Blockchain applications are difficult to grasp for anyone who’s not familiar with the technology and its inner workings. That’s particularly true for DAOs – as in Decentralized Autonomous Organizations -, which are systems that offer an alternative to existing ways of running a business. According to Vogue Business, the features DAOs offer could literally “reshape fashion”, by changing how capital is collected and how decisions are taken inside a company.
DAOs are venture capital fund-like entities that are similar to open source software. They don’t have any governing body and their governance procedures are automated and deployed on a blockchain (Ethereum, in this particular case).
“Traditional companies issue shares that are purchased from shareholders for funding and the expansion of the company. The very same thing happens with DAOs, where they issue “governance tokens”. Token holders have part ownership in the project and have a say in how the company progresses. This provides an easy, fast and efficient channel of communication between the business and the token holders”, explains Steve Nuyten, a former consultant for Kraken in Europe who currently consults for several blockchain companies.
“They are basically self-governing organizations, in which decision-making is shared by a community – usually built around a small core of founders. The entity itself is unaffiliated with any country – which currently poses some jurisdictional challenges that still need to be addressed”, said Juana Attieh, a Jordan-based expert in cryptocurrencies. “Alongside the flexibility that it offers in terms of capital collection and governance, the token system allows decision-makers to remain anonymous. This feature could be really helpful to allow women in the MENA region to get involved in the decision-making process without exposing themselves,” added Attieh.
But what would make DAOs relevant to the fashion industry? “The NFTs, which boomed in 2021, are used to transfer ownership of digital goods. Their application is primarily in the domain of art, design, and fashion, although the possibilities are much broader. So it’s no surprise to see fashion companies jumping on that train, for example Nike, Adidas, or RTFKT. If you want to go the NFT route, it would make sense to also form a DAO to attract that type of audience as well,” says Nuyten.
As for Attieh, decentralizing the decision-making mechanism could encourage companies to favor risk-taking and adopt less conservative approaches, “That could prove particularly useful for MENA fashion brands, who are usually very influenced by traditional culture,” she said. Should we then conclude that DAOs are ready to reshape the way businesses are run in general, or more specifically in the domain of the creative industries? It might still be too early to tell. “DAOs first appeared in 2016, but the technology had flaws that have mostly been fixed over time. There have been improvements but some challenges remain, especially on the legal and jurisdictional side,” according to Attieh.