Understanding Decentralization & Autonomy In A DAO

“It is safe to say that ‘DAO-ism’ is well on its way to becoming a quasi-cyber-religion.”  —Vitalik Buterin, “DAOs, DACs, DAs, And More: An Incomplete Terminology Guide” (2014)

Decentralized Autonomous Organizations (DAOs) will soon become preeminent when it comes to tech entrepreneurship and cryptocurrency network development. This will accelerate as every token project begins to implement strategies to move toward a self propelled, community built, owned, and operated system.

Within the BLOCKS DAO, it is our mission to migrate traditional industries onto blockchain based technologies. To accomplish this, participants in the DAO will have the opportunity to create Software Development Kits (SDK’s), stewarding the integration of the BLOCKS digital asset across products and services available through corporate partnerships, govern the organization, and manage its financial resources. The combination of these activities will allow for BLOCKS DAO to become a timeless digital asset based enterprise, that over time, allows the BLOCKS token to become a unit of measure across various blockchains.

Defining Our Terms: “Decentralization” and “Autonomy”

For our concerns here, there are two salient definitions of autonomy. First, it can refer to the capacity for an entity to act automatically on protocol changes, resource allocation, and membership systems. This has to do with independence and self execution; so it indicates the degree to which a system is automated. Second, it can be used in reference to political independence: the prerogative of an organization to coordinate, free from outside influence.

Increased decentralization results in an increase in longevity and censorship resistance.  To understand this, it helps to define our terms. “Decentralization” pertains to the  degree to which the network of operating participants is resistant to a single point of  failure. A Decentralized Organization (DO), then, is a network of digital actors that  coordinate their activities according to permissions. Permissioned systems have less  autonomy and decentralization, while permission-less systems generally have more  autonomy and decentralization.  

The degree to which a DAO exhibits autonomy depends on the decentralization of the  system’s technical and cultural layers. Thus:  

In an effort to build a robust, self-propelled organization, each DAO leverages a variety  of technical and cultural tools in different stages of development. Let’s explore how this  works.  

Let’s look at the two different senses of decentralization: technical and cultural.  

Technical Decentralization:  

The degree of technical decentralization is defined by the tools used to automate power  distribution across participating agents within the system. Liquid token economies  (read: commerce based on crypto-currencies) provide a stronger technical means of  decentralization than a multi-sig because liquid economies allow for permission-less  network ownership and participation.

Characteristics of the Technical Decentralization:  

Permissioned Organizations (DO) Technically Centralized Permissioned Open Networks (DAO)) Technically Decentralized
Less Automated More Automated
More Socially Influenced Less Socially Influenced
Less Market Driven More Market Driven
More Flexible Protocol More Immutable Protocol

Cultural Decentralization

An organization’s cultural decentralization comes from the way power is distributed  across the humans interacting with—and within—the system. This carries more nuance  than the technical layer, as it is not a technical assessment but a sociological  assessment of interpersonal interaction (community development, information sharing,  and decision-making processes). The extent to which a DAO’s culture is decentralized  is defined by the manner in which the community building and interaction with—and  within—the system exhibits properties of permissionless self-propagation (as opposed  to permissioned and curated management). 

Characteristics of Cultural Layer

Permissioned Organizations (DO) Culturally Centralized Permissioned Open Networks (DAO) Culturally Decentralized
Permissioned Management Permissionless Management
Contrived Community Self Propagating Community
Small Bus Factor Large Bus Factor
High Information Asymmetry Low Information Asymmetry

Further Distinctions

Traditional (permissioned) DOs generally rely on conventional marketing efforts (coordinated between disparate parties) and depend on investment in developers to build applications—even when this is done on blockchain architecture. Decisions come from a system that looks very similar to the typical (hierarchical) corporate structure of management.

DAOs, on the other hand, make use of open networks; and rely heavily on open source development, which is generated by communities of individuals who coordinate via forums and blog posts. Such participants are primarily driven by research and intellectual curiosity. DAOs that facilitate a high level of engagement from a large variety of people and initiatives naturally hold higher degrees of self-propagation in design and direction. Moreover, this model has theoretically higher “bus factors”. That is: The points of failure / vulnerability are distributed, thus mitigating severe repercussions. Traditional organizations are subject to central points of weakness, middlemen, and unaligned stakeholder interests.

DAOs On The Horizon

DAOs are the most efficient (that is: streamlined and cost-effective) business model ever conceived. Moreover, they are arguably the most fair. Due to the format of their governance, they are able to shore up the weaknesses of traditional centralized businesses; and even overcome the shortcomings of many blockchain projects. Otherwise sluggish processes can be expedited. DAO tooling like Gnosis Safe enables pseudonymous groups to pool and manage funds across jurisdictions; and do so within minutes. The equivalent process to establish a traditional joint bank account could take months; and in some cases, it wouldn’t be possible for individuals from different jurisdictions to jointly manage a bank account.

A true DAO has only a single interest to protect: that of the business itself. It requires no employees or executive managers, thereby providing a service without consideration of salaries and intermediaries, or even the constraints of haggling over financial forecasts. Businesses can survive on the most razor-thin margins imaginable, and only need to cover the cost of existing; nothing more.

Looking Forward

DAOs are gaining a lot of steam as more and more groups start launching their own governance tokens. A variety of off-chain and on-chain tooling continue to advance the ability for these systems to elegantly distribute ownership and management. These systems offer the latest modes of human coordination. Consequently, they are blazing a trail for thousands of governance experiments to run concurrently.

More research needs to be done to further detail the extent to which specific DAOs are technically and culturally autonomous. It will be instructive to continue analyzing the difference in technical and cultural decentralization exhibited by projects of a specific category. Every enterprise will invariably demonstrate some mixture of centralized and decentralized characteristics throughout their development; so it is important to assess the virtues / drawbacks of both.

As the Web 3.0 ecosystem continues to develop, the most successful enterprises will learn to implement some form of DAO structure, distributing both coordination and network ownership, and making governance more efficient and fair.

BLOCKS was founded on the beliefs that decentralization and autonomy are the cornerstones for the future of business functions and should be embraced wholly as we move forward. When BLOCKS DAO LLC was first established, it was done so with the intention that by embracing the DAO structure, the organization and contributors therein would be creating a company with ideal scalability, security, and operability. In structuring as a DAO LLC, BLOCKS has taken the first and most important step in creating the vision for the future of business.


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