With the rise of the popularity of cryptocurrencies and their allied technologies, the role of organizations has changed somewhat. Parallels now exist between the financial space and the cryptocurrency space. These parallels drive the securities vs. commodities arguments for cryptocurrency projects.
Decentralized Finance (DeFi) offers anyone with some innovation to create models which are in every sense financial but decentralized. This appeal led to renewed interest by governments in the DeFi space.
Similarities exist between the stock market and Decentralized Autonomous Organizations (DAOs). These similarities have enabled governance DAOs to resemble regular listed companies. From a regulatory perspective, it is a big plus.
Regulators won't have to look too far to regulate DAOs once they understand how they work.
DAOs Are Community-Oriented Organizations
DAOs function based on communal membership. Memberships of the community get determined by the tokens bought and who owns what, why, and when. The Smart Contract conditions which are encoded dictate the rules of operation of these communities.
We can think of any DAO smart contract as the set of bye-laws or policy documents for company operations. These Smart Contracts determine how the DAO will run and what scenarios will occur.
This community-oriented ownership structure allows for autonomy, which regular companies don't have. DAOs can run themselves without recourse to centralized control. That's the difference between a listed company and a DAO.
DAO Tokens Are Like Shares
Tokens bought by people have functions that are like shares. The functions of any token depend on the type of token and its use-case scenario.
We have two classes of tokens: governance tokens and regular tokens. Governance tokens work in the same ways preferred stocks work. The DAO itself may offer a single cryptocurrency token for both use-cases (voting and governance).
However, governance tokens give the owners greater rights and control over activities within the organization. Regular DAO tokens and common stock are also similar.
Decentralized Exchanges Work Like Stock Exchanges
Because of the distributed and decentralized nature of DeFi projects, Decentralized Exchanges (Dexes) provide platforms for exchanging DeFi tokens.
Dexes and the DeFi space have come a long way. Before now, there was minimal regulation of the DeFi space. These days, it is not uncommon to find a fully regulated Dex with the same offerings as a stock exchange. The only difference is the assets traded on each platform.
Dexes also help fulfill the functions of cross-chain transactions. One example of this is Pangolin. The Pangolin Dex enables the exchange of assets between Ethereum and Avalanche. Pangolin is a marketplace where developers can move between both blockchains with ease.
Public Offerings And Dex Offerings Work The Same Way
Stock markets conduct liquidity events known as Initial Public Offerings (IPO) to introduce new stocks. It allows for the public purchase of equity.
Initial Dex Offerings (IDO) work the same way IPOs do. DeFi projects often deploy similar marketing practices and processes before an IDO. Some stocks usually have a private placement process for those who want to buy company stocks before listing. Pre-IDO events are also for those who intend to buy DAO tokens before listing them on the Dex.
That way, the price discount on tokens will be a strategic advantage to the investor.
About Voting Patterns Between Companies and DAOs
Voting patterns in DAOs function similarly to voting patterns in companies. Shareholders vote to influence the policies and other structural changes of companies. Token holders also vote on changes within DAOs.
It brings home the question of regulation. If DAO tokens get recognized as securities, then the corporate governance of DAOs will closely resemble those of companies. The only difference is that the community members have a say in the DAO's affairs than shareholders do in companies.
Pangolin, for example, offers its native token totally towards the community without reservations. Beyond the technical upgrades that occur from time to time, all actions are community-steered. I have also created a paradigm where the community is everything within the Pangolin ecosystem.
Companies pander to the interests and whims of a few people.
Will DAOs Takeover From Regular Companies?
As global political undercurrents and shifts in attitude occur, we shall see a significant interest in DAOs. As countries and other state actors create laws and rules for regulating the DeFi space, the various implementations of DAOs with different utilities will start occurring.
However, as in all things finance, DAOs will most likely be special-purpose organizations. But, the principles that govern cryptocurrency communities will get adopted by the corporate space.
Principles such as community, transparency, and co will put corporate governance on another level. It will also help spur other DeFi implementations with regular companies taking charge.
A fusion will ignite, and we shall see the DeFi space rule. But with different perspectives and utility.
