Vitalik Lists 3 Reasons Why DAOs Are Better Than Corporations

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Ethereum co-founder Vita­lik Buterin pub­lished a lengthy blog post on Mon­day defend­ing the use­ful­ness of decen­tral­ized autonomous orga­ni­za­tions (DAOs). 

He out­lined 3 rea­sons that DAOs have unique advan­tages com­pared to tra­di­tion­al cor­po­ra­tions, and will not sim­ply be out­com­pet­ed and obso­let­ed by the latter.

Making Better Decisions

A DAO is an emerg­ing, blockchain-native, bot­tom-up gov­er­nance struc­ture with­out a cen­tral­iz­ing hier­ar­chy or CEO. Instead, the organization’s mem­bers make deci­sions by vot­ing using gov­er­nance tokens, which are imple­ment­ed via smart contracts. 

As Vita­lik explained, DAOs have fre­quent­ly been crit­i­cized for being inef­fi­cient com­pared to tra­di­tion­al gov­er­nance struc­tures. After all, attempts at decen­tral­ized gov­er­nance in the exist­ing cor­po­rate world have seen lim­it­ed success. 

How­ev­er, the devel­op­er claims that decen­tral­ized deci­sion-mak­ing can work best in “con­cave envi­ron­ments” – sce­nar­ios in which com­pro­mis­es between two extreme deci­sions lead to the best out­comes. For exam­ple, mod­er­ate tax rates are usu­al­ly best for opti­miz­ing rais­ing rev­enue, and keep­ing an econ­o­my healthy, ver­sus either a 0% or 100% tax rate. 

“When deci­sions are con­cave, rely­ing on the wis­dom of the crowds can give bet­ter answers,” said Vita­lik. “In these cas­es, DAO-like struc­tures with large amounts of diverse input going into deci­sion-mak­ing can make a lot of sense.”

Sec­ond­ly, appli­ca­tions that must con­tin­ue func­tion­ing when threat­ened by large exter­nal actors are best gov­erned by decen­tral­ized enti­ties. A pop­u­lar exam­ple of this is Bit­Tor­rent, a decen­tral­ized file-shar­ing system.

By being decen­tral­ized Bit­Tor­rent enjoys not only cen­sor­ship resis­tance, but also long-term reli­a­bil­i­ty that attracts long-term invest­ment. Sim­i­lar­ly, DAOs can serve as both cen­sor­ship and insta­bil­i­ty-resis­tant alter­na­tives to corporations. 

One exam­ple Vita­lik includ­ed is Mak­er­DAO – the issuer of the decen­tral­ized sta­ble­coin DAI. Unlike cen­tral­ized alter­na­tives such as USDC, DAI may be more equipped to han­dle cen­sor­ship attacks from the U.S. government. 

Credibly Fair Systems

Final­ly, decen­tral­ized gov­er­nance is arguably bet­ter for fos­ter­ing “cred­i­ble fair­ness” in sys­tems that require some degree of sub­jec­tive deci­sion-mak­ing. These may include algo­rith­mic sta­ble­coin DAOs, decen­tral­ized courts (ex. Kleros), or retroac­tive fund­ing mech­a­nisms (ex. Opti­mism DAO). 

All three cas­es require robust gov­er­nance sys­tems that can “cred­i­bly con­vince a large and untrust­ing pub­lic that it is robust.”

“Real­is­ti­cal­ly, we prob­a­bly only need a small num­ber of DAOs that look more like con­structs from polit­i­cal sci­ence than some­thing out of cor­po­rate gov­er­nance,” con­clud­ed Vita­lik. “But those are the real­ly impor­tant ones.” 

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