• Sunny Lu highlighted that decentralized autonomous organizations (DAOs) enable collective decision-making through democratic voting.
  • He noted that smart contracts and oracles improve DAOs by ensuring accountability and connecting blockchain data with real-world information.

In a recent episode of Untangling Web3, VeChain CEO Sunny Lu discussed the growing role of decentralized autonomous organizations (DAOs) in blockchain technology while sharing insights on the future of cryptocurrency and blockchain adoption. Lu also highlighted how DAOs are decentralizing the decision-making process through the voting process rather than the conventional management hierarchy.

According to Sunny Lu, the DAOs are a new form of organization based on the principles of decentralization, including governance. While in the conventional economy, decision-making power is vested in the management, the DAOs incorporate democratic voting systems where all members have a voice and a chance to make decisions. Lu was able to simplify this rather abstract idea by comparing voting to a family’s decision-making process in which everyone has a say.

Smart contracts are widely used in DAOs to automate the execution of rules and conditions. The implementation of these smart contracts is done through blockchain technology to enable accountability for all actions. Lu pointed out that the decentralized voting system eliminates rigging and governance tokens are employed to cast votes within the DAO.

Oracles also play a crucial role, connecting the DAO’s virtual world with real-world data and allowing for informed decision-making.

“Oracles are vital for linking the virtual DAO environment with real-world inputs and outputs, making decisions actionable beyond the blockchain,” Lu explained.

Lu Highlights Decentralization as Key Benefit of DAOs

According to Lu, one of the primary benefits of DAOs is the capability of decentralization. He explained that DAOs remove conventional barriers where organizations can function round the clock with no single point of contact. In DAOs, every transaction and decision made is documented on the blockchain, which means that there is no secrecy.

“Decentralization means that no one person or small group has control. Instead, decisions are made collectively, tapping into the wisdom of the crowd,” Lu said. This is quite different from the normal organizational power structures where power and authority are highly concentrated at the top and therefore, the decision-makers may not have an overall view of the organization.

However, Lu also noted that DAOs have some major disadvantages, including issues with their efficiency and the necessity to employ specialists. In such a system, with hundreds and potentially thousands of people participating in the decision-making process, it can take time to come to a decision. However, not all participants are capable of making complex decisions, for instance, investment in venture capital or the marketing mix.

“A key challenge is identifying the right people with the right expertise to make informed decisions,” Lu noted. He proposed the use of such systems as the ones that give more votes to the experts in the field, such as reputation-based systems.

In another interview at the start of the year, Lu provided insights into the current projects of VeChain and mentioned VeBetterDAO, a sustainability-focused initiative developed by VeChain on the blockchain. Sunny Lu has also been an advocate of the sustainability of VeChain, and he has elaborated on how PoA is a far more efficient method of attaining consensus than other blockchains.