DAOs: Leaderless online crypto clubs could be the future of businesses

The new crypto craze is community in action. Decentralized Autonomous Organizations (DAOs) are online groups with a purpose – sometimes social, often financial. Members join by purchasing tokens that they use to vote. Smart contracts make decisions easier. Everything is recorded. Decentralization means that no one is in charge.

DAOs were designed to automate trust. Many function as investment groups, pooling funds to purchase assets. Venture capital firm Andreessen Horowitz, which has invested in the sector, goes even further. It presents DAOs as a structure that will one day replace corporations. Instead of management making decisions and paying out wages or shares, stakeholders will participate in every action – and be rewarded for it.

So far, these collectives have been used to, among other things, purchase land in Wyoming and make a failed bid for a copy of the U.S. Constitution. This is quick work. Uniswapda's largest DAO, with more than 300,000 governance token holders, is just over a year old.

Funding is volatile. Data group DeepDAO says DAOs have $7.7 billion in cryptocurrency assets in reserve, up from $13 billion last November. The decline follows the crash in cryptocurrency prices, not the waning interest of users. More than 1.8 million people hold governance tokens, up from 1.6 million at the end of last year.

But transferring every decision to the group has its downsides. Like all cooperatives, they may be slow to act. Members could become overwhelmed and opt out of voting – effectively restoring hierarchies. Some members can have more influence by owning more tokens. Participation could fall back to a few members who are able to use DAOs for their own special interests.

Governance also remains a work in progress. If something goes wrong, a DAO can simply dissolve. Efforts to fit them into the real world are imperfect. In most regions they are not considered legal entities. There remains a risk that regulators will view tokens as securities. Trust must be earned.