Key facts:
Autonomous organizations captured the attention of investors in 2021.
According to Huobi, voting systems must be improved and state recognition must be achieved.
Huobi Ventures, an investment firm in cryptocurrency projects and related technologies that belongs to the same corporation as the Huobi exchange, has issued a document expressing its optimistic view on decentralized autonomous organizations (DAOs). DAOs are eating the world and we look forward to more DAO releases related to more compelling use cases.
These types of organizations, according to Huobi, form the gateway to the web3 and “the fundamental way of organizing for the world of cryptocurrencies of the future”. As these structures become more complex, management and operations-based tools will play a larger roleadd the text Annual Summary and Outlook (“Annual overview and overview”), published on the company blog.
“The growth of the web 3.0 concept in 2021 opened the eyes of investors and developers to the great possibilities of DAOs for the future,” they maintain. In this sense, they also affirm that web 3.0 will develop in the next 5 to 10 years and that it represents a user-based technology that “democratizes the possession of information.”
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The concept of web 3.0 refers to a new organizational structure on the internet that allows a greater interpretation of data by machines. In this way, more intelligent, decentralized and customizable websites and applications can be created for each user.
The advantages of DAOs according to the Chinese exchange are that they are “multi-regional, more applicable to open source communities, transparent, more vertical in their management, and more capable of mobilizing member participation in a corporate system.”
As the exchange describes in its post, in DAOs there is no central authority figure, but “the value is automatically distributed by the protocol according to the contribution” of each of the parties. With this, it is added, an autonomous governance is formed that depends on the voluntary contributions of the participants.
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In the CriptoNoticias Glossary it is also detailed that the DAOs work based on smart contracts or block chains that contain the rules and work with Proof of participation. This is a method for confirming new blocks in the chain that works thanks to validator nodes, who must have a certain amount of a cryptoactive in order to participate.
Types of DAO
Following what is expressed in the Huobi publication, DAOs are classified into several types according to their application: DAO of protocol, investment, services, assignment, media, social, collection, among others. On the other hand, if they are classified according to user participation, they are divided into participatory (with a distributed consensus managed by smart contracts) and algorithmic (fully controlled by the algorithm and smart contracts).
Obstacles to the growth of DAOs
Beyond all the qualities highlighted above, there are certain impediments that undermine the growth of DAOs. According to the Huobi report, the main ones have to do with voting and member participation and with legal issues.
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With respect to the first of these matters, in the DAO a vote might not represent the real opinion of the community if the percentage of participation is low. Likewise, the members with the greatest participation (therefore, with the most voting power) could greatly influence the results of a vote. This happened in the Curve Finance protocol in 2020, when its founder retained 71% of the votes, as CriptoNoticias reported.
Therefore, it is stressed, “methods to prevent cheating in vote manipulation and governance are still lacking.”
On the other hand, Huobi also focused on the “long-standing legal issues” that DAOs face and that will receive more attention as they become more popular. First, these are not recognized by sovereign states as a form of corporate organization.
In addition, the changes promoted by DAOs cause changes in financial, employment and tax terms that challenge the established order. In this sense, it still remains to be clarified which DAO can be considered linked to the financial field and how to define what a token is.
DAOs have a long road ahead
The expectations that Huobi mentions for the “next stage” in the development of DAOs has to do with “innovations in voting mechanisms” and the “creation of more efficient management tools based on new voting mechanisms”.
As a conclusion, expresses the publication, the DAO will not only be the most adopted form of organization in the world of web 3.0, but also will be the foundation of many areas related to cryptocurrencies.