Collaboration within Mounir Danyte x Icon.Partners
Decentralisation is the key defining Web3 principle that brings prominence and unique features for a fair resources distribution framework. This article, co-authored by Mounir Danyte, an active participant in the Web3 space & DAO expert, and Icon.Partners, international law firm that for 12+ years provides services for Web3 startups and Tech businesses, explores the current landscape surrounding decentralised tech organisations, DAOs approaches, including regulatory & business developments, uncertainties and potential future trends. Stay tuned!
Why are we talking about decentralised organisations?
Mounir highlights the up-and-coming experiences we gain without any commanding authority that ensure transparency and flexibility due to rapid growth of DAOs - Decentralised Autonomous Organizations - that promotes self-regulated structures by their members who are involved in the decision-making processes. DAOs are such a type of organisational form where a traditional intermediary is eliminated, and the stakeholders have an equal share and control in running and shaping the affairs within tokens, what embrace the digital age journey for startups, Web3 enthusiasts and any developing sphere nowadays.
What is DAO and how can we define it?
According to the Cornell University researchers, DAO is a kind of organisation which utilises and runs on a blockchain structure without the need of any central authority intervention serving it to function self-supported, by following an intelligent contract. The main defining feature is that governance responsibilities are carried out by any DAO members who are the holders of governance tokens and have voting rights that promote decisions from a bottom-up management approach. This particular model presents a democratic and participative model of decision making for various actors resulting in an awarding of a common sense that may be of interest to the whole entity.
If the DAO management principles are visualised, they will be depicted like that:
That connects main functions of DAO - legalise activities & property & assets and responsibilities of members; governance SOPs with smart contracts and DAO Constitution unification; disposal DAO Treasury management.
How decentralised tech organisations are manageable?
DAO Tech sphere reasonably varies from traditional enterprises working flow by such key management features:
participatory governance innovative models
They are characterised by democratic values and making the change on significant decisions to include all members' ideas. One of the most flexible models, as Icon.Partners and Mounir experienced to work with, is the quadratic voting that especially stands out as such a system for achieving representative outcomes, rather than being limited to a single decision “with a yes or no”.
Great examples that highlight such an innovative approach are companies such as Uniswap and Gitcoin that imply millions of tokens within the quadratic voting paradigm to robust community engagement and showcase initiatives' flexibility power.
smart contracts & decentralised treasury coherence
High promoted operational efficiency empowers automatisation processes and smooth decision-making approach, elaborating governance framework.
A recent study indicates that automation reduces management costs by up to 30%, allowing flexible reinvestment and self-executing programs elimination. Good case practice as a proof of the research is LAO`s approach in transparent funding voting process, which allocates $15 millions.
immutability & organisational development flexibility
These two characteristics define blockchain systems as a publicly accessible and vivid landscape for contributions, making membership freely choose commitments and contributions within frequently commensurate with the importance.
Mounir highlighted shifts, well discovered via research by PwC & KPMG, that explain diminishing fraud incidents for 25% and trustworthy organisation collaborative environment. Such an example of this adapting and flexibility is Aragon App that strives for DAO framework security & accessibility.
token-based reward systems & incentives prioritising
Incentive mechanisms are inherently applied to various functions and communities, whether it`s investors, founders or metaverse enthusiasts. The main idea is to reward recognition and commitment that promotes transparent governance participation and foster collaboration. As the Head of Innovation Division at Icon.Partners goes:
“active involvement in governance & protocol development is influenced by right motivation and accessible reward to open growth mindset”
One of the best examples of how Reward-and-recognition matters in DAO management is case practices in Aave, leading DAO in DeFi space, which enables current estimated reward rate as 4.63% for block/epoc rewards.
What are the trends in decentralisation in 2024?
Trends in decentralisation processes define patterns and can explain how flexible the current market is in the different contexts, from financial to networking business models.
New paradigm arise
DAOs are a foundation for this new form of organisational management, by automating and making it decentralised the governance behind an organisation. Strong incentives and decentralised decision-making foster a more productive, attractive environment that attracts teamwork.
With DAOs already sporting over $10 billion in total AUM and having traction across a myriad of different sectors, they could prove to revolutionise how companies operate on the internet.
This change prefacing coming of age in the world decentralised governance, offering up community engagement at heart to key strategic decisions. The changing framework gives room for every stakeholder to have a say thereby ensuring that the organisational goals and vision are looked at from various perspectives, adaptiveness and sustainable growth in a complex world.
Decentralised finances (DeFi) approaches with tokens and assets automation
DeFi is an emerging financial technology, based on secure distributed ledgers similar to crypto functions. They leverage peer-to-peer financial network approach, emphasising security protocols, hardware and software startups operation and continuous improvements. In DAOs they're used as tools for automation of fundings, idle assets and returns optimisations.
