DAO: Decentralized Organizing
What is the counterexample of a DAO? Take the “Innovation Center” of an international bank that I visited. The projects that were run there were mainly the toys of managers who were stuck in their career ladder. Despite the impressive space with moss on the walls, life-size tablets and exercise bikes, there was not the (mental) space to work unhindered on the future. Barely anything got off the ground, partly because the old organization still determined the rules. An organizational platform that makes it possible to transcend the boundaries within and between organizations is the DAO. The DAO forms a truly free space for cooperation and innovation and is making international strides. Welcome to the world of the Decentralized Autonomous Organization! I’ll take you through what a DAO is and how it is a medium for boundless collaboration on the issues of today and tomorrow.
From tech world to organizational world
The DAO originated in the tech world, where the idea of decentralization has been an important topic for some time. While large tech giants mainly want to store their information centrally and maintain central control, there are disadvantages to that model. After all, if you want to be able to collaborate with others in the world in an open-minded way, it will hinder you if you are dependent on someone else’s platform. Now that there is a technology (for example in the form of blockchain) that makes it possible to achieve results together without being dependent on one central organization, forms of cooperation can also start to evolve. The DAO is the result of that. DAOs exist in various shapes and sizes, and are currently used, for example, for publishing investigative journalism, collaborating on life-prolonging medical therapies and developing (digital) citizenship in Estonia. The state of Wyoming has even made explicit room for DAOs in its legislation on corporate entities, with the result that a new city is being developed there: CityDAO. Time to clarify what the three letters of DAO mean in practice.
The three elements of a DAO
- Decentralized: decentralization comes down to spreading ownership, input and further development of the organization across a broad and diverse group. This group often forms a community, in which existing ‘traditional’ organizations sometimes also participate. Furthermore, decentralization means that the resources and facilities to enable collaboration are widely distributed. So a DAO rarely has a shiny head office. At the same time, you have different degrees of decentralization: some DAOs are 100% decentralized and owned by a large community, others start with a small core and then decentralize step by step.
- Autonomous: this is about the space that participants of a DAO have. The minimum set of rules that a DAO has, is about governance: how do we make decisions together about the further development of the organization. Examples of important rules involve membership requirements for the DAO, and how the voting rights work. Furthermore, everyone within a DAO can make proposals and take the initiative based on their own drive and involvement. This creates a ‘free space’ that makes it possible to do what is necessary together. And what is needed then arises from the intention of the DAO: the (evolving) mission that may or may not attract participants.
- Organization: the organizational form of the DAO is closer to the idea of a network structure than you will see in classic organizations. Anyone who wants to contribute to tackling an issue has the opportunity to do so and does not have to consult a manager. Whether your contribution is valuable is also determined by the participants of the DAO (your peers). In some cases, a ‘token economy’ has been set up for this in which all rewards are transparent. With the virtual tokens you earn (which can amount to serious amounts), you determine the value of individual and joint activities. In addition, you can use the budgets of a DAO for charitable causes, investments or the distribution of shares in the DAO itself.
The advantages of a DAO at a glance
What is the use of this new form of organizing? A free, autonomous space sounds nice, but what can you achieve with it? From my experience I see that a DAO enables you to:
- Work with a diverse group or community towards a common goal, without the barriers in and between organizations
- Let each participant contribute to the purpose of the DAO based on their own insights, and be valued for it by the others
- Manage the evolving organization; being able to create a purpose that is set up and maintained by the participants themselves
- Form a network structure that in addition to, or instead of existing hierarchies, develops new business models, creates social impact and facilitates transformations
It gets interesting when you compare these benefits to today’s organizations. For this I reference the thoughts of John Kotter in his book XLR8, in which he talks about the dual organization. In addition to the organization that does ‘the daily work’, you build a space within the same organization that makes horizontal collaboration on innovations possible across the hierarchy. The problem with this model, however, is that working across an existing hierarchy often gets stuck. You end up in what I call “matrix confusion” where horizontal and vertical hierarchies collide. Due to its autonomous form and technological support, the DAO makes it possible to still make the dual organization work. On the condition that it is outside the existing organization (and its systems) and the DAO regularly incorporates participation from customers and other organizations. There are major innovation opportunities in the latter area, for example through cooperation between the business community, government and educational institutions. These borderless collaborations require fewer governing committees, letters of intent, administrative memoranda and coordination meetings: the DAO offers a platform to get started instead of lengthy up-front negotiations.
