The Evolution of DAOs: The DAC

On the need to enable web3-based business

Posted by Kevin Liu on October 4, 2022

To anyone reading this right now, it probably goes without saying that an ethos of horizontalism and the breaking down of certain traditional hierarchies are popular philosophical cornerstones that have informed web3 technologists and users to date. Developers and regular consumers alike have been given good evidence time and again to distrust highly centralized actors who have unchecked authority over their data, assets, security, and more.

And so, alongside our shared distrust of highly centralized organizations, the web3 community has established decentralized forms of what we call ”governance,” which draw on our community’s equally vibrant enthusiasm for and our belief in a truly equitable and participatory democracy, with varying degrees of nuance. 

This might be a hard pill to swallow, but what most forms of decentralized governance still fail to understand and incorporate in their methodology is that the vast majority of web3 participants simply don’t care about the details of the projects they’re enabled to help govern. In token-based governance mechanisms especially, it’s clear that most users prioritize the pricepoint of that system’s accompanying token and not the nuance that informs its underlying projects and ecosystem. 

Without careful oversight, Decentralized Autonomous Organizations or DAOs very often devolve into shell structures without earnest user participation or meaningful representation, utilized by small groups and whales to horizontal-wash the otherwise highly centralized organizations beneath the facades. Under these systems, it’s practically impossible for community members to meaningfully participate in project building, even if they wanted to, which, again, most don’t. 

What should we do about a lack of engagement in our network governance programs? What should we do about the phantom centralization of our decentralized organizations? 

We should replace our inefficient and unrepresentative token-based governance mechanisms with ones based on our users’ actual contributions and local reputations. Let genuine contributors, and not legions of inactive lurkers, govern. Why? Because they care about the projects they engage in and their reputations within the broader community.

We should also move on from DAOs in favor of Decentralized Autonomous Companies (DACs). DACs prioritize the needs of real businesses by representing their core community members alongside the web3 community’s shared values of accessibility, democracy, and decentralization.

DACs are in line with the new trustless nature of contemporary business. With DACs, anyone can create a decentralized web3 company, take control over their data, identity, and reputation on the blockchain, and utilize different tools to collaborate with other community members without needing a third-party officiant to approve their transactions. Finally, two truly independent and autonomous entities can also be equitable, collaborative actors working together on shared projects to create value for their communities and themselves.