WHY AND HOW? COMPARISON WITH A TRADITIONAL CORPORATE MODEL
Usually it is better to compare new things with their existing counterparts to gain a perspective, which is the reason why we will compare a DAO with the structure of a traditional company.
How do DAOs achieve the above-mentioned advantages ?
Given the complexity of these mechanisms, one might wonder about the utility of DAOs. The utility of DAOs is not found in their objectives, but in the process of achieving those objectives. Emphasised by the principles under which DAOs operate, these authorised communities operate quite differently from traditional companies.
We can identify at least five principles:
1. Decentralised: executive/voting power is distributed among the stakeholders of the DAO (unlike a company where a CEO is appointed). The greater the number of parties, the greater the degree of decentralisation. The purpose of decentralisation is to avoid giving too much power to individuals by creating moral hazard.
2. Resistance to censorship: no authority, including governments, can shut down a DAO because it is managed by a decentralised network of computers.
3. Transparent: the decision-making and executive processes, as well as the use of resources and performance within a DAO, are completely transparent and accessible through the blockchain. In addition, tools are available, and others are being developed, to simplify the access and interpretation of DAO data (see more in Chapter 2 'DAO Tools'). While traditional companies, only if listed, are required to release periodic performance metrics.
4. Trustless: traditionally we see stakeholders putting their trust in companies; given the decentralised and transparent nature of a DAO, it does not require any stakeholder to place any trust in it. DAOs are built with a specific purpose and the community grows with individuals who serve every interest of that purpose. Therefore, stakeholders are assured that their interests are always represented within DAOs.
5. Democracy: any investor or member of a DAO can make proposals to shape the future of the DAO and decisions are made democratically.
6. Open: most DAOs do not require an invitation to invest financially in them, unlike private or public companies with shareholders' agreements. DAOs are usually tokenized and tokens can be acquired by the public.
7. Global: DAOs do not suffer from geographical boundaries. They are usually accessed by individuals globally and can serve purposes in different geographic areas.
How do DAOs gain such advantages that traditional companies could not?
Simply because DAOs operate through code and blockchain, which also has lower costs than traditional companies.
For example, traditional companies can issue quarterly or annual reports because they bear costs in preparing and reviewing financial statements. Such processes within DAOs are fully automated through code, so they do not incur additional costs.