Traditional Organizational Structure
Before diving into Decentralized Autonomous Organizations (DAOs), it’s crucial to understand the problems they aim to solve.
- Traditionally, most organizations look something like this...
- Only a select few individuals have access to finances and make most of the major decisions that affect the entire organization
- A top-down management structure that leads to communication barriers
- Members/employees must trust each other to make decisions that will benefit the entire organization
This system has resulted in a challenge that affects nearly every industry and organization: the principal-agent problem.
This issue arises when a person or entity (the principal) has conflicting interests, goals, or priorities with those who make decisions and act on their behalf (the agent).
Examples of this situation include when a CEO (agent) does not make decisions that best align with shareholder (principal) interests or when a trader (agent) uses high leverage to chase a performance bonus, knowing the company (principal) will cover any losses.
Made by Rohan Hirani