This article is the perfect place to learn about DAOs, their operational processes, and their pros and cons compared to traditional, centralized organizations. More importantly, we delve deep into the proliferation of DAOs as a tool to fight for a sustainable future. To this end, we will take a look at some of these organizations that want to create a better tomorrow for upcoming generations.
But before you are able to understand why DAOs can become an essential device at fighting climate change, let’s first demystify the concept of decentralization.
Understanding decentralization through blockchain
Cryptocurrencies have popularized blockchain technology, there’s no doubt about it. The appeal of making incredible profits with a modest starting capital has certainly played in the tech’s favor. Now that the decentralization debate has been opened, and an increasing number of people are willing to participate in it.
That said, crypto is far from being blockchain’s only use case. Where Bitcoin has revolutionized our understanding of money, it’s just scratching the surface of what the technology is capable of.
You see, blockchains rely on a distributed, immutable digital ledger that permanently records all transactions on its network. Instead of a central authority, modification of the rules of a blockchain network is achieved through proper consensus of all the participants.
In most cases, blockchains are permissionless and censorship-resistant. Consequently, anyone can participate in their development and use their network. In a nutshell, a blockchain is a tool for decentralization. We can use it to eliminate the need for a single governing body by giving every participant a fair right to decide what happens on its network.
The implementation of smart contracts ups the antes even further. These self-executing agreements automate how blockchains work and allow us to program the outcome following a given set of parameters. As such, we can remove human intermediaries, and make trust a non-issue in the process.
What are DAOs?
In this regard, smart contracts have given birth to the centerpiece theme of this very article: the decentralized autonomous organization (DAO). DAOs are blockchain-based businesses governed by a collection of individuals with a similar goal, no matter where they are on the planet. What makes them revolutionary, is that anyone can become a participant in a DAO, just by acquiring the tokens of their respective blockchains.
How do DAOs differ from traditional organizations?
To better understand what is a DAO, let’s first compare it to a traditional organization, such as an LLC. In traditional organizations, there’s a hierarchical distribution of power, where an elite few decide how to run the organization. Processes are opaque by default, and the decisions are made without consulting most of its participants.
In a DAO, the decision process is horizontal, rather than vertical. Smart contracts set the foundation for the organization of the processes, and execute once the requirements are met. These remain transparent and accessible to everyone at all times and can be voted upon by anyone participating in the protocol. For instance, how the DAO treasury will be used.
How do DAOs operate?
Usually, a DAO goes through three essential steps:
- Establishing the goals of the protocol. At first, a core team of community members establishes the initial smart contract protocol. This set of rules is entirely transparent and anyone willing to participate in the DAO can audit them.
- Obtaining funding. Next, DAOs need to receive funding to operate. To this end, the team releases a governance token to the free market that investors around the world can purchase. Investors can use this token to exercise voting power on the blockchain and govern future development. Usually, voting power is proportional to the holdings of the individuals.
- Protocol launch. Finally, once the funding has been obtained, the smart contract code can be launched. As soon as the code goes live, no central body can modify the protocol without proper consensus from the token holders. This allows for decentralization, fair participation, and compensation of everyone involved in the protocol.
With all that in mind, let’s quickly summarize the pros and cons of DAOs. Let’s begin with the advantages, as they are quite significant.
- Transparency – the blockchain records everything that happens in the DAO. What’s more, all of this information, i.e. vote results, proposals, everything is readily available for anyone to consult.
- Decentralized decision making – the DAO doesn’t have a leader or manager, and all the shareholders can weigh in on the decisions, proportionally to their holdings.
- Efficiency through automation – blockchain eliminates the middleman, and smart contracts immutably execute voted proposals.
That being said, DAOs come with a range of drawbacks and challenges. The main ones are:
- Delays in the decision-making – shareholders may not be aware of the technicalities behind the proposals upon which they cast their vote. Moreover, the large number of participants could result in a slowed-down process regarding important updates.
- Smart contract bugs – bad code can make or break a DAO. Because the organization is totally dependent on smart contracts, a bug could eventually cripple the DAO, its funds, and organizational structure in a single blow.
- Legal issues – because they are such a novel concept, DAOs aren’t properly regulated. Taxation and property ownership through DAOs are still very much in the gray area regarding their legality.
The ongoing crypto-environmental debate
Because they are geographically independent and unburdened of a central authority, DAOs are the ideal platform for like-minded individuals to organize about various issues. This, of course, includes the pressing matters of climate change, preservation of natural resources, and reducing our carbon footprint. We can use DAOs to collectively try to find solutions regarding humanity’s sustainability on this planet.
