Traditionally, an organization is a group of people serving common interests. Organization, in pursuing their interests, is guided by the legislation of the country it is incorporated. The distribution of assets in that kind of management system is to be controlled by governments, central banks, and elites, i.e. by people. Therefore, it implies potential asset manipulation.
DAO is a decentralized autonomous organization subject to governance technologies that provide higher level of transparency while reducing bureaucracy. Introducing smart contracts helps to address the dilemma of the principal agent, i.e. a person making decision being able to affect other individuals or legal entities. DAO can operate autonomously without the need of central authority. Fund distribution in a decentralized system follows a set of rules. Participants-voters, for example, approve funding if the project is progressing as promised.
TRADITIONAL ORGANIZATIONS VS DAOS
In traditional organizations, agents are subject to contracts which, in the case of a dispute, will determine the course of a judicial proceeding. In DAOs, participants interact with each other according to a smart contract, i.e. self-enforcing open-source protocol. The protocol regulates the behavior of all network participants and excludes bilateral agreements.
DAO can be applied in cases when people do not trust each other or speak different languages, therefore, are subject to different jurisdictions. In the case of multinational collaboration, for example, DAO provides great opportunities for business matching where it was impossible to reach consensus as was previously the case. Participants of decentralized organizations are interested in common goals, and benefits each can gain for executing contract terms, for example, goods or payment. In simpler terms, DAO is a full-fledged autonomous operating system providing interaction for individuals or institutions, and the opportunity to collaborate without having to know or trust each other.
FULL OR PARTIAL AUTONOMY
There is confusion in understanding DAO in relation to system autonomy. On the one hand, there is an image of a fully autonomous, non-governed system, some self-fulfilling entity. An organization, a set of smart contracts without own initiative. Therefore, DAO is a program unit ensuring implementation of predetermined rules.
THE POINT OF CENTRALIZATION
Decentralization is rather a range than a general state. Full automation and applying technologies are often impossible or senseless. Current projects aim to automation and easy management of all financial institutions, and elimination of human factor and potential manipulations in hierarchical systems. Thanks to technological solution using smart contracts lessens transaction costs and provides high transparency of all participants activity