The Strategic Value of ​​Decentralised Autonomous Organisations

Decentralised Autonomous Organisations (DAOs) are novel ways to coordinate as groups on the internet. DAOs are digital-native and are governed by members through blockchain-based tokens and smart contracts. In only a few years of experimentation these organisations have been used to run digital businesses, infrastructure, charities and social groups.

DAOs are often mislabeled as being leaderless or fully autonomous. In reality, DAOs have diverse and bespoke governance characteristics. Those characteristics build on and augment their underlying blockchain infrastructure. Misdiagnosing these characteristics leads us to misread the potential strategic value of DAOs.

In this article we first review the core characteristics that make DAOs unique: token-based governance, fluid and dynamic membership, and global reach. We then argue that for DAOs to be valuable these characteristics must be compared to other types of organisations. DAOs will only replace traditional organisational forms by providing value in specific contexts.

What are the unique characteristics of DAOs?

New organisations face the challenge of formalising their structure within familiar organisational frameworks such as companies, partnerships, not-for-profit foundations and incorporated associations.

Traditional frameworks are useful for many reasons. They define how an organisation operates and interacts with the real world. Our understanding of these structures has evolved over hundreds of years.

But DAOs represent a radically different approach to organisation. Only by outlining the uniqueness of this approach can we begin to understand how DAOs are a new way to coordinate and manage groups.

What are the characteristics of DAOs that make them unique? How do those characteristics differ from more familiar structures? What are the shortcomings of these radical new organisations?

DAOs have token-based membership

DAO membership is typically defined by addresses that hold governance tokens. Tokens represent a member’s stake in the organisation. It also typically proportionally represents some decision-making rights. Token-based voting inherits the characteristics of the underlying blockchain infrastructure, creating transparency and censorship-resistance of the voting process.

There are several ways that people can become members of a DAO including by:

• Buying tokens on the open market (e.g. through an exchange).
• Being compensated in tokens (e.g. taking part in grant or bounty programs).
• Privately investing in the early stages of a DAO (e.g. as a venture capitalist).
• Receiving an airdrop of tokens (e.g. for past on-chain behaviour).

As we will see below, the variety of these mechanisms means that DAOs can have a highly dynamic membership.

DAOs have fluid and dynamic membership

In conventional entities like companies or partnerships, governance roles are often tied to fixed positions or long-term ownership of shares. Decision-making power is generally concentrated among a select few, such as board members or executives. Changes in governance typically require formal procedures, like board meetings or shareholder votes. Governance decisions are made in fixed cycles, such as annual general meetings.

In contrast, the DAO’s token based structure enables a much more flexible and liquid form of governance. Acquiring or disposing of governance tokens means that individuals can enter or exit the governance process. Decision-making power shifts fluidly as the composition of token holders changes.

One way to think about this is that DAOs operate under a model of continuous governance, where proposals and decisions can be made at any time. The benefit is a more agile and responsive organisational structure.

There is also a drawback with this fluidity: too much fluctuation in governance ownership may be destabilising. DAOs may lack the accumulated knowledge and experience that maintains continuity of purpose and guides decision-making over time — they may lack “corporate memory”.

DAOs have global decentralised governance

DAOs are naturally borderless and global. They have members from all over the world and are not tied to any specific jurisdiction. Members can participate freely in decision-making without seeking hierarchical approval.

Many decisions in a DAO are put to a vote of all DAO members. This is more permissionless than conventional organisations. Furthermore, because of the pseudonymous nature of blockchain addresses, people can participate without revealing who they are.

While being global, permissionless and pseudonymous can provide some major benefits, there are also several challenges. For instance, designing a system that fosters active engagement remains challenging. While the ideal is that all members will contribute meaningfully, the reality is that collective action problems persist (e.g. voter apathy, dominance of a few large token holders).

The Strategic Value of DAOs

The characteristics that we have described above also point us towards where DAOs are strategically valuable. DAOs are valuable in specific contexts where traditional organisational structures may be less effective. A DAO’s strengths are most evident in environments that are internet or blockchain-native, and where global reach and rapid adaptability are essential.

DAOs may excel where groups or business models are inherently digital. For businesses or projects that exist primarily digitally — such as decentralised finance (DeFi), open-source software, or digital art (e.g. NFTs) — DAOs provide a governance structure that is naturally aligned with the underlying business. In any case, the DAO must exist to carry out a clear purpose.

DAOs are suited for organisations that require a global presence, untethered to any specific geographic location or legal jurisdiction. Traditional organisations often face limitations due to national regulations and the need to establish legal entities in multiple jurisdictions. That said, in recent years, jurisdictions such as the United States have passed laws that allow DAOs to incorporate or be recognised as a legal entity to enable the DAO to enter into traditional contracts and own property inside those jurisdictions.

DAOs enable rapid, adaptable decision-making. The ability to spin up a DAO quickly, make decisions in real-time, and adapt to changing circumstances without the delays inherent in traditional corporate governance structures is a significant advantage. This makes DAOs particularly effective for projects that need to be agile, such as those in fast-paced industries like blockchain or technology innovation. Additionally, the ease with which DAOs can be spun out or shut down allows for flexible, project-based collaborations that can be dissolved or restructured as needed.

Traditional organisational structures will still have a role to play – including in blockchain-enabled environments. Executive management within these structures streamline decision-making processes. Traditional organisations allow executives to make routine decisions efficiently. In settings where regulatory compliance, legal accountability, and consistent leadership are critical, the well-defined hierarchy of traditional organisations provides predictability and long-term stability.

Integrating DAOs into the World

DAOs offer a unique and innovative organisational form, distinguished by token-based membership, fluid membership, and decentralised decision making. These characteristics make DAOs particularly effective in digital-native environments where global coordination and rapid adaptability are essential.

There is no single type of DAO – it is a governance structure that can be tailored to a particular purpose and context, with its token-holders in charge of its rules and processes. Just as the company structure has not displaced partnerships or not-for-profits, we predict that DAOs will ultimately complement rather than replace traditional organisational structures.

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Dr Aaron Lane and Dr Darcy Allen are with the RMIT Blockchain Innovation Hub