Web3 arose because of the inability of centralized institutions to ensure security, fairness, and transparency in managing financial and social infrastructure. Web3 is built on a distributed network with minimum trust, such as blockchain and prophecy machine. It uses cryptography, consensus protocols and mechanism design to manage digital infrastructure. It does not need to trust a human third party, but achieves security through technology, which is called "crypto fact".

Cryptofacts combine cryptography and decentralized consensus based on economic incentives to reach consensus in distributed networks, create unified records, and unfold computations for applications in a deterministic manner.

In addition to DeFi and NFTS, the trust-minimization digital infrastructure enables a new blockchain social paradigm called DAO. In DAO, separate entities can co-govern open source infrastructure and jointly manage assets in a democratic manner. Specifically, all processes are written into the smart contract code and executed on the blockchain. The fundamental purpose of DAO is to extend the concept of trust minimization and achieve collective decision making in human society.

What is DAO?

DAO's full name is "Decentralized Autonomous Organization", decentralized Autonomous Organization in Chinese. The main purpose of DAO is to go beyond traditional organizational forms and make collective decisions in a distributed, transparent, and trust minimization manner. In short, DAO is a new kind of organizational architecture. People can independently verify how the organization works and work toward common goals based on this consensus.

DAO is unique in that they leverage blockchain smart contracts to write some or all of the processes into contract code to enforce decisions and assign ownership. The emergence of smart contracts has laid the foundation for innovation, as they make DAO governance rules completely transparent and cannot be tampered with by any DAO member or external party. That's because the code running on a blockchain, or smart contract, can be publicly audited and secured by a decentralized network of nodes.

The pros and cons of DAO

Instead of simply discussing the disadvantages of DAO, it makes more sense to discuss the trade-offs that DAO need to make in different ways. These trade-offs are not right or wrong, but each has its own pros and cons. Each DAO needs to make decisions and trade-offs based on its own needs. Interestingly, almost all traditional governance architectures face the same trade-offs, and DAO is no exception.

-Early members VS late members

DAO may initially or eventually be controlled by a handful of whales, especially DAO that employ token weighted voting. This is because DAO founders or early investors tend to get a higher percentage of governance tokens.

Not only does this lead to centralization issues, but it also leads to the more complex question of whether founders and early investors who created DAO and invested the most time and resources into their development should have the most voting power and influence. If so, what proportion is reasonable? The challenge here is that the voices of late community members may be drowned out by minority members, leaving their participation with little value to offer.

-Decentralization vs. efficiency

For DAO to maintain minimal trust, checks and balances must be in place to avoid rushing to irrational decisions that do not have the support of the community. In addition, this protects the DAO from governance attacks and external infiltration attacks. Checks and balances are key mechanisms in modern democracies that avoid excessive concentration of power and clearly define the responsibilities of each branch.

The downside of decentralization is that it is inefficient, causing DAO to be unable to perform tasks on time. Such as not being able to capitalize on an immediate profit opportunity or quickly fix an unexpected bug. Due to the lack of agility of DAO and the time and resource consumption of multi-layered decision-making mechanisms, it is difficult to compete with hierarchical, centralized organizations, especially in the fast-changing world of open source technology.

Future development of DAO

Ultimately, the DAO is just an innovative tool that can be used to design a society that minimizes trust. However, DAO is not a panacea for all the governance problems that have existed in society for thousands of years.

In fact, there is no perfect governance mechanism. However, Web3 gives builders the ability to experiment with more flexible governance mechanisms and gives users the opportunity to influence the underlying protocols of the governance mechanisms to bring them closer to their own values and beliefs. Some people would prefer to "do nothing", while others would argue that complex systems need more human intervention. Both views are fair game. Over time, some DAO will eventually fail and become obsolete, while others will succeed and thrive, which will change some perceptions.

It's a very exciting field, but it's still early days. No one knows what the future holds for DAO, so Web3 builders don't have to rush to release DAO. We hope that through continuous exploration and practice, we can create different DAO design patterns and reflect different values. At the same time, these different DAO design patterns are designed to promote governance transparency and minimize trust, while remaining flexible enough to compete with Web2 systems.