Although DAOs solve a lot of issues, they are not the solution for everything. Let’s take a step back and analyze a corporate structure.

You see, the corporate structure, in its most basic form, is simple to follow. People tend to do what others tell them to do because it's easy. As a member of a DAO, you have to wake up, get out of bed and figure out exactly what exactly it is that you have to do. DAOs oftentimes don't have clear structures like a company may have, this includes leadership, goals, expectations, etc. Indirectly, the nature of how a DAO is set up causes some structural issues.

Any structure or hierarchy that is governed by a large group of people will be less efficient than one governed by a small group.

In the scenario where a vote had to be completed urgently, a DAO has two options.

There’s a conflict of interest issue with option 1. What if the developers had their best interests in mind instead of the communities? Or what if the DAO members don’t agree with the decision taken by the developers? With option 2, a proposal may not be made fast enough or votes may take time to come in.

So what is the solution? We don’t know yet... This all takes us back to how governance tokens or shares should be distributed. Should everyone get equal votes in governance (democracy) or should founders, developers, and core contributors get more votes (corporate structure)? The argument can go either way, but one thing that will be constant is that you can’t please everyone.

Another huge dilemma DAOs are currently facing is that the members joining DAOs aren’t always participating in DAO governance. As DAOs continue to scale, adapt, and improve, more and more people are joining these communities. In hindsight, it’s great to see DAOs grow but with new people coming in but, how can we be sure the people joining these communities are contributing? Time will tell as we are still in an exploratory phase of how exactly to scale correctly.

Here’s an instresting survey conducted by the Gitcoin DAO that puts things into perspective

Right now DAOs are currently in a gray area. What exactly do I mean by this? Well, there isn’t really a set and stone legal standing for them. With a company or LLC, there are clear rules and regulations in order to stay compliant. With DAOs, there is a thin line between risk tolerance and compliance in terms of legality. There is a huge need for clear frameworks and regulations. How can a DAO know if they are violating SEC laws? If they are, who is to blame? How are taxes filed? As you can imagine, as with any organization that deals with finances, there is a lot of complexity. To add on, legal counsel for all things blockchain is limited and pricey💰.

We are making progress though. Here’s a Twitter thread about Wyoming standing on DAOs.

Made by Amaan Sameer