Disclosure: The views and opinions expressed here are solely those of the author and do not represent the views and opinions of the crypto.news editorial staff.
Since David Chaum’s 1982 dissertation proposed decentralized blockchains, the goal has been to create systems free from corruption by central authorities. Decentralized autonomous organizations are emerging today as alternatives to traditional businesses such as LLCs or nonprofits.
But what if there was a way for DAOs to collaborate with centralized organizations while still fulfilling their fundamental purpose – to act as self-governing, decentralized entities governed by the collective decisions of their members?
The Wyoming DAO Law
In 2021, the state of Wyoming passed the Decentralized Autonomous Organization Supplement. This law allows DAOs to be officially recognized as LLCs, allowing them to enter into legal contracts and own property without the need for off-chain shell companies. This new status provides DAOs with the ability to raise money through token sales as well as traditional funding avenues.
In addition, DAOs can utilize research and development facilities, hire staff, and deploy RegTech while maintaining their decentralized, transparent, and democratic decision-making processes. This legal recognition opens up new opportunities for DAOs to effectively collaborate with centralized organizations and combine the strengths of both models to foster innovation and growth.
The benefits of collaboration examined
Originally, blockchain projects started monolithically, with everything bundled into a single stack. However, as the technology evolved, specialization and optimization at every level became critical for scalability and efficiency.
Centralized organizations have extensive resources, structured processes, and access to traditional funding sources. These advantages can significantly help DAOs scale their activities and facilitate legal agreements.
Furthermore, one of the most compelling benefits of such collaborations is the improvement of governance and decision-making processes. DAOs are characterized by decentralized governance, which allows members to directly influence the direction of a project, thus reflecting a broader stakeholder base. By integrating various voting mechanisms, such as quadratic voting, fairer representation is promoted.
To further expand this collaboration, we can leverage one of the greatest benefits of DAOs and blockchain technology: transparency. By combining DAOs with decentralized finance, we can create systems where every transaction is permanently recorded and linked to a community vote, ensuring that all spending within an organization is fully transparent and accountable to its members.
This transparency can significantly change the way traditional organizations track their spending. It prevents fraud from going unnoticed and ensures that everyone can see how and where the money is being spent. For nonprofits, this transparency is particularly powerful. Members and donors can see exactly where their money is going and how much is being spent. This can prevent situations like the Arts Center Scheme, where a lowly accounts receivable employee embezzled over $1.1 million.
Another great benefit is using smart contracts to automate processes. Smart contracts can streamline operations by executing predefined actions when certain conditions are met. This reduces administrative overhead and human errors and makes things more efficient. It also ensures that everything is done transparently and according to agreed rules, which increases trust and accountability in both centralized and decentralized environments.
The possible defects
Anything that sounds too good to be true probably isn’t. The combination of DAOs and centralized organizations brings with it many challenges and problems, but there are ways to prevent and mitigate many of these problems.
A major concern with DAOs is voting costs. Since votes must occur on-chain for the smart contract to execute, transaction costs can quickly add up, especially with numerous proposals.
One proposed solution is off-chain voting. However, off-chain voting carries the risk of manipulation and centralization. An alternative approach involves using zk-rollups, which execute transactions on a zk-rollup L2 chain. This method bundles transactions and sends them to the L1 chain, dramatically reducing fees and increasing efficiency.
Another major concern is that integrating a centralized aspect into a decentralized system reduces the value of a DAO and introduces significant risks. While Wyoming’s DAO law does not require primary owners to verify their identities, operational and legal considerations, particularly when interacting with financial institutions or participating in regulated activities, may require individual verification.
The means for the future
Collaboration between DAOs and centralized organizations opens up exciting possibilities for the future. This partnership could change the way we approach governance, transparency, and operational efficiency across different sectors. By combining the decentralized nature of DAOs with the resources and structured processes of centralized organizations, we get the best of both worlds.
In the future, we can expect to see more regions develop legal frameworks similar to Wyoming’s DAO law. This will give DAOs the legal recognition they need to operate alongside traditional businesses and pave the way for seamless collaboration and innovation.
This hybrid model preserves the transparency and democracy of DAOs while bringing in the efficiency and resources of centralized organizations. This mix of decentralized and centralized approaches will redefine how organizations work and make the future of governance and operations more democratic and effective.
