The incommodious and inefficient nature of centralized traditional institutions like banks has made the development of decentralized autonomous organizations [DAO], institutions that are governed by community members based on a set of predetermined rules, imperative.

The incommodious and inefficient nature of centralized traditional institutions like banks has made the development of decentralized autonomous organizations [DAO], institutions that are governed by community members based on a set of predetermined rules, imperative.

As the word “decentralized” implies, these organizations do not have a central authority charged with making and enforcing rules; rather, everyone has a say on how the platform is run, therefore guaranteeing faster response and implementation.

To talk more about DAOs, I reached out to veteran blockchain consultant Warren Lorenz, who is also a principal advisor at BLOCKS, the first legally registered DAO LLC in the United States.

1. What are the major steps involved in a decentralized autonomous organization launch? 

A DAO is a community of voluntary participants who own, govern, and operate a shared corporate treasury. To accomplish this, most DAO’s first create a community of like-minded individuals who are interested in the DAO’s founding principles. From there, most projects launch a token that’s used for governance and utility purposes across whatever initiative the DAO is looking to develop.

As the community of token holders grows, projects launch on-chain governance, which allows token holders to propose and vote on operating activities necessary for the company to operate. Lastly, DAO’s will launch Multi-Signature wallets where the community elects key holders to facilitate transactions on behalf of the DAO’s. The result is a group of people (or smart contracts) who manage, govern, and operate a fully decentralized entity.

2. What is the principal-agent dilemma and how does DAO, through community governance, solve this existing dilemma? 

In traditional organizations, there is a conflict in priorities between members and the representatives authorized to act on their behalf. Oftentimes, authorized representatives of various organizations are incentivized to act in the best interest of themselves as opposed to the greater good of the organization. DAO’s set more thoughtful approaches to democratic member control.

DAO’s employ voting via their token where one token typically equals one vote. The token, therefore, represents equal membership to the organization where holders often align economic incentives, such as ownership of fees on software protocols it owns. Additionally, allowing members to vote using their tokens, removes the common dilemmas faced by cooperatives, such as funding, governance, and alignment across jurisdictions.

3. What is the role of smart contracts in the deployment and democratization of organizations through DAOs? 

Smart contracts provide significant operational transparency throughout the DAO. From on-chain governance to the management of multi-signature wallets, smart contracts facilitate a trustless and transparent operating environment for members to pseudonymously come together toward common goals.

Smart contracts are often utilized in the core operations performed by protocol and other technical DAOs. This is because interoperability and various functions performed across Web 3.0 frameworks require the use of smart contracts.

4. What role has the emerging trend, decentralized finance (DeFi) played in the revolutionization of decentralized autonomous organizations? 

DeFi allowed for the birth of DAOs. Tooling suites like Gnosis Safe and Snapshot are commonplace for organizations to effectively manage DAO treasuries and governance activities. Combine this with the rise of Automated Market Making (AMM) platforms, such as UniSwap, Sushi Swap, Pancake Swap, etc., and now there are decentralized financial mechanisms where a collaborative can deploy ‘Fair Launch’ token distributions as well as facilitate efficient transactions for buying and selling DAO tokens.

5. Though not ubiquitous at the moment, what steps should be taken by DAOs to garner more attention? 

DAOs have primarily been communities of crypto enthusiasts who are extremely familiar with the workings of DeFi and decentralized entities. Moving forward, we’re going to see DAOs become focused less on crypto-savvy participants and recruit mainstream consumers.

This may be in the form of different types of DAOs, such as tokenized communities, where social tokens are built around a desirable person or cause, protocol DAOs, where software is used without the end-user knowing they’re interacting with a product of a DAO; and creator DAOs, where NFT’s become the governance mechanisms instead of tokens. As new examples of DAOs set the scene for what’s possible for agnostic corporate operations, you’ll be sure to garner more attention from mainstream consumers.

6. Like almost every crypto fad, decentralized autonomous organizations face a few problems. What do you think are the major sticking points that have stalled the expected growth of DAOs?

Historically, DAO tooling has been significantly underdeveloped. That’s all changing. The blockchain community has innovated new tools that allow DAOs to seamlessly deploy multi-signature wallets, governance, voting, and permissions-based chat rooms. When combined, the result is a community of people who can govern and operate a decentralized organization. Other aspects, such as managing decentralized code repositories, third-party partnerships, and other operating practicalities can still be enhanced through more efficient DAO tooling.

7. How does BLOCKS intend to lay the foundation for DAO to evolve into a fully autonomous algorithmic entity? 

The BLOCKS legal team has been working hard alongside the Wyoming Secretary of State and the SEC to pave the way for DAO LLC’s in the future. BLOCK’s goal is to become an example for DAOs launching in the future to replicate. To do so, BLOCKS DAO, LLC is doing something slightly different than most projects. Instead of issuing a whitepaper, BLOCKS will be publicizing an operating agreement that every token holder of the DAO will be governed by.

The DAO Operating Agreement will outline the pathway to becoming a fully autonomous entity and can be altered in the future based on proposals and votes of token holders. The project will grow through progressive decentralization, where the tooling required for fully autonomous collaboration will be implemented as the DAO becomes operational.

8. BLOCKS is reportedly working with the Wyoming Legislature to build the first legal DAO. What is the idea behind this and what fundamental role will it play in the proliferation of decentralized autonomous organizations? 

BLOCKS DAO is an experimental decentralized autonomous organization with a mission to bridge traditional businesses onto blockchain-based technologies. The goal is to ultimately utilize a decentralized governance structure so everyday people can create, propose, and act on corporate operations.

The project has a huge opportunity to be the first DAO with a high emphasis on compliance with applicable laws and regulations. On this front, BLOCKS DAO is looking to pave the way for future DAOs to distribute tokens and operate using the foundational legal working as a set of best practices.

9. What is your prediction for the future of decentralized autonomous organizations? 

Legally incorporated DAO LLC’s are the future of decentralized autonomous organizations. I’m optimistic that the United States will embrace the notion of autonomous organizations to retain entrepreneurial talent. States like Wyoming who are embracing this new concept will inherently apply pressure to the Securities and Exchange Commission (SEC) for thoughtful guidance around the different types of digital assets and ideally become a low friction route for token issuers. This may be overly optimistic.

More practically, I think DAOs will slowly become more focused on the everyday consumer, such as what BLOCKS is trying to accomplish. Over time, you’ll find more and more people ‘working’ for a DAO, where members can propose their own work initiatives, receive communal funding, and iterate on early ideas in a decentralized fashion. This is what work will look like in a Web 3.0 driven economy.

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