How Is DAO Revolutionizing Traditional Business?

 

Introduction

DAOs can replace traditional governance apps and investment pools by leveraging the power of decentralization and blockchain technology.

More than $11 billion had been invested in these blockchain-based equivalents of traditional business models as of November 2022. People are naturally curious about the most effective uses for DAOs and how to implement them as they continue to gain traction.

We'll delve deep into the world of decentralized autonomous organizations in this "DAO vs. Traditional Organization" blog (DAOs). We will examine how DAOs meaning and function and what makes them different from regular businesses. 

What Exactly Is a Traditional DAO?

The traditional DAO is a company managed by computer code, typically written by developers. It is, in fact, a computer program that anyone can duplicate. The DAO can be built on the Ethereum network and sold to investors.

In exchange for their ETH investment, investors would receive DAO tokens that could be used to vote on how the DAO blockchain should be managed. These tokens also represent company stock.

How does DAO disrupt traditional business?

Funding

The founding members and partners typically provide the funding for an LLC through capital contributions. These contributions represent a percentage of the company's ownership and cover the initial operational costs. Members could take out a business loan or seek funding from venture capitalists (VCs) and investors if an LLC requires additional cash flow. In this case, each investor acquires a portion of the original contributors' ownership.

DAOs link financial contributions to governance rights, allowing investors to become owners and employees. 

DAOs are usually funded by tokens sold on open markets. Anyone who wants a stake in that organization can buy governance tokens to have a say in the project's direction. 

These token sales, in turn, help to fund a DAO's treasury. Furthermore, a \[DAO treasury](https://limechain.tech/blog/dao-treasury-management-explained/) can lock funding into a multi-signature wallet to increase security and prevent any single member from withdrawing funds. 

Moreover, DAO members are rewarded for keeping a project alive rather than making a quick buck.

Structure

Most organizations' structures necessitate that each employee or member work in unison. Any significant deviation from this cohesion could destabilize the entire organization and cause it to cease operations. 

Traditional organizations frequently use a hierarchical structure to keep things running smoothly, allowing those at the top to make decisions that those at the bottom will implement. 

This tired top-down pyramid structure clearly defines each member's or employee's role, which is an efficient way to delegate responsibility across a large workforce. 

Despite its benefits, this model can be restrictive for various reasons. Idea communication tends to cascade from a small group to the majority. 

This can often reduce job satisfaction and prevent employees from aligning their goals with the companies. Furthermore, this model has the potential to stifle innovation and avoid collaboration.

DAOs, on the other hand, take a completely different approach to structure and hierarchy. DAOs do not have bosses, managers, or CEOs. Instead, each member can interact with smart contracts to decide how things should be done. Smart contracts, which reduce human error and poor performance, are also advantageous to DAOs.

Almost all aspects of a DAO are also written into smart contracts. This includes funding distribution, voting systems, and the implementation of improvement proposals. As a result, DAOs encourage more collaboration, transparency, and open discussion than most traditional organizations. Furthermore, before any changes can be implemented, every member of a DAO must agree on them.

DAO VS TRADITIONAL ORGANIZATION

S. No.	DAO	TRADITIONAL ORGANIZATION
1	Complete autonomy - all decisions are based on the popular vote.	Follows a hierarchy system, also known as the organizational structure.
2	All activity is transparent and open to the public.	Typically, activity is private and restricted to the general public.
3	Typically, voters decide on the services provided and the investments made, which are fully automated.	Core services are not entirely transparent, and processes are prone to human error or manipulation\*\*.\*\*
4	Typically flat and fully democratic.	Typically, hierarchical.
5	A vote of the members must approve any changes.	Changes can be demanded from a single party, or voting can be offered, depending on the structure.

Will DAOs eventually supplant traditional organizations?

There is no simple answer to the evolution of DAOs. Will decentralized finance eventually replace our current financial system? Will decentralized applications (dApps) reinvent the Internet? Will flat organizations eventually supplant hierarchical structures?

These are the three significant limitations of DAOs. They can be minimized but not removed. They are inherent in smart contracts and decentralized systems. But do the advantages outweigh the drawbacks?

Traditional organizations will continue to dominate until that happens. At least in finance, millions of people's investments are at stake. The largest DAO to date is the Uniswap DEX platform, which has over 3,00,000 members and nearly $2 billion in holdings.

We hope this guide has helped you compare and contrast both types of organizations. DAOs are a work in progress; not everyone will be the real deal. Anyone with little technical knowledge can create a DAO in 10 minutes. 

Investigate the organization before investing or joining it. What have they accomplished, what features do they have, and how many members do they have? Have there been any prior incidents? Do they have any history? Are there more capable DAO competitors?

If you want to use DAO in your traditional business, contact us. Reveation Labs is a digital transformation firm that offers custom blockchain development services across various industries. As a result, hire our blockchain developers to assist you to the best of their abilities.

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Conclusion

DAOs are revolutionary, cutting-edge technologies that have the potential to change the way we work across business sectors. These community-driven organizations work to assist businesses in transitioning to a fully decentralized, sovereign, and transparent governance structure.