It's crucial to define the aim of this approach as removing the need of intermediaries (banks, financial service providers etc) who are in charge between businesses and consumers. Protocols such as Aave, Yearn.Finance, and Compound enable organisations to lend, invest or borrow without an intermediary and minimise dependance on such third parties.
Key elements include:
Smart contracts facilitate all kinds of use-cases including margin trading, derivatives, stablecoins and general lending/borrowing to operate within DeFi platforms in a fully permissionless, long-term, scalable manner. Aave, for example, is an open source and non-custodial liquidity protocol for earning interest on deposits and borrowing assets.
Governance tokens defined as digital assets that allow holders to vote on decisions that affect a DeFi protocol. Unlike traditional cryptocurrencies like Bitcoin, governance tokens derive their value from the voting rights and influence they confer rather than from their use as currency. For example, holding governance tokens in a DeFi project is like being part of a community that votes on how to improve shared parks with adding new features, adjusting fees or making structural changes to the platform.
Real-world assets that already change the reality and growth in DeFi through the combination of assets enabling stable yields and a much safer haven for their investment. It helps DeFi to draw more traditional investors considering the safe investment of real-world assets, which, in turn, may also gradually bring about more massive adoption of DeFi by mainstream financial institutions in the long run, further legitimizing the industry and driving its growth.
Decentralised governance rise with liquid democracy participation
As we discovered, decentralisation in governance has been a prominent trend, especially OECD members countries, that highlights active participation of members. As OECD library defines, decentralisation covers three distinct but interrelated dimensions: political, administrative and fiscal. Such division empowers the economic significance of jurisdictional governments; driven policies encouraging or imposing mergers or cooperation, as well, increasing asymmetric decentralisation within different powers. While asymmetric decentralisation appears more “natural” in federal countries, it is increasing in unitary countries. Decentralisation is about reconfiguring relationships between the central government and subnational governments towards a greater cooperation and a strategic role for national/federal governments.
Every token holder becomes a decision-maker and influences strategic direction. Examples, such as Uniswap and Synthetix show how users can vote on key proposals. Liquid democracy is an emerging trend where members temporarily delegate voting rights to experts but retain the ability to take back their votes. This system combines expertise with flexibility to improve decision-making efficiency.
Key observations include:
Amalgamations (mergers of municipalities)
Inter-municipal cooperation
Metropolitan governance structures
Strengthening of regional governments
Decentralised business models with sustainability & globalisation practices
DAOs globalise not only processes, but the working environment itself, enabling global talent onboarding paid in cryptocurrency, for instance through such platforms as Gitcoin and DAOstack. This example highlights the priority of the tech with flexibility and sustainability practices for networking and capacity-building innovative fluidity settings.
As well, notable trends include:
Rise of the network economy within digitisation of society both at local and global scale. Major examples of this trend include the sharing economy, crowdfunding services and crowd creation as economic phenomena that impacts flat hierarchical structures and increases the importance of collaboration.
Use of AI and automation and its fundamental shifts in business operating, labour market and reliability approach.
«If a typical person can do a mental task with less than one second of thought, we can probably automate it using AI […]» - as Andrew Ng, computer scientist and professor at Stanford said, which demonstrates how machine learning and robotics are changing the workforce.
Environmental change and sustainability as climate change consciousness will prioritise ESGs models and regulate the way how companies seek growth without degrading natural resources. Circular economy is one of the concepts expected to gain significantly more importance for business makers – especially considering the existing circularity gap of over 90% in Switzerland.
Empowerment movements and focus on individual liberty impacts how businesses overlook on stakeholder engagement (activist investors and additional demands from society) in the form of new legislations and regulations from policy makers.
What Tech companies founders should expect from decentralisation?
There`s no clear answer, not only because these expectations vary on perception, open-mindness and jurisdictional specifics, but also on strategies on how to anticipate significant challenges and opportunities in the DAO framework.
Main projections are connected with:
Balance of centralisation and decentralisation approaches
Transparent and efficient approach will be spreading on product development, hardware startups and unification of governance systems within communities.
Rise of DeFi investment
Such news about DeFi innovations interest of Ethereum huge investors highlights rapid transformation from niche market to a mainstream component of business operations within the rising of venture capital funding in DeFi surged by 126% in 2023, indicating robust interest and potential for innovative financial applications. You should prioritise various decentralised options, as lending, insurance, and crowdfunding models that allow direct engagement with global investors.
Regulatory framework significance & changing patterns
Now various US states and jurisdictions are eager to work with DAO recognition on the regulatory defined level, regulations will appear and change within different settings, so it's important to prioritise legal support to ensure global scalability.
Top-1 priority of tokens distribution and community-driven communities
Transparency is already redefined with a huge decentralisation framework, so adopting various internal policies would be empowering to promote involvement of stakeholders in decision-making processes through governance tokens, and a sense of ownership and accountability.
Artificial intelligence and automation of decision-making
AI is set to become a critical strategic asset for DAOs; lots of protocols, like SingularityNET, are already integrating AI to automate complex tasks, adjust strategies in real-time, and reduce human bias.