Applications of a DAO in today’s space
There are plenty of opportunities for realizing DAOs. They already exist, the question is how to tailor them to your context. For inspiration, here are a few missions and collaborations that DAOs enable:
- The Innovation DAO: there have been many attempts by organizations to get innovations off the ground faster and better, from Google’s famous 20% innovation time, to the many innovation centers and incubators. A great opportunity is to transfer (part of) the innovation portfolio of an organization to a DAO. Employees and possibly partners can participate in this DAO. The ‘parent organization’ makes a budget (part of the salary sum, plus a material budget) and the time available in a contract with the DAO. Within the DAO, it is then up to the participants to innovate independently of the parent organization. Participants who are active and make valuable contributions receive tokens that they can use for further development of the DAO, for reward or for building share ownership.
- The Social Impact DAO: more and more organizations want to contribute to solving social issues. For example, around sustainability, housing or education. The problem often starts with the number of organizational units of, for example, municipalities, provinces, national governments, volunteer organizations, companies and interest groups that have to work together in the long term to achieve social impact. Forming a DAO that brings these parties (and others who can or want to join) together helps. The party you belong to fades into the background and the task at hand really takes center stage. You work together uninhibitedly on what is needed, whereby the benefits flow back to society and the organizations involved are less involved in showing their own relevance.
- The Startup DAO: Within and outside of organizations, new ideas emerge that usually are best accommodated in a new company. This is how new private companies, new labels and joint ventures are created. However, it can be a smart move not to place certain ideas in a centralized, but in a decentralized organization. Maybe the idea is not yet mature or rich enough, or it cannot be taken further by a small group of entrepreneurs or administrators in a useful way. Instead, it is better to activate a broader community. Or maybe decentralization is beneficial because you want faster global reach, with low barriers to entry and attractive rewards for (knowledge) partners who prove themselves in the startup.
In addition to these examples, you can work with DAOs on spatial development, new forms of education, energy cooperatives, fintech and much more. The challenge is to set up the form, governance and technology that suits the DAO. This way you get a decentralized organization and collaboration form that fits the mission.
The ‘well-known’ Coop versus the ‘new’ DAO
“Isn’t a DAO just another word for cooperative or coop?” people often asked me. The similarities are certainly there: a like minded community works together with the intent to harness the power of that community. And a cooperative structure generally does not have a strongly dictating central board. However, there are also differences. An important one is the (agreed upon) freedom and diversity of partners and contributors to participate in a DAO. An artist and painter will not easily join an energy cooperative as a full member; but with a DAO you are able to do that. Furthermore, a DAO has a transparent internal economy of contributions and rewards, which is technically supported. This light, playful form of working with market forces, is often absent in cooperatives. In addition to being cooperative, a DAO is also strongly meritocratic: not your position, but your added value is what counts.
The DAO Ladder
The formation of a DAO generally goes through several stages of development. Sometimes they all happen at once. The DAO ladder provides a great overview of the steps that a DAO goes through before it is fully decentralized and autonomous.
This is a modified form of the original model from the tech world, by William Mougayar
The main ingredient of the DAO can be found in the first step: the ability to participate for those who are motivated to do so. Subsequently, this participation leads to a form of cooperation that develops over time. The DAO economy that arises in parallel makes it possible to value contributions; whether this is social and/or financial value. Afterwards we arrive at the exciting process of decentralization: the ability to participate and co-decide (including about their own governance) of everyone who participates. It is up to the participant and her/his contributions to decide whether or not they will actually take part in the decision-making process. Finally, the autonomy of the DAO participants arises to jointly manage the issue, the initiative or the innovation they are working on.
The future of the DAO
In a world where boundaries within and between organizations are more restrictive than liberating, it is time to create new spaces in which collaboration is accelerated. With DAOs you free human potential and the energy of everyone who wants to contribute to innovation. The DAO offers a ‘home’ in which merits prevail over interests when working on (major) issues. For many organizations it may still sound abstract, and the additional technology takes some getting used to. At the same time, any organization can take the initiative to set up a DAO on a small scale. For example, to stimulate internal innovation, parallel to the standing organization. Or to tackle a complex issue with partners and work on it in a new way. In this phase it is up to the pioneers to spread the DAOs beyond the tech world. And in that you have Organize Agile on your side. I am proud to share that in addition to the DAOs we set up for others, Organize Agile also has its own DAO and we would like to share our experiences with you.