A DAO or decentralized autonomous organization is a digital organization which does not require a centralized authority. It operates on special decentralized technology and distributed ledgers. It is powered by blockchain which offers transparency, efficiency, and security. It is a new way for businesses to organize themselves for work and the available models for governance are potentially disruptive for the way a traditional organization functions.
Benefits offered by a DAO
DAOs have several applications that are great for banks and financial institutions. These applications do away with central authority and increase efficiency while reducing costs. Other benefits are efficiency via automation, security via smart contracts and easy auditability. All of these prevent corruption in the process and are great for trust building.
How DAOs help banks
A DAO makes it easy for a bank to deal with common issues and is especially useful to streamline workflows (internal). This is possible thanks to the architecture based on the blockchain.
As we know, every bank and financial institution is centralized and not very transparent in their functioning. DAOs offer features which the traditional system does not and result in higher efficiency.
DAOs build critical trust in the financial system. DAOs also help in fundraising, offering credit and loans which are secure. It is also easy to get trade financing thanks to automation of manual tasks and streamlined paperwork. DAOs are also helpful to banks in managing securities, along with trading. The most important benefit offered by DAOs is in the area of fraud prevention. Customer information is secure, and the KYC process is much smoother. Adoption of the DAO model will lead to an equal power distribution for banks. It makes the entire process democratic. It remains to be see how fast banks will adopt this new model.