brilliant. In the absence of well-compensated professional managers and truly effective legal structures, most DAOs may operate according to a crypto version of "Manifest Destiny," with founders operating in public and enjoying immense respect, providing rough checks through off-chain signaling tools like Snapshot to ensure things develop in the right direction. Often, these checks are merely "approvals" rather than real "proposals" constrained by token holder veto power.

These are not just thought experiments. Poor governance is costly and cannot be ignored. Decentralized finance (DeFi) protocols face three core challenges in decentralizing governance power: Sybil attacks, low token claim rates from airdrops, and poor retention rates.

So, what are the advantages of DAOs:

Creating a DAO is fast and inexpensive.
Code moves across borders faster than legal processes can react.
The potential for innovative corporate behavior is limitless.

Leveraging these advantages well is essential to realizing the enormous potential for innovation and experimentation in the crypto space. Over time and with technological advancements, we may see even more groundbreaking DAO models and governance mechanisms emerge.

Eventually, we may see a divergence between two different types of DAOs:

), run by intelligent AI agents and truly operating autonomously (an exciting and scary possibility)
), these are closer to today's communities but with the advantage of having a legal entity wrapper

The governance of the crypto space, especially DAOs, is at a critical juncture, facing significant challenges in terms of legality, regulation, and practical operations. Addressing these challenges requires not only technological and innovative breakthroughs but also effective communication and collaboration with regulatory bodies, as well as a deep understanding and improvement of governance models and legal responsibilities by the entire community. Through this cooperation and innovation, we can create a healthier, more sustainable, and more effective future for DAOs and the entire crypto space.