Hyper-Transparency as a Unique Competitive Advantage for DAOs
The emergence of blockchain technology has enabled a powerful new form of human coordination. A Decentralized Autonomous Organization (DAO) is a virtual organization that operates through blockchain-based smart contracts, rather than relying on traditional management structures. It is designed to be run by its members, who are able to make decisions and take actions without the need for a central authority or intermediaries. The rules of the organization are transparent, allowing almost anyone to participate and contribute to the organization. This makes DAOs particularly well-suited for voluntary and community-driven projects, as they provide a way for members to come together and collectively make decisions about how resources and funds should be used.
In recent years, thousands of DAOs have been created, and while they’re strong on decentralizing power but haven’t always achieved their goals. This is because their goals are not always formalized in ways that are easy to communicate to globally distributed members, nor are the bottlenecks in the organization clear. Despite this, DAOs that structure themselves based on web3 values such as decentralization, immutability, transparency, composability, and censorship resistance, have the potential to create a new source of competitive advantage over traditional firms by solving for transparency.
One potential advantages of DAOs over traditional firms is in the area of operational risk management. Because blockchains are transparent (with a few exceptions like Monero), if the organization’s value creation process is clearly defined, it could allow all members to know where the constraints are. In a book I wrote in 2013, I outlined one model to think about the ultimate products and services an organization creates, and clarifying all the requirements inside the firm that are required to make those outcomes a reality. If DAOs start to define their ultimate objectives quantitatively and then make it clear how all process and project performance is required to make the exciting vision a reality, this can be a form of operational advantage, in helping thousands of members focus on the constraints to shared goals. In all the multinationals I’ve worked in, even if I just focused in one business unit or product line, the big constraints were very hard to diagnose, and not known to most members.
Another potential competitive advantage for DAOs that chose to make their value chain transparent is to attract and retain investors. By providing a clear understanding of how capital raised will be used (in the bottleneck processes, or improvement/design projects) and the time frames around performance improvements, investors can track projects using web3 tools, and dashboards (e.g. Dune) on-chain. This provides investors transparency about expected and actual value creation, and provides a new type of due diligence that could inspire investor confidence that is not possible in traditional, centralized firms.
In conclusion, the advent of blockchain technology and the creation of DAOs offer a new way of working and new forms of governance. While DAOs are still in their early stages of development, if they start to use interdisciplinary organizational science to specify on-chain performance requirements, and constraints that they’re working to resolve, blockchain-based DAOs have the potential to provide a new source of competitive advantage over traditional firms.
