Abstract

     Decentralized autonomous organizations (DAOs) are blockchain-based organizations fed by a peer-to-peer (P2P) network of contributors. Their management is decentralized without top executive teams and built on automated rules encoded in smart contracts, and their governance works autonomously based on a combination of on-chain and off-chain mechanisms that support community decision-making. A growing body of literature has emerged exploring DAOs. However, there is a considerable lack of clarity about this organizational design and its theoretical conceptualization. To this end, we undertake an integrative literature review that reveals three main principles—decentralized, automated and autonomous organizations—and the following four theoretical perspectives mainly adopted to examine this novel organizational form: transaction cost theory, institutions for collective action, agency theory, and socio-materiality. By extending these theories, we propose an integrative model of DAO for research and theory building. Our contribution provides conceptual clarity and proposes a framework for future research directions.

Introduction

     When the first DAO (a venture capital organization) failed in June 2016, 18,000 cryptocurrency investors lost 11.5 million ethers (ETH), approximately $50 million (Wang et al., 2019). The first DAO represented an experiment with a new organizational design known as “Decentralized Autonomous Organizations (DAOs)” (Buterin, 2014; DuPont, 2018; Hsieh et al., 2018), and the DAO was the first organization to adopt this generic name. The main goal of the first DAO founders (Buterin, 2014) was to create organizations that do not require managers and hierarchies; thus, they are substituted with automated tasks based on smart contract in the blockchain protocol. This first DAO was based on Ethereum, a smart contract code system built atop a blockchain platform and launched in July 2015 using the ether (ETH), the Ethereum cryptocurrency. Its goal was to create a digital, collaborative peer-to-peer (P2P) community of investors and entrepreneurs, building a crowdfunding network to further develop the Ethereum ecosystem with new organizations. The first DAO founders proposed that investors use ETH to create charity and commercial projects that should be voted upon by investors to be funded. Finally, although the failure of this first DAO stemmed from security code vulnerabilities affecting the novel Ethereum smart contract code that managed the common pool of ETH, most of these issues have been resolved today (Wang et al., 2019).

Conclusion

     We conducted this literature review to provide conceptual clarity on DAOs and to explore pathways for theory building and directions for future research. The development of DAOs as a novel form of decentralized organizations enabled by blockchain technologies brings multiple potential to virtual P2P communities working without a central management hierarchy, substituting third-party supervision with automated rules, and machine algorithms (DuPont, 2019). DAOs is part of cryptocurrency economics and decentralized institutional change (Berg et al., 2019). The growing of DAOs has driven new research on this new organizational form that integrates the entanglement between blockchain-enabled technology and decentralized, automated, and autonomous governance in organizations. This new research has also prompted the analysis of DAOs main technological failures, community governance challenges, decentralized business opportunities, accountability and ethical concerns.

     This paper makes three main contributions. First, we provide conceptual clarity of the DAO principles and performance. Second, we explore the main theories that scholars have applied to understand this novel organizational form, extending theory building through the interactions between these theoretical perspectives. Third, we propose an integrative model of DAOs, exploring the interconnection between social material practices and interactions, human–machine agency, and institutional change with decentralized, automated, and autonomous principles. In doing so, we identify numerous promising research streams for future research agendas. In this article, we also examine the main business and ethical concerns regarding DAOs’ societal and economic impacts, as well as the challenges of DAOs in avoiding unethical and illegal business activities.