How DAOS Are Changing Leadership

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While DAOs are often associated with cryptocurrency, they can be implemented in a wide range of industries. For example, one group, ConstitutionDAO, raised more than $49 million to buy an original copy of the US Constitution. Another group, Friends with Benefits (FWB), uses its funds to launch projects such as the NFT Gallery and other real-world benefits.

Before discussing how DAOs are changing the face of leadership, it is essential to understand what they are and how they work.

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What is a DAO?

Decentralized autonomous organizations, or DAOs, are member-owned organizations with no hierarchical leader. Instead, the founding members of the group agree on terms and contracts encoded in blockchain technology through smart contracts. These smart contracts cannot be easily changed, and because they are part of the blockchain, everything is publicly recorded.

But what is blockchain? In short, it is a decentralized digital ledger that documents cryptocurrency transactions. All DAO frameworks are built around it.

A simple way to think of a DAO is a secure online bank account with multiple account owners. Each member pools their resources through a single cryptocurrency wallet controlled by the group. The contracts encoded in the blockchain ensure that everyone’s capital is protected and that every change is clearly recorded for all to see.

The basic flow of DAO governance is:

  • A member proposes an initiative.

  • All members vote with a governance token.

  • If the initiative is passed, it is added to the smart contract.

  • The members start working towards completing the initiative.

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Advantages of DAOs vs. Traditional Organizations

1. No Power Hierarchy

There is always some sort of hierarchy in a traditional organization. In general, the board of directors, executive and upper management make up the basic structure of power. Any proposed change is entirely in the hands of this upper echelon.

The DAO seeks to rebuild this traditional model by flattening the hierarchy. These organizations rely on the security and transparency of the blockchain to distribute power equitably among all members. Smart contracts encoded in the blockchain cannot be changed without the consent of the majority, and each change is publicly documented to ensure full compliance.

2. Equal ownership and sense of community

In most traditional organisations, the upper echelons of power are nearly impossible to break once they are established. It is common for similar officers and directors to remain in power for decades, with no chance for lower-level members to make meaningful contributions to the company’s direction.

With a DAO, each participant is given control of the organization’s assets and direction based on their project contributions. This means that everyone who contributes capital to the governance of the organization has an equal voice. In turn, this fosters a sense of community and collaboration that helps the company achieve its objectives faster.

3. Total Transparency

Transparency is a major issue that traditional organizations struggle with. Even companies with good intentions have to carefully craft their brand image, which often means leaving out some information. Additionally, businesses that provide some level of transparency often do not disclose things like financial health and expenses to employees or the public.

In DAO, transparency is built directly into the foundation of the organization. Blockchain technology is specifically designed to create an immutable public record of all transactions. This means that people can invest in DAOs with the confidence that their capital is being used judiciously.

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How Lessons From The DAO Can Make Leaders More Effective

1. Leadership Is Earned

Traditionally, top-down leadership has come to those who either already have the power or the ability to buy it. Since everyone has equal shares in the DAO, the rights are not “granted” to anyone. Instead, it is earned from the merits of the offers made.

It creates an organization that follows the guidance of someone whose people are following voluntarily. It always gives better results, whether through growth, innovation or higher profits. This style of leadership is something that all good leaders can practice. Even though they may not have “earned” their role in the same way, they can earn the trust and loyalty of their team through their actions.

2. Have more flexibility

Modern corporations are like giant ships that require enormous amounts of time and effort to change course. There is endless red tape and bureaucracy to navigate before any real change is implemented.

Since DAOs are more democratic, changes can be proposed and implemented with relatively little hassle. While DAOs are primarily based on the division of funds, leaders can still take note of how the process works and see how efficient it is. The level of efficiency created by DAOs is something great leaders can try to replicate in their own organizations.

3. Participants can collectively shape the future of the enterprise

The idea is similar to dealing with stocks in publicly traded companies, but it is not a one-to-one comparison. DAO members buy governance tokens which are used to vote on proposals. Once a vote is cast, these tokens are used, and the votes are made a public record.

In this way, the members are forced to vote wisely and it is best for the overall direction of the organization. Everyone has a “skin in the game”, so to speak, and this encourages participants to build a better future.

DAOs Can Be the New LLC

Many experts say He wouldn’t be surprised if DAOs replace the traditional LLC business model. While the concept still has a lot of kinks to work out, the current DAOs are showing businesses a better, brighter future. The leadership model of a DAO is quite different from the way traditional organizations are led. However, this difference in power structures is something that good leaders can learn to become great.

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