A decentralized autonomous organization allows all its members to make decisions about the operation and actions that are carried out., while the SL focuses on the decisions of the capitalist partner or partners.
In recent years, there has been a lot of talk about Decentralized Autonomous Organizations (DAOs) and their ability to create democratic and automated organizations in which all members have the opportunity to take part in decisions.
One of the biggest problems of current business organizations is the wage gap between workers and managers. In fact, a World Economic Forum report On economic inequality in the world, it points out that the richest 10% of people accumulate 52% of the world's income, while the poorest half only get 8%.
This difference has been multiplied by the COVID crisis, which has widened the gap between those who have the most and those who need the most.
This is where DAOs come into value, as they could create a fairer economic system, in which the income obtained will be distributed more equitably. However, when thinking about this topic, other doubts often arise: Could a DAO manage a company and legally operate in a similar way to an SL or a cooperative? What could DAOs contribute to society?
What is a Limited Company (SL)?
A Limited Company (SL), also known as a Limited Liability Company (SRL) is a type of Commercial Company that is regulated by the Capital Companies Law and whose main characteristic is that limits the liability of partners.
This type of company focuses on protecting the personal assets of the partners, since they They are not liable with their personal assets of the debts acquired by the company.
Limited companies can be created with only one partner, since the only requirement is to have a minimum share capital of more than 3.000 euros (in the case of Spanish legislation).
Limited companies must also have a corporate purpose, which will be the activity or activities to which the company will be dedicated.
In general, this is one of the most commonly used corporate figures by small and medium-sized companies, thanks to how easy it is to create them and the legal flexibility they enjoy.
As in any business society, the main objective of SLs is to obtain the maximum possible profit for the capitalist partners.
What is a Decentralized Autonomous Organization (DAO)?
Decentralized Autonomous Organizations, or DAO, are a type of organization controlled entirely by computational algorithms, known as smart contracts, which determine the rules governing the interactions of the DAO and its members.
The DAOs They are not bound by any particular regulation or law., since its nature is decentralized and democratic.
Unlike limited companies and traditional government structures, decentralized autonomous organizations have a horizontal structure. That is, they are a community, in which Each member has the same responsibilitiesA DAO is based on sharing ideas and benefits.
Would you like to know how a DAO works and set up your own? At Bit2Me Academy we have a course on DAO with which you can learn everything you need to create and manage your own decentralized autonomous organization.
What are smart contracts? (H3)
Smart contracts are a special type of instructions, written as lines of code, stored on the blockchain, which have the ability to auto-execute actions according to a series of already programmed parameters.
Smart contracts are public and transparent, meaning anyone can access them to review their content, but they are also immutable. The content of a smart contract cannot be changed unless specifically voted to do so.
Do you want to know more about smart contracts? Smart Contracts: What are they, how do they work and what do they contribute?
How do smart contracts work in DAOs?
Let's imagine a DAO made up of 100 people, which has been created to make investments and buy companies. A smart contract is written that is responsible for automatically distributing the money between each of the members. The contract is put to a vote and since everyone is in favor of implementing it, it is implemented on the blockchain.
Next, a vote is taken again to withdraw funds from the DAO and buy a company. This company starts generating 10.000 euros per month. When the funds are received in the DAO treasury, the smart contract automatically divides the income equally and sends 100 euros to each member.
This way, there is no need for an accounting department. There is no one person signing each transaction. There is only one code, public and verifiable, that takes care of all the management.
DAOs in business organization
The technology behind DAOs may be modern, but the idea of a group of people sharing the responsibilities and benefits of a business is anything but.
In fact, It is an idea from 1884.When a group of 28 artisans from Rochdale, United Kingdom, created the Rochdale Equitable Society of Pioneers, the first consumer cooperative in the world, and the first to distribute the surplus profits from economic activity among its members.
Although there had been cooperatives before, the Rochdale one is considered the first since it laid the foundations for what would become the following cooperatives. These foundations appeared in the “Rochdale Principles”, which evolved into what is now known as the “Cooperative Principles of the International Cooperative Alliance.”
