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From DAOs to DACs: Rethinking Web3 Community Structures

From DAOs to DACs: Rethinking Web3 Community Structures

Introduction

Web3 has ushered in a new era of decentralized collaboration, with Decentralized Autonomous Organizations (DAOs) taking center stage. These blockchain-based communities promised to remove intermediaries, give power to participants, and create transparent governance. However, as DAOs have matured, cracks have begun to show. Many suffer from low participation, unclear accountability, and governance challenges. In response, a new model has emerged, Decentralized Autonomous Corporations (DACs).

What Are DAOs?

A Decentralized Autonomous Organization (DAO) is an organization managed by smart contracts and governed by stakeholders, typically through token-based voting. DAOs allow communities to collaborate and make decisions without centralized leadership. The entire structure is coded into the blockchain, with actions executed automatically based on predefined rules.

Core features of DAOs:

  • Token-based voting.
  • Transparent treasury and operations.
  • Open and permissionless participation.
  • Rule enforcement via smart contracts.

DAOs are commonly used in DeFi, NFT projects, grant programs, and more. The rise of tools like Aragon, Snapshot, and Tally has made launching and running DAOs more accessible than ever.

Limitations of DAOs

Despite their promise, DAOs face several operational and structural issues:

  • Low voter turnout: Governance participation is often below 10%.
  • Wealth concentration: A few large token holders can dominate decisions.
  • Governance fatigue: Constant proposals lead to disengagement.
  • Lack of accountability: No way to track meaningful contributor effort.

Research shows that even the most active DAOs rely on a small number of contributors and decision-makers. As DAOs scale, the limitations of purely token-driven systems become more apparent.

Introducing DACs: A Smarter Evolution

Decentralized Autonomous Corporations (DACs) build on DAO principles while fixing common gaps in scalability, sustainability, and business clarity. Inspired by early blockchain projects like BitShares, DACs operate like decentralized on-chain companies, distributing profits to stakeholders and utilizing performance-based reputation systems for governance and decision-making.

Key attributes of DACs:

  • Shareholder structure and dividend payments.
  • Reputation or staking-based governance models.
  • Economic incentives are aligned with contributions, long-term engagement, and measurable outcomes.

Unlike DAOs, DACs are explicitly built to be profit-generating and sustainable by design. They are more organized, often business-oriented, and engineered for clear accountability, real-world value creation, and consistent operational success.

DAO vs DAC: How Do They Compare?

Governance:

  • DAO: Token-weighted voting.
  • DAC: Reputation, staking, or equity-based voting.

Incentives:

  • DAO: Community-driven, non-financial rewards.
  • DAC: Profit distribution and performance bonuses.

Accountability:

  • DAO: Minimal contributor tracking.
  • DAC: Active contributor reputation systems.

Legal structure:

  • DAO: Often informal or ambiguous.
  • DAC: Designed with corporate parallels for real-world interfacing.

Sustainability:

  • DAO: Relies on grants or treasury.
  • DAC: Generates and redistributes revenue.

DACs prioritize efficiency, impact, and self-sustainability, making them appealing for projects aiming for long-term growth and financial reward.

The Case for Moving to DACs

The DAO model excels at openness and collective decision-making but often lacks the structure needed to sustain long-term projects. Here’s why DACs may be a better model for the next generation of Web3 organizations:

a. Aligned Incentives

DACs reward contributors with financial upside, incentivizing productivity and commitment. Unlike speculative tokens, DACs often use staking, shares, or reputation mechanisms to ensure active involvement.

b. Built-in Accountability

Reputation-based systems such as Metis's veMetis track contributor performance over time. This discourages freeloading and rewards long-term value creation.

c. Sustainable Economics

By generating revenue and distributing dividends, DACs don’t rely solely on speculative token sales or external grants. This makes them more resilient in bear markets or post-airdrop phases.

d. Scalability Through Federation

DACs can be organized as federated units, mini-organizations within a broader ecosystem, allowing for faster local decision-making while maintaining cohesion.

Real-World Implementations

Metis DAC Framework: Metis pioneered DAC operations on-chain, allowing contributors to stake tokens to gain reputation and governance power. Voting rights disappear when staking is withdrawn, incentivizing long-term commitment.

BitShares & EOS: These early platforms distributed network revenue to token holders and introduced performance-based governance, laying the groundwork for modern DACs.

Hybrid-DAOs: Projects like CityDAO and Krause House are experimenting with legal entities and on-chain governance, a fusion that aligns closely with DAC thinking.

Challenges in DAC Adoption

DACs are promising, but not without obstacles:

  • Legal ambiguity: Profit-sharing may raise securities issues depending on the jurisdiction.
  • Technical complexity: Dividend logic, reputation metrics, and smart contract auditing require advanced development.
  • Cultural inertia: Some community members resist corporate-like models, preferring mission-first DAO ideals.

Designing Smarter Communities with DAC Principles

For builders considering DAC models, here are actionable steps:

  1. Define your incentive model: Will members earn via profit-sharing, staking rewards, or reputation boosts?
  2. Adopt contribution tracking: Use tools that measure actual community impact.
  3. Implement a hybrid legal wrapper: Combine on-chain governance with an LLC or cooperative to handle real-world interactions.
  4. Embrace federation: Let sub-communities govern themselves while aligning to broader goals.

By embedding performance, transparency, and sustainability at the core, DAC-based designs can unlock deeper community engagement.

Conclusion

DAOs opened the door to decentralized collaboration, but their limitations low engagement, power concentration, and sustainability issues, have led many to seek alternatives. Decentralized Autonomous Corporations (DACs) offer a compelling next step. By integrating economic incentives, contributor accountability, and federated governance, DACs create a model better suited for long-term, value-driven Web3 communities.

As Web3 continues to mature, the DAC model encourages us to rethink how we build and maintain online communities, not just who gets to vote, but who gets rewarded, recognized, and trusted. The shift from DAOs to DACs is more than a name change. It’s an evolution in how we structure the future of decentralized collaboration.

References

  1. https://www.dcentralab.com/blog/daos-and-decentralized-governance
  2. https://arxiv.org/abs/2302.12125
  3. https://operator.mirror.xyz/6SGQA4dsexVJM6K44ypb_hP9PgHr39Tv_EIvD7hQSQo
  4. https://shardeum.org/blog/dao-guide
  5. https://www.metis.io/blog/contribution-and-reputation-based-governance-structure-2023
  6. https://arxiv.org/abs/2410.21593
  7. https://www.researchgate.net/publication/387713707_Decentralized_Autonomous_Community_Concept_Model_and_Innovation

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