Exploring DeFi as We Enter 2022: Rise of DAOs

Debates over-centralization vs. decentralization have always been a touchy topic. Many argue decentralization should be a vital part of the cryptocurrency world as it ensures platforms are not controlled by overbearing authorities or outside third parties.

Resistance to censorship and centralized authorities is important as it means blockchain-based platforms can reach markets and empower users in areas with unfriendly governments.

In an increasingly hyper-connected world where commerce and the exchange of ideas flows beyond borders, decentralization becomes even more vital to promote innovation and efficiency, especially with an Internet described as the “biggest decentralized communication system humanity has ever seen.”

Decentralization fosters transparency and security – elements that only become more important as the crypto market sees larger amounts of money moving around. Accusations of insider trading within the OpenSea NFT marketplace have led some to argue for greater decentralization within the NFT world.

“Whether or not there is truth to the accusations of insider trading—OpenSea needs to use this as a catalyst to build a more decentralized platform,” Compound Finance co-founder Robert Leshner noted in September.

Decentralization is of particular benefit to projects when it comes to community involvement and engagement. Decentralized projects are turning to DAOs to empower users to participate in the governance process through a democratic voting system where participants create proposals and cast votes on different initiatives.

Decentralized governance has even proved popular in the traditional financial world. The private venture capital firm Andreessen Horowitz announced in August it was “Open Sourcing Our Token Delegating Program” to share resources like legal agreements and other criteria to foster decentralization.

A number of blockchain projects are finding success with the DAO model to promote community involvement. The Maker platform relies on a DAO framework to guide protocol development, where MKR holders can vote on a range of issues from changing protocol fees to even forcing an emergency shutdown of the platform.

Another is PhoenixDAO, a digital identity-based suite of protocols touching on authentication, payments, and decentralized governance. 1,000 staked PHNX is required to cast votes while proposal creators need to stake 10,000 of the native PhoenixDAO token. Members can vote and propose on a wide range of issues from platform governance, to leadership, marketing, ecosystem participation, and the rewards structure.

Uniquely, Phoenix’s DAO is entirely self-sustaining through revenue-generating products and does not rely on donations, unlike other DAOs. In a further nod to transparency, all spending voted on by members is posted on a running budget page.

Phoenix’s open participation and governance framework allow for anyone across the globe to get involved. The democratized voting process ensures the will of the majority (and not just a few developers or leaders) dictate the platform’s direction.

Disputes within centralized structures are often messy to alleviate due to their bureaucratic nature. Platforms like PhoenixDAO make dispute resolution easy since any disagreements can be put to a vote for a final resolution.

As evidenced by platforms like PhoenixDAO, the unique advantages of DAOs when it comes to governance, transparency, and engagement make the model an influential one in 2022 and beyond. Many are starting to believe DAOs could become an integral part of the future of work and general human organization.

DAOs also look set to continue to make waves inside the traditional business world.

Joseph Raczynski predicted at the 2021 Thompson Reuter’s Emerging Legal Technology Forum a DAO would own a major sports franchise within the next four years, later writing how “Imagine the ability for you and others to vote on which players the New York Giants pro football team acquires… yet, by owning tokens of the NYGiantsDAO or whatever it may come to be named…”

Decentralized governance only continues to grow in popularity as protocols look to harness the collective knowledge and enthusiasm of members to drive growth and interaction, firmly placing DAOs as an important component of the already vibrant cryptocurrency ecosystem.