[ad_1]
By Edwin Mata, CEO & Co-Founder of Brickken
While a hostile takeover situation can certainly create a media spectacle when it involves a high-profile investor or a well-known entity, the reality is that these power grabs rarely prosper.
Still, the usually unwanted attention that can emerge from hostile takeovers has some CEOs wondering how to avoid the unnecessary media frenzy and heightened scrutiny. And as it happens with many other problems, the blockchain, which businesses increasingly tap for a variety of use cases, and decentralized autonomous organizations (DAOs) may have potential as tools against hostile takeover bids.
Calling the bluff
DAO enthusiasts talk a big game as to how a decentralized organization is an ultimate solution for all traditional business ills. Unfortunately, as far as takeovers go, this is hardly the case for now, considering stories like the Build Finance governance attack that cost the DAO almost half a million dollars. One could argue that takeovers in decentralized businesses are outliers in an otherwise resilient ecosystem, but there is an underlying issue affecting most DAO-like companies that still leave them vulnerable.
Many organizations may call themselves decentralized in theory, but in practice, the underlying operations remain mostly centralized with some appeasements. While minor or superficial decisions may be jettisoned to token holders or employees with voting power, mostly all impactful decisions are still kept in the hands of a few key players with sufficient stakeholding. This uneven power distribution even leads to breaches as hackers can exploit the desire of DAO underlings clamoring for a larger stake in operations, like with CityDAO.
Yes, anyone can purchase stocks to “own” part of a public company, but the number of shares one would require to get a say is usually astronomical. For the ultra-wealthy few that can buy up shares, on the other hand, anything goes once they get that majority stake.
Decentralization and tokenized assets can make this more equitable by unlocking the gates for more people to have true ownership of the company. But if a whale—or, even worse, a flash loan-wielding malicious actor—can similarly secure an outsized say in a DAO, a hostile takeover remains possible.
This is where a decentralized organization can either alter or create a new approach to address the governance gaps that are indistinguishable from centralized corporations. There is a worthwhile cause in tokenizing a company to ensure steady operations, it just will require developing new safeguards.
What the future holds for DAOs
Depending on who you ask, calling a DAO a “group chat with a bank account” can read as praise or an insult. Decentralized organizations still possess vulnerabilities in how they function, which leaves them susceptible to corporate invasions. However, there are concrete options to consider for future DAO development to cover up future cracks in ownership.
A core tenet of DAOs is the absence of a director’s board, but one line of defense decentralized organizations could leverage during development is implementing a selection of trusted keyholders. These selected keyholders should have immutable governance veto power, regardless of ownership and changes in the DAO’s smart contracts.
If the integrity of a DAO is jeopardized, it can provide recourse to maintain its foundation. Protecting the DAO through on-chain external forces would reinforce the governance to only be altered through authentic holder consensus. The added security will likely encourage more companies and regular investors to embark on the equity tokenization journey, knowing that they won’t be usurped at any time by an overambitious individual or malicious group taking a controlling stake in the DAO.
In addition to more concrete operational adjustments, changing how DAOs encourage holder ownership is essential to ensure it actually operates in a decentralized way. Granting token holders and employees voting rights on key decisions in a DAO’s smart contract is another pillar that in reality is largely ignored. Sure, token holders and employees can vote on whether or not to change a DAO’s logo to support a social cause, but not on large-scale decisions.
Allowing holders to actually make these decisions will foster a more dynamic community that follows the original philosophy of a DAO much closer. This will cultivate an active holder dialogue that results in high-impact changes and likely make investors less inclined to sell their tokens to a corporate invader. It may seem antithetical for decentralized platforms to have a board or stringent protectionary measures, this ultimately ensures that DAOs will remain decentralized in the long run by preventing a takeover from a centralized force.
For projects seeking to transition into a decentralized model of governance, it is imperative to exercise caution when considering the infrastructure in which their business will operate. Ultimately, widespread blockchain regulations are still in their infancy, but there is no shame in being ahead of the curve in safety on a structural level. Creating a DAO framework that doesn’t simply mimic the functions and practices of a centralized company is the way forward to making business decentralization takeover-proof.
About the Author:
Edwin Mata is the CEO and Co-Founder of Brickken, a platform that allows companies to autonomously tokenize their equity and assets, bringing their management on-chain. Mata is a digital lawyer, lecturer, and mentor with a passion for law, entrepreneurship, and blockchain technology. Aside from Brickken, Mata serves as an advisor and consultant for cryptocurrency and legaltech projects, sharing his expertise and experience in both fields to support innovative initiatives.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
[ad_2]
Source link