Integration of AI and IoT
The combination of blockchain with AI and IoT technologies will create new avenues for innovation approaches and gaining flexibility. In particular, AI can analyze blockchain data for insights, while IoT devices can feed real-time data into blockchain networks, creating more efficient and secure systems. It’s important for founders to keep up with new technologies and implement cost-efficient functions.
We had an open discussion on how we discover forthcoming patterns of DAO and decentralisation:
Mounir Danyte emphasises:
“In my opinion, DAOs are not just a trend; they signify a profound shift in governance and collaboration. The future lies in leveraging innovations like cross-chain interoperability and AI to create more equitable systems. As we move forward, it’s clear that the decentralised landscape will be driven by continuous innovation, reshaping our economic and social frameworks for the better”
Icon.Partners legal experts highlights:
“In a decentralised world, the necessity of people with expertise to make complex technical decisions is undeniable. For business owners and webmasters, this shift offers a host of benefits, from improved security and resilience to greater autonomy and cost efficiency. However, it also requires a willingness to embrace new technologies and adapt to a rapidly changing digital world”.
How businesses will feel about upcoming decentralised transformations?
It's our human nature trying to forecast and understand how we will be changed by new technologies and innovations. What you will notice? - contradictory question, however as the DAO tech sphere is developing in real days, new requirements and outlooks are important to explain.
Interoperability and modular infrastructures
Interoperability between blockchains will be crucial for the future of DAOs. Projects like Polkadot and Cosmos are enabling communication across different chains, allowing DAOs to operate in multi-chain ecosystems. This capability will allow resources and talent to flow freely, accelerating adoption and collaboration between decentralised organisations.
Algorithmic governance predominance in automated decision-making settings
Strategic decisions in DAOs will increasingly be entrusted to algorithms. Solutions like Balancer already demonstrate how algorithms can optimise portfolio management. In the future, DAOs will rely on algorithms to make complex decisions in real-time, minimising human errors and maximising organisational performance.
Innovative payment systems within dynamic incentives
As we mentioned, DAO payment systems are undergoing significant transformation. Platforms like Superfluid are introducing continuous payment streams, where contributors are compensated as they contribute, in real-time. This transparent and fluid approach redefines how talent is rewarded, fostering better long-term member retention.
Our insights on legal & organisational development by decentralised approach
We tried to mix our insights in the text, as DAO are remarkable within this approach of sharing, as well. Here we emphasise both challenges and specific approaches that are unique and important for us.
You`ve thought or heard about long-term perspective, and maybe some concerns arise?
Yes, one of the biggest challenges for DAOs is aligning member interests while ensuring long-term engagement. Mechanisms like Curve Finance’s (veTokens) encourage participants to lock their tokens for extended periods, ensuring their commitment. Robust incentive systems will provide a competitive edge for DAOs that can master them.
How do I understand by which legal entity DAO should be established?
There is no unified solution, depending on jurisdiction, decentralised companies might register as LLCs, cooperatives, or other forms, but just to ensure legal consideration, liability protection and recognition. For-profit DAOs with a clear membership structure might be able to leverage the legal framework of LLCs. This could provide benefits such as limited liability protection for token holders.
Is DAO as inclusive for participatory as it's said?
It depends on you, DAOs are easily including a huge variety of stakeholders and beneficiaries, demonstrating inclusiveness and flexibility in decision-making and contributory process. Such initiatives as MolochDAO and LexisDAO highlight a diverse governance approach and ensure how successfully it will be developing upcoming years with the ability (or superpower) to align multiple interests and backgrounds within a balanced and harmonised way of workflow.
How can compliance be smooth if smart contracts have compliance loopholes?
Due to the flexible global regulatory environment, which is defined as ever-changing both for cryptocurrencies, blockchain, and data privacy regulations. GDPR, MiCA and other laws embrace securities regulations, DAO tokens classification and more flexible decisions in legal considerations. Disclosure, investor and registration rights are the same extent important, unlike managing faulty codes, self-execution and legal auditing can be tremendous but time-saving not to lead to compliance issues & fines.
In conclusion, decentralisation, particularly through the emergence of DAOs, is reshaping the way organisations operate, make decisions, and engage with stakeholders. By putting governance into the hands of communities and using smart contracts to ensure transparency and accountability, DAOs offer a more flexible and democratic approach to running businesses. This model fosters greater participation and collaboration, providing a clear alternative to traditional hierarchies.
As we, Mounir Danyte and the legal experts at Icon.Partners, shared, decentralised organisations are on the verge of transforming industries, creating new opportunities for efficiency, innovation, and sustainable growth. With the right legal frameworks and governance structures, DAOs have the potential to redefine how companies operate in a more interconnected and transparent world.
Stay tuned and informed about adapting to these changes!
Here's more info about us, approach us for any help or concerns!
Mounir Danyte | LinkedIn
Yours,
Icon Partners x Mounir Danyte
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