DAO vs Traditional Organization

6 min readMay 29, 2022

DAO vs Traditional Organization — What is a DAO?

A decentralized autonomous organization (DAO) is a trustless organization that enables blockchain developers to automate decisions and agree on the parameters of a cryptocurrency or protocol. A DAO enables like-minded developers worldwide to collaborate without third parties or intermediaries. Also, the rules and decisions of a DAO are governed by its members rather than any central authority. Furthermore, some DAOs have built-in treasuries that members can vote on to allocate funding. Every member has an equal voice within a DAO and can vote on proposals to bring changes into effect.

Unlike traditional corporate structures, DAOs don’t have CEOs or leaders. Also, because all decisions are recorded on the immutable blockchain ledger, agreements can’t be altered without informing the entire group and making a united decision. Accordingly, all members of a DAO obey the rules embedded in the code on the smart contracts defining the terms of the DAO. Nobody can secretly spend money from the treasury or change the outcome of a vote.

DAOs provide a decentralized alternative to traditional management structures. This enables blockchain and Web3 projects to remain decentralized and conduct community governance without a board of directors. All of the authority to make decisions stays in the hands of the community. In turn, this enables cryptocurrency projects to steer new protocols in the right direction to create thriving, sustainable ecosystems with sound money principles. Also, a DAO allows an organization to operate more transparently and with less human error and trust than any traditional organization.

DAO vs Traditional Organization

Forming a traditional company requires the submission of documentation. For example, if you wanted to form a limited liability company (LLC) in the U.S., you would need to provide information such as the name of your LLC and a company address. Following this, you’ll need to pay a filing fee, get insurance, perhaps some licenses, and a bank account. Conversely, forming a DAO requires fewer formalities. Creating a DAO does not require participants to fill out any paperwork. Also, although some DAOs will incorporate as LLCs, it is not an essential step.

Furthermore, the creators of a DAO might converse and plan the fine details of an organization in an informal manner compared to traditional organizations, with boardroom meetings swapped for Discord and Telegram conversations. After this, decisions are brought onto the blockchain using smart contracts. Rather than using pages of physical paper contracts, smart contracts enable DAO creators to automate the terms of their organization using self-executing code.

Not only does this optimize the entire process, but it also removes trust between parties. Smart contracts are at the core of every DAO. Accordingly, these contracts will stipulate every parameter of the DAO, such as how new members can participate, how members access treasury funds, and how voting mechanisms should function. Moreover, smart contracts mean that members of a DAO don’t need to meet each other in person.

Funding Mechanism Of DAOs Vs Traditional Organization?

The initial funding for an LLC usually comes from the founding members and partners in the form of capital contributions. These contributions actually represent a percentage of ownership in the business and cover initial operational costs. Furthermore, if an LLC needs more cashflow, members could take out a business loan or look to venture capitalists (VCs) and investors for funding. In this case, each investor takes a portion of ownership away from the original contributors(founding members and partners).

These outside investors usually expect a return on their investment. Although this may seem apparent, it could compel an organization to make questionable decisions to ensure returns for investors. However, DAOs offer an equitable alternative for raising capital.

DAOs align financial contributions with governance rights to enable investors to become owners and workers. Funding a DAO, most projects will create a token that can be sold on open markets, others mint NFTs . Anybody who wants a stake in that organization can simply purchase governance tokens or NFTs to have a say in the direction of the project. In turn, these token sales help to fund the treasury of a DAO. Furthermore, to increase security, prevent any single member from withdrawing funds from a DAO’s treasury and to promote transparency DAOs lock funding into a multi-signature wallet. Also, DAO members have an incentive to maintain the well-being of a project, not just make a quick buck.

The Structure

Traditional organization structure requires every employee or member to function together harmoniously. Any significant deviation from this cohesion could disrupt the entire organization and cause it to stop working. To keep everything running smoothly, traditional organizations often adopt a hierarchical structure, with those at the top making decisions that those at the bottom will implement. This top-down, tired pyramid structure clearly defines the roles of each member or employee, which is an efficient way to delegate responsibility throughout a large workforce.

Regardless of the advantages offered by this model, it can be limiting for several reasons. The communication of ideas tends to follow a top to bottom pattern, i.e a small group of people to the majority. Often, this can reduce job satisfaction and prevent employees from aligning their goals with the company. Furthermore, this model can stifle innovation and prevent collaboration.

However, DAOs take a completely different approach to structure and hierarchy. DAOs don’t have bosses, managers, and CEOs. Instead, each member can interact with smart contracts to vote on how things should operate. Also, DAOs benefit from smart contracts that reduce the issue of human error and poor performance.

Furthermore, almost every aspect of a DAO is written into the code of a smart contract. This includes the allocation of funding, voting systems, and the implementation of improvement proposals. Accordingly, DAOs promote collaboration, transparency, and open discussion more than most traditional organizations. Moreover, every member of a DAO has the power to agree or disagree on any changes before they can be implemented.

Benefits Of Being a DAO Member?

DAOs enable like-minded people to come together to achieve goals that are outside of the scope of traditional companies. Members can participate in decentralized crowdfunding and funding management in a way that removes most of the paperwork, fees, and trust from the equation. Also, DAOs are incredibly quick and simple to set up. Plus, anyone can create a DAO, regardless of nationality or status.

In addition, DAO members can define their own goals. Unlike a traditional company with shareholders, DAO members can directly control their own destiny. The only shareholder interests within a DAO are those of the DAO members. These visions are aligned more than most corporations and serve to benefit those who do the work.

Another advantage of a DAO is that every member can speak openly and frankly. Often, big companies can be intimidating, especially for employees. If an employee feels that they have been mistreated, it can be difficult to speak up if they feel that their job may suffer as a result. However, DAOs remove this dynamic and promote inclusion and discussion.

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