How can a company be a DAO owned by the community and receive VC funding at the same time? A simple explanation

Really, how does it work? If a company claims to be a community-governed DAO (Decentralized Autonomous Organization) and gets 100 million in funding? Shouldn’t they immediately distribute all the money to token holders? Or is the company actually centralized?

Or how can a company be decentralized and governed by the DAO if it has an office, a brand, employees, computers — everything that could disappear tomorrow?

Since many people still do not understand the concept of decentralization we really need a simple explanation.

A decentralized service is a service built on a blockchain. Blockchain is a decentralized and distributed network, any service in the blockchain is recorded there forever and is available at any time.

It is something that you can create once, and that you can never change. It will always be available and work as programmed.

But we promised a simple explanation, right?

Imagine a high mountain. A mountain is a service you can use to climb on the top and watch the sunrise from above.

The mountain is accessible to everyone, belongs to no one, and cannot be destroyed — it is a decentralized service. Everyone can use this service to get value (watch the sunrise from the top) if they wish.

But, what if some company installs a chairlift on the mountain and starts charging for its use? Would the service stop being decentralized? What if the company raised VC funding for this and shared the profits with investors?

This company is just a convenient INTERFACE to a decentralized service. The mountain as a decentralized service hasn’t disappeared and is still available to anyone, but we are more comfortable using a chairlift rather than climbing.

It is important to understand that anyone can create their own interface for a decentralized service. One interface can disappear today, and a couple of new ones can appear tomorrow.

And of course the interface can be a separate company with its own accounting, business plan, employees, office, VC funding and revenues.

Most of the web sites you use to access blockchain services are just convenient and popular interfaces for accessing decentralized services. Decentralized services do not depend on interfaces and can be used by anyone. Including to create new interfaces.

Using a decentralized blockchain service directly is like climbing a steep mountain instead of using a convenient interface, such as a chairlift.

DAO Governance protocol is the same decentralized service stored in a blockchain. Which is available to anyone and which no one can change.

Usually a company gets VC funding for both the development of a decentralized protocol and the development of an interface for it. So people associate the decentralized service with a specific company.

However, the fundamental difference is that once implemented, the decentralized protocol will always be available to anyone. Whereas the interface can disappear if the company goes bankrupt, fires all employees, sells computers, and shuts down servers.

But as mentioned above — even after that anyone can create a new interface for a decentralized service.

But now nobody needs to create other interfaces for DAO Governance for a particular company, usually there is a single interface for it, created by the company itself. So people associate DAO with a specific company with a property and don’t understand how it’s related to each other.

The reliability and independence of decentralized blockchain services is why we love them so much. However, creating a good and user-friendly interface to interact with smart contracts is also a challenge, so companies can exist independently of a decentralized service and raise investments for development.

But often companies (like Rarible) raise funds simultaneously to develop a decentralized service (protocol) and a website (interface) for it. In the future, however, the separation will be more significant. Many different interfaces for different purposes can be created on a single protocol once developed.

Now you have a better understanding of how decentralized services are structured, managed and accessed. And how DAO and VC investments in a developer company are connected.

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https://photocentra.com — NFT stock & art photography marketplace (on the first Layer 2 Immutable X protocol)

Decentralized photo NFT marketplace & photo community