The enthusiasm for decentralized autonomous organizations (DAOs) continues to gain momentum as the crypto industry recognizes that monetary systems need governance.
Yet the gap between promise and implementation is demonstrated by the incidence of rage quitting, forking (where a blockchain splits in two because the existing protocol is changed) and abandonment of DAOs. Despite millions of dollars having been invested in development, DAOs suffer from a failure to find product–market fit. How did this happen?
It starts with the emphasis on revenue and profit-making.
DAO technology is not a better way to run businesses. Businesses are running just fine. It’s not a better way to raise or allocate money. People know how to raise and allocate money. DAO technology should be applied to areas we haven’t solved yet, areas where everyone’s interest is at stake and therefore everyone should have a say.
People are seeking new forms of organization in areas where hierarchical organizations are failing: public health, climate change, preservation of cultures, inequality, etc. DAOs offer the potential to organize collective intelligence to address complex questions and manage shared resources. In a recent talk at ETHDenver, DAOstack Founder Matan Field announced the move towards governance of common resources rather than businesses, and The Commons Stack has the word “commons” in its name, signaling a clear aim of creating tools to maintain the commons. Yet the actual tech still falls short.
In 2019 and early 2020, the blockchain industry observed dozens of attempts at creating DAOs, most of them ending in failures or partial solutions, as reviewed in recent DAO case study research by the author, funded through the Genesis DAO. The source of these failures was twofold: application of DAO technology to organizations that don’t need a DAO; and limiting the capabilities to budget allocation and voting. Because of their myopic focus on ‘on-chain’ governance of blockchains, the DAO technologists have failed to create compelling technology for the problems that society is facing.
To date, technologies such as Aragon, Colony, DAOstack, GovBlocks, Moloch and other DAO tech projects have had one primary function: allocation of funds, more specifically, cryptocurrency (usually ethereum or dai). In some way, this is the only function you can implement on a group that has not preformed. If you start with a neighborhood, a political party, gamers playing a specific game or other group with a common interest, you can implement and enforce decisions. If all you have is a random group of participants, you can’t impose much of anything on the group behaviour other than allocation of budget. If you want automated allocation through a smart contract, the budget needs to be in ethereum.
In other words, the technologists have built systems that are close to useless for anyone outside of their small circle. As a result, there are dozens of “zombie” DAOs, organizations that were created but are no longer active. These failures contribute to the outside perception that DAOs are just a fad or scam.
The appeal of the DAO movement is fueled by the sense that almost all of the democratic processes are broken in today’s society – in that, despite ever greater interconnection, our national and international governance structures are failing to solve problems of the commons. Mismanagement of public health, food supply, water and air quality has dire impacts worldwide. Whether we like it or not, the actions of one person in Wuhan can have global ramifications.