DAOs are quite significant because they challenge the way traditional organizations are run and present a real alternative to existing ways of governance.
But while they make room for innovation, there are also some notable downfalls.
Remember, not all DAOs are the same, but here are some general disadvantages to keep in mind.
Time-consuming
You see, the democratic nature of DAOs can make decision-making a time-consuming process.
Instead of a few people making decisions quickly, the voting mechanism requires time to gather votes.
In an emergency, the organization can lose valuable time deciding what needs to be done.
The same also applies to more trivial decisions as well. If each step requires consensus from DAO members, then it can take weeks or even months to complete something that would otherwise take much less time.
Concentration of voting power
As mentioned before, one of the ways that voting power is decided is through the number of tokens owned.
The more tokens someone owns, the more voting power they get.
This can give rise to a situation where a wealthy investor can accumulate a large number of governance tokens, and thus, voting power.
One way to combat this problem is to perhaps have a time-weighted system where the length of time that you have invested is proportional to the voting power you receive.
Some could argue that this would again skew power towards a few, early investors, which is perhaps also true.
There is no perfect way of running a DAO and ultimately it comes down to the members themselves to decide which way they prefer.
Vulnerability of code
This refers to the security of the DAO which is facilitated through smart contracts.
If there is a flaw in the code, then hackers may exploit this to steal funds and assets from the organization.
Significant technical expertise is needed to ensure that the best security measures are implemented and this can be both cumbersome and expensive to achieve.
DAOs are ever evolving and transforming to this day. If you have a perfect example of a DAO, we’d love to hear from you, tweet us your thoughts at @WoWFoundation_ 😊
