September 29, 2022

Unitranche

Supportive Business Potential

How DAOs Can Transform the Business World

Opinions expressed by Entrepreneur contributors are their own.

You have probably heard about decentralized autonomous organizations (DAO) by now, which have become a dominant force in the news and have emerged in various industries. They have emerged in the blockchain, sports, politics and entertainment industries.

DAOs unite people around a common goal or interest. If looked at more closely, DAOs show how large groups of people can be organized as a decision-making entity — something that will ultimately disrupt the way businesses work.

DAOs will have an impact on how businesses are structured and the way individuals lead and are recognized within companies. Ultimately, DAOs will provide a happier and healthier work environment for all those involved.

Related: How DAOS Are Changing Leadership

What are DAOs?

DAOs are decentralized entities that govern projects or companies. The DAO community makes decisions instead of one individual holding all responsibility and power. This creates a distributed and transparent governance and allows all stakeholders to participate directly.

In the United States, Wyoming, Vermont, and Tennessee have already passed legislation recognizing DAOs as legal entities. At the API3 DAO where I lead the marketing team, we strive to operate as a flat, radically transparent community that is efficient, productive and empowering to team members.

DAOs create a fair and transparent decision-making processes

Because DAOs allow members to vote on changes that are made, the decision-making process is decentralized and democratized. This creates more transparency surrounding decisions, giving everyone more visibility and leaving no one feeling like they are left in the dark on why changes are being implemented.

Another important implication is that the fair and democratic voting process creates a healthier and happier work environment. Decisions made by leaders who do not consider employee feedback can create resentment and anger, especially when they are perceived as unfair. By giving members more say in changes that are made, businesses can foster more welcoming and sustainable environments for everyone.

The decentralization of the decision-making process can also be viewed as more secure because there is no longer a central point of failure in a central authority figure. Since there is no longer high importance placed on a single person, the impact of an individual leaving the company doesn’t have as resounding effects as a CEO leaving a standard business does.

Related: The Strengths and Weaknesses of 4 Distinct Leadership Strategies

DAO votes move slower, but efficiency is not always better

Implementing a decentralized governing structure means you are giving many people a voice in the company’s future, all of whom have different perspectives. Ensuring that things move forward can feel like herding cats and feel less efficient than a centralized authority structure.

Efficiency does come with costs. Leaders of companies don’t always make the right decisions. As mentioned above, when a leader leaves a position the company is heavily impacted, whereas the DAO structure allows for more resilience and flexibility.

DAOs create a shift in internal leadership

A traditional business structure appoints managers to take control of teams and as their title implies, manage people. Within the DAO structure, there is less people management. Seeing that they can no longer direct others by force, individuals need to educate, influence and motivate others. This ensures everyone feels informed enough to make decisions and galvanizes support around a given proposal that is being voted on.

This means that strong leadership skills will be critical for gathering support and having an influence in the community, similar to what we see in other democratically-run organizations.

Related: 3 Ways to Decentralize Management and Boost Productivity

DAOs recognize contributions in the workplace that are often overlooked

In the DAO structure, things are typically more visible, meaning all individual contributions are seen and recognized. Individuals that do an outstanding job but are modest and quiet are often not recognized in the traditional company structure as a lot of their efforts go unnoticed.

Everything is visible in a DAO organization, meaning that individuals don’t get overlooked and they get well-deserved recognition for bringing value to everyone else on the team.

Imagine a workplace where employees are a community of people, where individuals are more self-directed and are openly recognized for the work they do. The result is a happier and more productive workforce. If workers have a stake in the success of the company, they will produce the best quality work. This workplace culture of fairness and transparency is facilitated by DAOs.