Decentralized Autonomous Organizations (DAOs) and Their Impact on Corporate Governance in E-commerce

In investment fund management and decentralized governance, DAOs (Decentralized Autonomous Organizations) have emerged as digital entities managed through smart contracts, inherently intertwined with the Web3 ecosystem. The primary objective in this domain is to enhance autonomy and transparency by decentralizing power. This involves the removal of intermediaries and reducing bureaucracy, ultimately leading to lower costs. DAOs facilitate crucial determinations such as strategic direction and financial decisions through a voting system.

DAOs were merely a topic of discussion until 2016 when they experienced a significant advancement with the launch of The DAO, by Slock.it, a company grounded in the “Internet of Things (IoT)” concept. The DAO operated as a decentralized investment fund where investors contributed Ether (ETH) and received DAO tokens. However, the project faced a major setback when an attacker exploited a vulnerability in the smart contract code, resulting in a $50 million loss.

The aftermath of The DAO incident in 2016 was a significant blow, impacting not only the over 10,000 anonymous investors but also causing division within the Ethereum community, ultimately leading to the creation of Ethereum Classic. However, the resilience of the DAO concept prevailed, continuing to gain momentum. Every defeat presents an opportunity for learning and growth; this setback was no exception. By 2022, reports indicated a substantial rise in DAOs, collectively managing approximately $10 billion within their treasuries. Today, that figure has soared to nearly $40 billion.

“No matter how many times you fall, what matters is how many times you get up”.

-Vince Lombardi.

The evidence suggests that interest in the creation and governance of projects, particularly within the crypto ecosystem and free from reliance on a central authority, has significantly increased over the years. The 2016 incident was a human error – code doesn’t always function like the law of gravity. I recall during my university days, one of my mathematics professors was criticized for his rigorous approach to grading exams. He responded that, in real life, a building could collapse due to a small error. This statement underscores the importance of minimizing errors through rigorous security audits.

In the last decades, the e-commerce industry has also seen significant evolution. What was once a niche sector consisting of individuals seeking to indulge in luxuries has now become an integral part of our daily lives. This transformation has led to a surge of competition within the digital market. Moreover, the increasing complexity and scale of online operations pose governance challenges… Consumers are becoming more demanding, prompting many companies to prioritize transparency, particularly in managing user data.

Amid growing concerns from consumers about the use of their personal information and the transparency of return and refund policies, companies are increasingly seeking new governance models to enhance efficiency and profitability. We believe that a DAO used as a platform for Web3 e-commerce would be a solution. Just imagine that all involved parties, such as customers and suppliers, could have access to information about decision-making and how funds are obtained. This fosters trust and credibility, leading to customer retention.

“DAOs represent a significant step towards the creation of autonomous organizations that operate without the need for a centralized authority, leveraging Blockchain technology for decision-making and the execution of smart contracts transparently”.

-Vitalik Buterin, co-founder of Ethereum.

In traditional e-commerce, many areas could benefit from improvement using DAO smart contracts. These include managing inventory, processing orders, and handling payments. Let’s consider a scenario: a seller lists a product on platform A, providing details such as its attributes, available quantity, and price. Once the product is listed, a smart contract is automatically created, outlining the terms of the transaction. When a user buys the product, the smart contract activates, holding the payment until the product is delivered and confirmed. After that, the system updates the inventory accordingly.

Smart contracts also cover dispute resolution. For instance, if a user claims to have received a product in poor condition, they can initiate a return or refund process mediated by the program, which adheres to the rules established in its code. However, it’s essential to recognize that smart contracts cannot entirely replace human involvement, as complex situations may still require the assistance of customer support agents.

While progress has been made in the field of DAOs, it’s important to recognize that their adoption, along with other Web3 applications, remains limited. Hence, educators in the blockchain domain must expand beyond solely discussing Bitcoin and Ethereum. Educational content should cover a variety of technologies associated with cryptocurrencies and provide clear use cases. People should know what a DAO is, how it works, and the challenges involved.

Given that DAOs are based on smart contracts, it’s crucial to be aware of the potential for coding errors. Therefore, we must conduct regular security audits and promote best coding practices. Software development is inherently complex, and achieving success requires a balanced team methodology. Additionally, researching the legal landscape surrounding Blockchain is advisable, as it still lacks clear regulatory frameworks and contains many legal loopholes across various countries.

Any autonomous entity governed by smart contracts or decentralized mechanisms qualifies as a DAO. The process of establishing a DAO involves defining operational rules, followed by fundraising. Once operational, a DAO facilitates open and equal member participation. The potential for more efficient resource management in the crypto ecosystem generates significant interest, notwithstanding the challenges and risks involved. Our team is committed to providing you with regular updates on DAO growth.

As we anticipate further developments, our team remains committed to enhancing Hamza.biz, the first Web3 e-commerce platform powered by the Loadpipe protocol. Click here to stay informed about our roadmap progress and follow us on social media for additional updates.