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Can DAOs Replace Traditional Organizations

  • Author

    Coinhunt CC

  • Reading time

    5 min read

  • Published

    5/7/2022

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Decentralized autonomous organizations supported by the community can appear everywhere in the crypto space, from DeFi applications to the management of cryptocurrencies, from dApps to blockchain games. Do you know what DAOs do better than traditional organizations? DAOs offer broader applications and management capabilities for everyone.

DAOs are community-run companies powered by blockchains. Developers prefer to work with the DAO management style to offer fair opportunities and flexibility for communities. DAOs are decentralized, everyone is responsible for the decisions made. So everyone has decision-making power, rather than a CEO or any other authorized person.

The goals of DAOs are not just to grow faster or invest more. All stakeholders of the community can offer an opinion on any subject. After the initial rules are determined by the developers, governance can be made within the framework of these rules without anyone's intervention. As a result, communities are moving towards goals, thanks to tokenized governance and smart contracts.

DAOs don't just operate through suggestions and voting. Because DAOs are open-source arm, how they will affect the blockchain can be verified by anyone with coding knowledge. Investment pools, charities, community groups, co-workers, crowdfunding and more can be managed with the DAO method. The main idea here is that the funders of the project decide where these funds will be used.


Traditional Organizations and DAOs


The difference between the two organizations is that one is centralized and the other is decentralized. DAOs use tokens to participate in governance. Anyone holding a certain number of tokens can maintain decision-making power in the network.

In organizational structures, each manager has a role and those at the top of the hierarchy make the decisions. In traditional organizations, it takes years or large investments to reach the decision-making power. In DAOs, on the other hand, there is no hierarchy or organizational level. The more tokens you hold, the more valuable your votes will be.



Decentralization


In a traditional organization, board members make the decisions, whereas in a DAO anyone can make suggestions. Among the proposals, the one with the most votes is executed. Several variables are needed for decision-making in a DAO. Staking time can be of great importance according to the rules of the DAO. Those who stake their tokens for a long time may have higher voting rights. The other variable is the stake amount. You lock the governance tokens in the offer you want to support, and you get them back after the necessary decision is made. Whichever idea gets the most votes will win.

The board of directors of DAOs is smart contracts. DAOs can be self-managed thanks to smart contracts, which are open-source coded functions. However, most DAOs are not legally established. Traditional organizations, on the other hand, are established in accordance with state laws.


Problems DAOs Solve


DAOs are everywhere in the crypto world, but most people are unaware of their existence. DAOs created DeFi. DeFi platforms were secured thanks to the DAO and the members participating in the management were rewarded. DAOs have helped people protect their money. Hacking attacks today would have reached unpredictable proportions had it not been for all the DAO improvements.


Advantages of DAOs over Traditional Organizations


In DAOs, larger investors gain more control, but they can never be the sole determinant. DAO members are interdependent and do not require intermediaries. They offer much more control to everyone than traditional organizations. Play-to-earn games, yield farming, liquidity pool platforms, NFT marketplaces, and everything crypto-related decentralized has become more useful thanks to DAOs. Games managed in the traditional organization type did not make money for the gamers, or investment institutions had control over our funds.



Disadvantages of DAOs


DAOs also have a number of disadvantages. A decision made by the community may be to the detriment of the organization rather than to its benefit. People who do not have management skills can often be mistaken in the decision-making process. Also, the decision phase in DAOs takes much longer than in traditional organizations. The voting phase can go on for a long time to let everyone know and give their opinion.

DAOs do not allow interference by nature, so there can be no legal regulation for DAOs. That's why it can be difficult to hold legal accountability if things go wrong.


Can DAOs Replace Traditional Organizations?


A clear answer to this question cannot be given. Because the answer to this question is connected with other things we do not know. If blockchain p2e games replace traditional video games, DeFi replaces traditional finance, dApps replace centralized applications, Web3 replaces Web2, DAO can also replace traditional organizations. But at least we know that DAOs are increasing dominance day by day.

In order for a traditional organization to be managed with the DAO method, it needs to be tokenized. Small stakeholders in the organization join the management team physically and digitally with the tokenization method. That's enough to make DAOs better than traditional organizations. The DAO, which is still new to the market, has a lot to improve and test.

The largest known DAO is PancakeSwap, which has close to 3 million monthly users. PancakeSwap has a total locked value of $2.93 billion. Comparing PancakeSwap with the largest centralized exchange Binance may provide the answer we were looking for for this question.


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