⛓️On-Chain DAOs vs Web3 Organizations

A quick run down of what we call 'On-Chain DAOs' vs 'Web3 Organizations'.

On-Chain DAOs

An on-chain DAO is a blockchain based organization that operates and automates decisions completely on-chain. After a vote is held and recorded on a blockchain, on-chain DAOs automatically execute the community's decision using a smart contract.

On-chain DAOs operate using a set of transparent rules encoded in smart contracts that execute on a decentralized ledger. These rules dictate how DAOs operate, make decisions, and how assets and resources are managed.

Members of a DAO hold and control the organization's governance tokens, which give them the right to participate in the decision making process. By operating completely on-chain, these DAOs aim to provide a transparent and decentralized framework that completely avoids intermediaries.

Web3 Organizations

A web3 org is an organization that utilizes its community's input without automatically executing smart contracts to carry out decisions that have been made.

In this case, voting weights of members can still be calculated using on-chain data, like the number of tokens a user holds. However, no on-chain transaction is submitted during voting for web3 organizations, and proposals do not execute automatically. While this sacrifices some decentralization, it can create more efficiency and flexibility, especially in the Refinement phase of a proposal.

By polling and gathering feedback from communities, web3 organizations are able to leverage collective intelligence of their communities while still having some safe guards around proposal execution.

Pros and Cons of On-Chain DAOs and Web3 Orgs

Pros of on-chain DAOs

Transparent and Immutable: Processes within on-chain DAOs are recorded on a blockchain that provides information that is completely transparent and immutable.

Decentralized: On-chain DAOs carry out decentralized decision making processes automatically to lessen their dependence on a single entity or intermediaries. This create an environment that does not allow censorship or manipulation.

Cons of on-chain DAOs

Scalability Limitations: On-chain DAOs rely on submitting on-chain transactions, which incurs network fees. At a large scale, this can end up in large, established communities paying a high amount of fees collectively.

Technical Complexity: It is more difficult to create technical solutions for complex processes that DAOs might like to carry out. Often times participating in an on-chain DAO requires a high level of technical knowledge and understanding of blockchain technology. We aim to solve this problem with the Clarity Protocol.

Pros of web3 orgs:

Scalability: As blockchain technology matures, web3 orgs s can perform complex processes more efficiently by leveraging existing technologies.

Cost effective: Web3 orgs are less expensive because they record information off-chain, avoiding transaction fees.

Cons of web3 orgs

Centralization risk: Web3 orgs' operations take place either outside of a blockchain system, or manually on a blockchain, making them more centralized. There is a reliance on trusted intermediaries to perform functions decided on by the community.

Lack of immutability: Web3 orgs are less transparent with processes, so votes and proposals are not recorded on-chain for everyone to verify and see. This leaves them more vulnerable to manipulation and tampering.