Most associations have a traditional model – the board and executives work together to run an organization that offers services and benefits to its members. However, in this conventional model, members have little to no control over what the organization does.
Decentralized autonomous organizations – DAOs – flip this model, decentralizing the power structure and putting it in the hands of members. And DAOs are not a far-off technology relegated to the world of Web3 – they’re in use today, and there is plenty for association leaders to know about them.
Decentralized autonomous organizations, commonly known as DAOs, are organizations designed to distribute power from traditional leadership models – like CEOs and Board of Directors – to a disputed network of stakeholders, also known as members.
Their rules and policies are handled by the blockchain and funding and exchanges are completed via cryptocurrency. DAOs are an essential part of the Web3 landscape and are quickly growing in popularity and application.
How Do They Work?
How does an organization with no central authority or leader operate?
- Smart Contracts – For the organization to operate, there needs to be a set of rules. When DAOs are established, the founding members use smart contracts to outline the organization's structure, including rules and protocols that allow the organization to make decisions. These smart contracts are then added onto the blockchain, making them highly visible and verifiable by anyone entering the DAO.
- Tokens – In a DAO, tokens serve two purposes – funding and voting power. When joining a DAO, you’ll likely need to purchase a token using a cryptocurrency like Ethereum. Those funds enter the treasury and turn into buying power for the organization. At the same time, the token authenticates membership and allows voting power. The number of tokens and votes allowed often are based on the protocols set when establishing the DAO.
The most important part of a DAO is the protocols set when creating it. They dictate how voting is done, the types of investments the organization is looking to make and the benefits members can expect.
For example, some DAOs will use tools like Discord to introduce ideas and begin initial voting on potential investments. Alternatively, the DAO could be established with a specific goal, like ConstitutionDAO. The only decision their members needed to make was what to do with the constitution once it was acquired.
The transparency afforded by the smart contracts that establish the DAO allows members to make informed decisions when joining and voting.
Types of DAOs
- Grant DAOs – Designed to allow for more straightforward donations and investments in emerging technologies. Grant DAOs pool money from members, who then vote on where the funds are allocated. They often show that “decentralized communities are more flexible with funding than traditional organizations.”
- Aave Grants DAO – Aave is a DeFi protocol that allows for the borrowing and lending of cryptocurrency. Their grants DAO will enable members to allocate funds to creators building support and applications for the overall Aave protocol.
- Philanthropy DAOs – Nonprofit organizations can form DAOs that allow for decentralized fundraising. Members will allocate resources and control the decisions made by the organization as a whole.
- Big Green DAO – This nonprofit-led DAO is the first of its kind and is designed to decentralize and democratize grantmaking. The Big Green DAO will allow members to contribute and decide on what initiatives get funding for the organization.
- Social DAOs – For groups with a common interest, they can form a Social DAO. These collaborative platforms allow members to unite and organize while gaining access to exclusive communities.
- Friends with Benefits - The Friends with Benefits DAO gives members access to a closed group of artists, creatives and thinkers focused on shaping the future of Web3. Members gain access to exclusive discord groups, events and exclusive content.
- Investment DAOs – Whether members are investing in physical properties or NFTs, investment DOAs allow members to pool funds to achieve this goal. The acquisition decision is then left to group voting, with ownership going to the DAO.
This list is not exhaustive, with many DAO models to choose from. However, many of these organizations can impact how associations and nonprofits operate and gain funding in the near future.
What This Means for the Future of Associations
As we continue to explore the future of Web3 and community building, DAOs represent a modern-day association. However, instead of building on the traditional structure of executives and board of directors, these decentralized organizations put control entirely in the hands of their members.
So, what do you need to know to prepare?
- DAOs are decentralized organizations that give voting and decision-making power to members instead of a board of directors.
- To create a DAO, smart contracts are used to develop protocols (rules), which are secured and verifiable on the blockchain.
- The transparency and security of the DAO allow for trusted interactions and connectivity across the globe – making them ideal for purpose-driven or cause-focused organizations.
- Membership and voting power are gained by purchasing tokens, which also help establish a fund for the DAO.
- DAOs can be used for just about anything, including investments, non-profit funding and community building.
While the association model may not need a complete rebuild today, the dynamic between members and the organization may shift soon. This is why association leaders must focus on future technologies and their relationship with members.
June 25, 2022