Decentralized Governance Models and Blockchain are Transforming the Wall Street Boardroom

Written by Drew Mailen

On November 3, 2021

Blockchain has established use cases that transcend into nearly every industry vertical from fund administration to verifying the authenticity of luxury goods. Decentralized governance models, especially Decentralized Autonomous Organizations (DAOs) are another example of how blockchain technology is manifesting itself into another vertical… pooled investing. 

DAOs are attractive to investors because they have the potential to deliver more control and transparency compared to other traditional investment vehicles for multiple people. They are improving some of the issues that challenge investors such as control of funds, information symmetry, and transparency. 

Read more about how blockchain is disrupting enterprises on our blog.

More Control and Less Administrative Fees for Investment Groups

Generally speaking, DAOs are organized groups with community guidelines that are most often enforced by smart contracts and centered around investments (Frontiers in Blockchain). This modern type of digital governance model allows for less hindrance from centralized intermediaries and more control for individual stakeholders. DAOs can be designed to include a governance model, voting, and a proposal process. Once a DAO is started, it can often operate automatically (Journal of Internet Services and Applications) and do anything from hiring people to sending payments. 

Can you imagine the reduced amount of resources that would be spent on a DAO compared to the traditional investment structure? For this reason and some of the others listed below, DAOs are starting to replace traditional investment structures. 

Even if this doesn’t seem plausible at your organization, DAOs are still an important structure to know. The potential impact that DAOs can have over the next few years is being closely watched by some of finance’s most significant stakeholders. News about DAOs is reaching mainstream media

Enhanced Transparency and Information Symmetry 

Another way that DAOs are beneficial is that they increase transparency for investors. There are events and transactions that occur every day within a business that can impact an investor’s ROI. Investors want more transparency and are bogged down by obstacles like information asymmetry that leave, for example, an imbalance between the amount of information an LP wants and what a GP delivers. DAOs totally flip this hierarchy upside down and create a non-hierarchical, more transparent investment environment. 

The rules of a DAO are most often enforced in computer code (Forbes). They are agreed upon by the DAO’s members and enforced with a computer. DAOs are competing against more traditional investment vehicles due to this increased transparency and control. Blockchain’s immutability can make any governance even more transparent (Gemini).

Additional benefits that decentralized governance models can provide investors include: 

  • Fewer Administrative Fees: You don’t need a physical location for a DAO, so DAOs save money on different types of administrative fees as a direct result. 
  • Greater communication: As part of a larger shift in communication, Discord and Telegram are ways for investors from all over the world to gauge the scope of the project. Discord is especially prominent in the world of NFTs and crypto art investing. Many DAOs use these communication vehicles for group discussions. 
  • Custodianship over Investment: A central governing body doesn’t have control over your funds like it does in a bank. Banks close and have limited hours. DAOs are always open and the rules are all what is agreed-upon by computer-enforced logic. 
In Conclusion

DAOs deliver a unique opportunity for investors who want more transparency and control over their investments, while simultaneously having to spend less money on administrative fees. DAOs are transforming the way that investment bylaws are created and enforced, making investments less reliant on trust. 

Other benefits that DAOs through blockchain deliver include greater communication, more custodianship, and more potential for cooperation. As they gain momentum, DAOs are being covered by some of the most well-known media sources and growing in popularity. 

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