2019 will be the year of DAOs according to various crypto news outlets. DAO stands for Decentralized Autonomous Organization. This is a new form of software-based mechanisms for alining economic incentives over the internet by distributing risks and rewards among people that share a common goal but don’t necessarily know each other. The main idea behind DAOs is establishing organizations that can fully function without hierarchical management. A decentralized organization is run through rules encoded in smart contracts. It’s transaction record and programs rules are maintained on a blockchain.
Several startups like Aragon, Colony, Otonomous are currently building the technology infrastructure allowing experimentation to take off with this new form of organization. Governance challenges arise with these new emerging entities without the traditional appointed directors and officers overseeing the business. The most well-known example of a DAO, confusingly called The DAO, showed us the risks and complexity of this innovation. In 2016 The DAO raised $168 million and was the largest crowdfunded venture capital fund ever. Unfortunately hackers were able to steal $50 million due to a bug in the code of the smart contract.
Key governance issues to overcome are for instance the difficulty of coding smart contracts. Changes in code can’t be made once the smart contract is deployed. Additionally a free-rider problem could occur without the right incentives in place. This means that whenever the benefits of group action are collective, they will also be provided to the members of the group who make no contribution. Another area of concern is the fact that DAOs face regulatory risks.The legal status of this type of organization is still unclear. This also creates issues when decentralized entities wants to interact with a traditional ones.
It is still early days for this technology. At the moment the main focus goes out to solving problems concerning security and legality through trial and error. The road ahead for 2019 will be bumpy and adventurous.
Reference material:
https://tokeneconomy.co/why-2019-will-be-the-year-of-the-dao-20f18117e4c1
https://medium.com/@maciejolpinski/on-risks-rewards-and-the-evolution-of-daos-c82db87a60a8
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2884978
https://twitter.com/nlw/status/1020099428777160704
Posted from my blog with SteemPress : https://www.blockchaingovernance.nl/2019/02/06/__trashed/
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