What are cooperatives?
cooperatives are not owned by the shareholders, so their goal is not to make as much profit as possible, but rather to focus on finding the best ways to offer value to their members.
Furthermore, any profits made by the cooperative, once all costs have been paid and the money has been distributed among the members, are reinvested in the cooperative itself to improve processes or distributed among its members as a bonus.
Today, more than 12% of the world's workers are part of one of the 3 million cooperatives that exist in the world.
Cooperatives have many similarities with DAOs:
- They are governed democratically by all associated members.
- They are not intended to multiply the profits of an unknown investor.
- In both cases, they focus on obtaining results that benefit the interests of the people who work in them.
What advantages does a DAO have for companies?
With all the legal options available, what would lead an entrepreneur to opt for a DAO as a corporate governance system? Why go to all that trouble when it would be much simpler to create a cooperative?
The truth is that DAOs have some advantages over other forms of business management such as:
Less expenses
Compared to traditional forms of business management, DAOs have very low overhead costs. In their most basic form, you don't need to set up an office, or buy furniture or equipment.
In addition, it does not require the hiring of high-profile administrative profiles, since All management is done through smart contracts, facilitating the process and alleviating the financial burden, something very important during the first years of a company.
International Reach
From the moment of its creation, the DAO has the potential to operate worldwide. Being a decentralized model, it does not need offices or a central government, which means that anyone, from anywhere in the world, can be part of it.
Transparent and fair operations
The rules and regulations of DAOs are encoded in their smart contracts, which are public and transparent, so anyone can see them. These rules are public, immutable, and verifiable by everyone, so anyone who wants to work for the DAO can review them.
They will be able to know how much is paid, if there are any unpaid bills or if they are up to date with them, as well as the identity of their members, since all transactions are public.
Thanks to smart contracts, an entrepreneur can interact with another person anywhere in the world, without the need for an intermediaryThis allows you to streamline processes and quickly improve benefits, scaling a company from scratch in record time.
In addition, smart contracts also ensure that no DAO member can withdraw money from the treasury without the consent of the rest of the members, and if they do, taking it would be very easy.
Ease of financing
From the moment it is created, a DAO can be funded by creating and selling its own tokens. These Public token sales allow that investors and funds from all over the world invest their money in the project.
It might interest you: Tokenization, NFTs and ICOs Course
Having the ability to attract investors from anywhere in the world from the very beginning is an advantage for any entrepreneur. And it is an advantage that is only available to DAOs.
Additionally, a DAO can take a more traditional route and seek out venture capitalists, private equity funds, or work with banks for funding. In fact, many venture capital firms, such as a16z or Pantera Capital, are investing in DAOs and Web 3 projects today.
Democratic business model
DAOs are designed to be completely democratic. Each worker or user who owns a DAO governance token will have the ability to decide on the actions that are carried out.
This is a system that is completely opposite to traditional government systems, where one person or an exclusive group of people make all the decisions. This vertical structure often causes employees to feel ignored, thinking that they are not taken seriously and are not listened to.
However, The DAO system is based on collaboration, in sharing ideas and opinions. In addition, thanks to the token voting system, employees can be assured that their comments and opinions are heard by everyone.
Unlike in the traditional closed environment, DAOs receive more diverse opinions, which are studied by all members, commented on, and finally voted on. This means that it is much easier for a brilliant idea to become a reality.
Is it possible to create a company as a DAO?
Now that we know what a DAO is, what the difference is between a decentralized autonomous organization and a cooperative, and what their advantages are, we ask ourselves the following question: Is it possible to legally create a company as a DAO?
The truth is yes, since last year the governor of the state of Wyoming signed Bill 38, which recognized the DAO as a legal form government and as a commercial structure, granting them the same legal power as Limited Companies.
Thus, as more countries legalize DAOs as forms of corporate governance, we could see an explosion of startups and new companies emerging under the protection of this form of democratic management.
Keep reading: 4 Ways DAOs Can Improve Democracies
