While the organizational structure of the Decentralized Autonomous Organization (DAO) is primarily designed to be “decentralized,” there are no major DAO protocols, including Uniswap. Much of the day-to-day activities of the DAO still involve a few key members of the organization to make important decisions. This raises the question of whether DAO is fully decentralized. And if not, is it possible to achieve full decentralization?
In a broader sense, DAO can be compared to the governance of democratic states. Although the ideology is that the decisions of the state are made by the people, it is mainly controlled by a few powerful individuals who hold most of the license to make laws and control decisions. Also, as in large organizations, shareholders are allowed to vote, but the key policy is decided by the board.
DAOs are different because they have more attractive qualities than traditional organizations. For example, if someone has an idea in a traditional organization, it must first go through a leader before it reaches higher levels. In DAO, everyone can act on a proposal due to flat structure and lack of hierarchy.
By gathering community members, they vote on proposals designed to help future protocol processes, which are then implemented in smart contracts after the proposals are approved. As part of this collaboration with society, everyone in DAO is interested in agreeing to proposals that favor the protocol due to incentives. A protocol that attracts more users increases the value of the token, which is what token holders want.
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Despite the appearance of complete decentralization, the truth is that it is still very difficult to achieve full decentralization.
Why DAO companies still struggle to be completely independent
DAO protocols struggle to live up to their nature of full autonomy, achieving full decentralization is a challenge, and with good reason.
The lack of adequate accountability for decision makers led the founding team to distrust a system where anyone could control decision making. Relying on a large community without direct consequences creates tensions in the group and slows down the decision-making process, which in turn can affect the company as a whole.
Today, all traditional startups in the early stages have quite a few decision makers. This is largely due to the fact that in the early stages of growth, one wrong decision can determine or stop a company’s growth and cause many early-stage founders to be wary of who they accept as core team members. In this environment, entrepreneurs make quick decisions and move quickly. However, DAOs oppose this principle by emphasizing the importance of society’s consent and voting.
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One of the main characteristics of a DAO is that it is a community-driven organization with a focus on potential short-term benefits. In this case, the founders must trust that the community itself is able to make the right decisions based on a long-term goal and a vision. There are generally no absolute limits or obligations on who can join the DAO community, making it impossible for the core team to trust intentions. Some protocols therefore require a stricter recruitment process to ensure the safety of new DAO members.
Decentralization should take place in stages
If DAOs are to remain true to their nature, where society can make decisions as equal, decentralization must take place in stages. However, in order to maintain the overall prosperity of an organization, a certain level of control is required. Although the affected communities should be empowered to make suggestions and decisions, there may be a need for gatekeepers or advice that can effectively maintain the company’s core values.
The most successful DAOs, including Uniswap, MakerDAO, PieDAO, Decred and others, have different portal management systems where proposals go through different stages before being accepted. For example, the Uniswap control protocol has several implementation steps before a proposal is accepted. The last phase is a group of selected users who have the power to stop the implementation of proposals it considers harmful or unnecessary. On the other hand, MakerDAO has a more open community where people do not have to hold tokens to vote offline. However, his proposal is under investigation.