However, in the current narrative, the mainstream investor considers blockchain technology as one of the bad actors. The mass media presents the tech as wasteful, and we can’t say that the concerns are completely unfounded. Popular cryptocurrencies like Bitcoin and Ethereum still rely on an archaic proof-of-work (PoW) consensus mechanism and consume as much electricity as a small country.
That said, blockchains are evolving. Energy-efficient consensus mechanisms like proof of stake (PoS) and variations thereof are becoming much more prevalent. With just a quick glance at the top cryptocurrencies by market cap, we can see that the majority of blockchains use PoS.
The major shift in this paradigm comes from Ethereum which is also moving towards PoS in 2022. As the #1 smart contract platform, this will have a significant positive impact on the sustainability of blockchains as a whole.
Ethical DAOs for sustainability
Consequently, a large number of ambitious DAOs that aim to build a better tomorrow have emerged on the market. All of these rely on blockchain in some way, either in their operational processes or by providing a better, more sustainable infrastructure. Let’s have a look at the most promising DAOs regarding environmental ethics of the moment.
Toucan aims to integrate the power of decentralized finance (DeFi) into the fight for reducing the world’s carbon footprint. It achieves this by allowing the tokenization of carbon offsets through the Toucan Carbon Bridge.
To understand how this works, let’s quickly define what carbon offsetting is. In a nutshell, a carbon offset is generated by an activity that either prevents the release of, reduces, or removes greenhouse gas emissions from the atmosphere. These can include large-scale energy projects such as reforestation, building renewable energy power plants, establishing a framework for better building insulation, etc.
The Verra registry consolidates these offsets, and the Toucan Carbon Bridge allows companies to tokenize them in the form of TCO2 tokens. They do this by “retiring” their carbon offsets in the real world before recording them on the blockchain. The goal is to render the carbon offsets more transparent, programmable, and fractionable.
Additionally, we can then use them as a base currency in the DeFi ecosystem once consolidated into pools in the form of BCT (Base Carbon Tonne) tokens.
Toucan uses the high-performance Polygon blockchain that runs on a PoS consensus mechanism. It is fast, scalable, and uses very little electricity to run its computations. At the same time, it’s EVM compatible, which means that can be easily integrated on all Ethereum-based platforms.
Klima DAO is is a collective of environmentalists, developers, and entrepreneurs that have come together to deliver positive change in the carbon markets. Its goal is to solve some of the major issues of these markets, by bringing transparency, liquidity, and efficiency.
Klima is the direct launch partner of the aforementioned ToucanEarth protocol. Simply put, where Toucan provides the technology, Klima puts it into practice.
The DAO aims to provide liquidity to the carbon market by using the Toucan Carbon Bridge and allowing users to convert their Base Carbon Tonnes directly into KLIMA tokens. We can then use these tokens to access advanced DeFi capabilities such as staking, trading, and liquidity farming.
The main goal is to incentivize carbon offset purchases by providing liquidity and direct monetary rewards, helping to monetize carbon assets. This, in turn, should make low-carbon projects more appealing to investors. The main goal is to ultimately drive the adoption of environmental technologies forward.
Like Toucan, Klima works with the Polygon blockchain, although it is expected to spread across different blockchains as the Toucan Bridge is adapted to other networks.
Regen Network is an ecological technology platform that aims to reverse climate change. The idea is to regenerate land, and reward individuals participating in this process. This regeneration of cultivable soil can directly help fight climate change.
Science proves that building soil sequesters atmospheric carbon, replenishes healthy water cycles, and provides harvest security. The Regen Network is designed to track, verify and reward these positive systems to ecological systems.
Farmers can measure and gather ecological data using various IoT devices connected to the blockchain. The devices upload this proof of land health to a data marketplace. Governments, institutions, and businesses can access and pay for this verified ecological data.
To achieve all of this, Regen Network has built its own blockchain using the Cosmos Network SDK. The result is a highly secure and scalable network that is ready for direct interoperability with the rest of the Cosmos ecosystem. Keep in mind that while the governance of its blockchain functions on PoS, the internal organization of Regen Network uses a centralized, vertical hierarchy.
The bottom line
DAOs are still a nascent concept. In practice, they have been around for just a couple of years. There’s no real proof that they can survive in the long run. That being said, the ambition here is palpable. The number of very capable individuals taking part in various DAOs is growing every day.
Also, it’s true that most active DAOs today focus on NFTs and cryptocurrencies. As such, an observer might quickly discard them as limited in scope. However, as we’ve seen throughout this article, there are some very innovative projects out there. These seem to be ready to take advantage of the benefits of decentralization to tackle much more relevant global issues, such as climate change.
While such DAOs are still far and in between, it already gives us hope that blockchain is becoming a tool that can help fight for the better good. DAOs indubitably open an unprecedented opportunity for people sympathetic to humanitarian and environmental causes. People can finally bring their forces together and organize themselves with the power of blockchain.