Decentralized Autonomous Organizations (DAOs) are like digital platforms that operate without the need for a central authority. These are built on Distributed Ledger Technologies (DLTs) and are aimed to be transparent, efficient, and secure. As a result, DAOs revolutionize how businesses are organized and implement governance models. They have several applications particularly well-suited for banks and other financial institutions.
DAOs For Bank and Financial Institutions
What is DAO in Banking?
DAOs can help banks address common problems and streamline internal workflows by shifting to a blockchain-based architecture. Today, the centralized approach in the banking institution gives rise to an opaque culture where the system is susceptible to corruption, mismanagement, and fraud. As a result, DAOs that embody the characteristics of blockchain-based technology offer secure and efficient services by relying on DLT infrastructure.
The studies show that DAOs can help restore trust in the banking system, which has plummeted down below 30% post-pandemic. As a result, many banks have been pushing themselves to speed up the process of digital transformation and stand the competition.
Use Cases of DAOs for Bank – like Business Model
Some banks have already included blockchain in their ecosystem and revolutionized the operations relating to payment, clearing, settlement, trade finance etc. There still remain some unexplored areas in this sector where the DAO-based model can actually do wonders.
|
Use Case |
Description |
| Fundraising |
In the crypto world, ICOs (Initial Coin Offerings) are breaking the barriers which arise in the traditional capital raising firms. In the banking industry, these DAOs are making raising capital from a wider pool of investors easier. |
| Trade Finance |
DAOs can completely digitalize paper-based processes and automate them. This allows banks to track the transactions properly and reduce the chances of fraud. As a result, establishes trust among global trade parties. |
|
Loans and Credit |
Banks can use decentralized technology to eliminate the need for intermediates in the leading industry by securing ways to lend and borrow money at lower interest rates. |
|
Customer KYC and Fraud Prevention |
Since DAOs are transparent and decentralized, they allow banks to verify the customer’s identity and further prevent fraud. Banks automate the process of customer onboarding and KYC verification using smart contracts, which leads to efficient operations requiring fewer efforts and costs. |
| Securities |
The decentralized organizations help banks and financial institutions to issue, manage, and trade securities by placing them on blockchain and facilitating the creation of capital markets that are interoperable, accessible, and efficient for the public at large. |
Structure of DAOs in Banking and Financial Institutions
DAOs do not look like traditional hierarchical structures and can be arranged in several manners per the organizations’ preference. These can be arranged around specific products or services for which each team is responsible for their department or team. Alongside, it may also be framed based on the company’s geographical location operating in different parts of the world.
An added advantage that comes along with DAO in Financial Institutions is that even with the traditional structure of the banks, DAOs can connote the level of decentralization and assigns the power more equitably. Since DAO’s rules and regulations are encoded using smart contracts, therefore, play an important role in the organization’s governance. Using digital tokens opens the possibility of raising capital through an ICO, which can fund the development of new products and services. Some of the governance models that can be used in banking and financial institutions are – Constitution DAO, Juicebox DAO, Friends With Benefits DAO, Ethereum Name Service DAO, etc.
Global Banking Network as DAO
Thinking of a DAO – based global banking network would seem to far – fetched right now, but it’s practical. The growing adoption of DAOs in the financial ecosystem is leading to a more equitable distribution of power within the financial institution and the creation of a democratic structure. When we use the term “Global Banking DAO,” we indicate it is transparent, accessible, and cost-effective for the organization and the public too.
