v1.0 - Nov 09, 2023 | Created by community and contributors
The dawn of decentralized autonomous organizations (individually ”DAOs”) brings to mind Plato's Cave. Early concepts were just like those elusive shadows flickering on the Сave’s walls — lacking depth and barely capturing the rich potential of decentralized governance. Meanwhile, the very communities behind these DAOs remind us of the Cave's inhabitants. Locked into seeing only the shaded outlines, they often miss the profound depth behind the ideas, mistakenly thinking that what they see is the entire concept. Therefore, the initial DAO models faced a range of conceptual and technical vulnerabilities, sometimes leading to system failures and exploitation. The early attempts to build DAOs (e.g. The DAO) undoubtedly were a vital experience for future developments, even if they didn't quite hit the mark. Like any great endeavour, the challenges faced and lessons learned pave the way for innovation and success.
However, the impulse for decentralization and its potential to change the world has driven technological advances, shaped minds, transformed markets and, finally, the world. This momentum gave rise to a new phase in the evolution of DAOs, introducing many tools to integrate DAO principles into organizational structures. Yet, existing solutions still haven't delivered the ergonomic means to establish a fully decentralized and autonomous organization. Among critical challenges in the market for existing DAO tools and the organizations themselves, we can identify the following:
Lack of Decentralized Treasury Management Tools: Even when creating a DAO, you still need a multi-sig wallet with a certain number of signatories, which distorts the very idea of decentralization and concentrates power in the hands of the founders.
Plutocracy: Despite the decentralized nature of DAOs, significant decisions in most organizations still follow the will of large stakeholders — founders, their teams, and investors. Many organizations rely solely on ownership-based governance models, centralizing power around the narrow circle of interested parties, which fundamentally misrepresents the essence of DAOs and creates manipulation risks. For DAOs to genuinely embody decentralization, we must establish mechanisms encouraging participation and influence from a broader spectrum of competitive contributors. By doing so, we can ensure that decisions are made collectively and are not highly influenced by a narrow circle of key stakeholders.
Incentive Imbalance: In current structures, DAO members must not only spend time studying proposals and making decisions but also cover commission costs. At the same time, the benefits of the organization's activities can be accessed by all members regardless of their involvement and the outcomes of their efforts. Such a model devalues initiative and demotivates individuals.
Low Activity: As a result, most organization members remain insufficiently motivated and engaged. Initiative and contribution go unrewarded, and a quorum for decision-making is only achieved with the participation of a narrow circle of interested parties.
Lack of Infrastructure: Although there are many solutions in the market, we still lack a comprehensive infrastructure that contains mechanisms for constructing complex organizational structures, discussions, on-chain and off-chain voting, incentivization mechanisms, decentralized treasury management tools, the ability to integrate proprietary contracts, and autonomously execute DAO decisions, and so on.
Given the abovementioned challenges, most existing DAOs are better described as decentralized autonomous organizations with centralized governance (DAOCG). Current tools hardly allow for the creation of a genuine DAO. Many organizations continue to resemble those faded shadows on the wall of Plato's Cave, living in a distorted illusion of what they perceive to be a DAO. Otherwise, projects and organizations that recognized this fundamental flaw had no choice but to build their own DAO infrastructure and allocate substantial resources to maintain it.