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Why DAOs Represent the Future of Online Communities

Author: Alan W. Date: January 18, 2023

What if you could participate in a community where there was no central influence, your identity could be kept anonymous, and decisions were always made openly based on the majority rule? Decentralized autonomous organizations (DAOs) offer these benefits. Gaining prominence in recent years by leveraging blockchain technology, DAOs provide a glimpse into the future of collaborative work and leisure in the decentralized society of Web 3.0.

The Open-source Communities Empowering Web 3.0

A DAO is an online organization that’s governed by code with records kept on the blockchain. These elements enable it to achieve complete transparency because each individual member can audit the DAO’s smart contracts and on-chain activity. Individuals join DAOs to make collective decisions on the digital domain that the DAO operates in. For example, ConstitutionDAO was formed in late 2021 with members making collective decisions in an effort to purchase an original copy of the United States constitution.

As the “decentralized” in its name suggests, a DAO should theoretically not be beholden to any major authority. Only the stakeholders themselves have sway, with incentives correctly aligned. Furthermore, since most DAOs are governed by code, all the operating rules are pre-defined and clearly displayed. Such rules can only be altered if DAO members propose then vote to enact changes.

Transparency and Autonomy of Decentralized Autonomous Organizations

The mechanisms that facilitate decision-making are written as smart contacts permanently encoded to a blockchain network, and voting stakes are typically issued digitally via tokens or other assets representing shares. Every single decision and action that the DAO takes is auditable on-chain. As members voluntarily come together through shared values, a collective mission emerges first and then the community gradually forms around it.

DAOs solve the free-rider problem of Web 2 online communities because to participate, one must have skin-in-the-game via acquiring tokens. Each member’s influence grows based on commitment (amount of tokens or shares purchased) or by merit (quality of their contributions that would grant voting rights in return).  Similar to how the organization itself is autonomous from centralization, token holders themselves are free to further the DAO’s mission in their own ways while being aware which actions will be rewarded according to the open-source smart contract code. This type of structure encourages individuals to be more proactive rather than sit back and wait to gain from the group’s accomplishments.

How Phemex Leverage DAOs for Trust-building and Decision-making

Phemex recognizes that while DAOs still have much room to evolve, they embody undeniable advantages over existing online communities. Pseudonymous participation means that contributions are evaluated on a purely meritocratic basis. There is no possibility of discrimination based on race, age, gender, religious affiliation, etc. because these aspects are not even known by other members. DAOs also offer novel methods of decision-making in that all contributors are essentially fiduciaries. Despite being a CEX, Phemex operates in an industry that’s making cutting edge innovations in decentralization. We believe that an exchange can improve transparency and trustability by infusing DAO mechanisms into its operations.

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