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Exploring the Pros and Cons of DAO Organizations



Leo Henkels

DAOs are a new way of managing companies, teams, organizations, or other formal groups to make important decisions and operate efficiently. DAO stands for decentralized autonomous organization, and it uses blockchain technology to enable large groups to manage themselves automatically. These futuristic organizations make self-management efficient and make it possible to do some very cool things for modern businesses or organizations. Let’s learn how DAOs work and understand the pros and cons of DAO organizations to decide if they are the option for you. 

Understanding DAOs

A DAO or decentralized autonomous organization is formed through the use of smart contracts, DAO governance tokens, and a communication platform such as Twitter, Discord, or Telegram. You can begin developing your DAO by launching a governance token, launching a Discord, or creating smart contracts that help manage business operations. From there, you can organize your members into a community and get a voting management tool such as Snapshot to monitor and track how members vote. These organizations can be formed quickly and with a modest investment by their members to get things going. Now that you understand to start DAOs, you should consider the DAO pros and how creating one of these organizations can improve your life and business. 

Understanding DAO Pros and Cons

A DAO is a unique organizational structure that offers significant benefits. These modern organizations are convenient, trustworthy, and efficient but also have some serious drawbacks. Learn about the pros and cons of DAO organizations before considering one. 

dao decentralized autonomous organization

Looking at the Benefits of a DAO

If you're interested in building a sizeable organized group or already running an organization, forming a DAO would come with significant benefits. Few options exist as capable as the DAO structure to make people trust an organization, reduce administration costs, and unite users worldwide. Learn more about these powerful benefits, and you'll quickly see the potential of the DAO model for a business or large-scale group. 

Decentralized Power

One of the most significant benefits of a decentralized autonomous organization is that power is spread between all the shareholders. Everyone has a vote that influences what happens in the organization. By including everyone, the company is more likely to operate in a way that shareholders agree with. 

Excellent Trust and Transparency

Every decision that's made regarding a DAO is a public record to everyone in that organization. Whether you have one token or 50% ownership in the company, you have full access to the decisions made by other members. This helps build trust in an organization, and it helps encourage the leading members to make decisions that benefit the community. 

Lower Administrative Costs

A DAO is operated by smart contracts that launch themselves automatically. Computers run the company, reducing the amount of time and effort that real people must spend managing the organization. With less administrative demands DAOs are more efficient and affordable. Code and user votes control your company, giving it an automated feel you cannot get from any other organization model. 

Globally Accessible

Because of how DAOs work, they make it easy for investors to buy in worldwide. With support from members anywhere on earth, it's easier to grow these organizations, and they are more resistant to economic shifts. 

Each of these benefits makes a DAO an exciting structure company founders should consider, but not everything about DAOs is perfect. There are real drawbacks to these structures as well. 

The Cons of DAOs

DAOs are highly capable organizations, but they could be better. Every investor or contributor should be aware of some real drawbacks of these automated structures. 

DAOs are Unregulated

DAOs outside of the Marshall Islands are not regulated or legally recognized by many governments. This can lead to uncertainty and legal issues for members. Without official government support that comes with a MIDAO DAO LLC, it is difficult to predict what could happen with DAOs if a foreign government decides the entity is illegal in the future. 

Slower Decision-Making

Compared to one CEO, or a small board of members making decisions, it takes more time for the entire organization to vote on decisions. Even though the voting process is streamlined, change occurs more slowly in DAOs than in a traditional company with a CEO.

Security Vulnerabilities

Each DAO relies on technology to make decisions, vote, manage revenue, and more. The heavy reliance on technology makes the company more vulnerable to hackers and other cyber attacks. 

Company Members Must Understand Technology Well

A DAO is highly technical, and you will only want to be a member if you understand and trust blockchain technology. With so many people skeptical about cryptocurrencies and blockchain in general, getting enough people to agree to be part of a DAO can be challenging, and some members will struggle to interact with the organization if they don't understand the technology behind it. 

business woman

Are DAOs Right For Your Organization?

DAOs are a powerful use of blockchain technology to empower every member of an organization to help control essential decisions. If you believe a government would be better if every member of society could weigh in on important decisions, DAOs will likely appeal to you. If you believe a single wise leader or a carefully selected group of educated individuals make better decisions than the masses do, DAOs probably aren't for you. 

You must also consider your organization's technical capabilities. DAOs rely heavily on technology, and individuals comfortable with technology will thrive being involved in such a structure. Furthermore, considering your overall risk tolerance before getting involved with a DAO is also essential. Hacker attacks are more of a threat to a DAO than a traditional organization and potential regulatory or legal issues could become a problem later since DAOs still operate in a legal gray area in most countries besides the Marshall Islands. 

Decentralized autonomous organization structures have some genuine benefits, but you must recognize the drawbacks too. Consider what the benefits would mean for your organization, the speed improvements, efficiency, improved trust, and more, and compare them to any potential drawbacks before deciding if you want to use DAOs for your organization.