- Daniel Finley
Giving DAOs the tools they need to compete with traditional organizations
Web3 ushered in a revolutionary organization: the DAO. Fueled by smart contracts and tokens, DAOs provide a democratic way for people to work toward shared goals and aspirations.
DAO, short for "Decentralized Autonomous Organization," refers to a democratically managed group, typically organized around a specific cause and orchestrated through smart contracts. DAO members with governance tokens hold voting power for crucial decisions, helping steer growth and decentralize control.
However, like any blockchain-based system, security concerns quickly emerge, particularly regarding sensitive data exposure. Transparency is vital for robust organizations — but so is guarding user data.
That’s why zero-knowledge proofs are perfect for DAOs: they can provide both transparency and security allowing DAOs to balance each according to their needs.
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Zero-knowledge proofs empower DAOs to issue on-chain payrolls, conduct anonymous votes, provide proofs of reserves, and better safeguard community funds. They enable DAOs to strike the perfect balance between confidentiality and transparency, empowering them to compete more effectively with traditional businesses while remaining true to their democratic, decentralized spirit.
What Are Zero-Knowledge Proofs?
Essentially, Zero-knowledge proofs (ZKPs) are a cryptography method that allows data to be validated without being revealed. They allow a prover to show that a set of statements are true without revealing what those statements are.
Applying the concept to Web3, Findora can use ZKPs to validate transaction data without making that data visible on-chain, something impossible on a distributed, purely open ledger. Instead, with Findora’s ZK-ledger, users can control the visibility of their data, even while blocks are created in a decentralized and distributed way. Learn more about ZKPs in our article about ZK and Web3.
At first, this might not seem very useful – why does controlling my on-chain data matter? The answer is that it unlocks a whole new world of possibilities previously unavailable in Web3. The ability to preserve incomplete information enables functions like payroll, enhanced security, and reduced corporate liability. It also enables confidentiality, something required of many industries by regulations.
Here are six ways ZK can be applied to DAOs to enhance their functionality.
What Can ZK Do For DAOs
A key zk application for DAOs is on-chain payroll, an application possible with Findora. Zero-knowledge will enable DAOs to deliver confidential on-chain payments to employees and contractors without broadcasting their payment amounts to the world.
Like all organizations, sensitive details such as salaries are best kept under wraps.
Like all organizations, sensitive details such as salaries are best kept under wraps. Public on-chain compensation could spark friction between employees and contractors and reveal valuable intel to rivals.
With zk, DAOs can discreetly issue salaries through multi-sig wallets, blending community control of funds with Web2-style confidentiality — all while operating on-chain.
Reducing DAO (or Corporate) Liability
A surprising benefit of ZK is its potential to reduce liability for organizations, like DAOs, when storing members' personal data.
ZKPs let businesses and entities store proofs instead of actual user data. For example, a website could simply store the proof that a device has the correct password instead of storing the password itself. Companies could store proof of a user's age, gender, and credit score without retaining any of the specific information, shielding itself in the event of a hack: even if hackers breach a server, they would only find validity proofs of the data, not the data itself.
Hacks can be catastrophic for businesses and consumers alike. For instance, the Equifax hack in 2017 exposed the personal information of 147 million Americans, affecting more than a third of the country. ZKPs could have protected both Equifax and consumers.
Data storage poses a significant liability for organizations, including DAOs. By allowing them to store proofs instead of data, ZK helps eliminate a critical attack surface many organizations still face.
Public voting sometimes ensures accountability, but other situations call for unbiased opinions, unaffected by trends or peer influence. In these cases, organizations employ "secret ballots."
A secret ballot preserves voter anonymity, concealing their choices. This method, common in elections, lets voters express preferences without fear of retaliation or pressure. However, an open ledger doesn't allow for secret ballots on-chain.
Enter ZK ledgers, which enable DAOs to hold secret ballots like Web2 organizations. DAO members can vote (by holding a token or NFT) without revealing their wallet address, and, ultimately, their choice. Findora’s ZK technology allows secret votes to maintain auditability as well, if an investigation is needed.
DAOs need flexibility in conducting on-chain votes, depending on the issue. ZK grants that freedom, allowing customized election methods.
Proof of Reserves
Open ledgers are perfect for accountability and transparency, but they aren't ideal in many business use cases. That’s why Findora has focused on creating a system that balances confidentiality with auditability. Zk makes such a system possible.
Transparency is crucial for a DAO. It ensures the core team's accountability and well-informed member opinions before voting. However, like any organization, confidentiality is sometimes necessary. How can DAOs balance these competing needs?
One solution is non-intrusive audits, like proof of reserves. This method allows DAOs or CEXs to demonstrate sufficient funds without compromising user data. For more information, explore Vitalik Buterin's post on ZK's suitability for proof of reserves.
Safeguarding Community Funds
Multisig wallets safeguard DAO funds and maintain community control. However, it’s not a fail-proof system, and many multisigs have suffered external hacks and exploits.
Learn more about StrongBox and Serenity Shield
ZK would allow DAOs to add another level of security to the addresses that hold community funds. By storing funds in wallets with undisclosed addresses, targeting them becomes much more difficult. A Findora partner, Serenity Shield, uses this concept to increase the security of their flagship product, StrongBox.
Of course, not all DAO vaults should be hidden. But ZK lets DAOs choose the best way to protect funds while ensuring community auditability.
Easy Access to Token-Gated Spaces
A hot topic among ZK projects is the creation of something called “decentralized ID” (DiD). A decentralized ID is a way for users to have more ownership of their data and control who gets to view it.
DiD allows a user to share credentials with third parties so that the information is verified without being revealed. For example, a user could obtain a preferred rate from a lending platform without sharing their exact credit score. A DiD system lets users validate credentials without exposing them.
For DAOs, DiD through ZK technology gives members seamless access to NFT-gated online spaces. This method combines convenient access for members with a reduction of liability for DAOs, enhancing the overall user experience.
ZK Lets DAOs Balance Transparency with Confidentiality
DAOs present a revolutionary way to organize, driven by shared beliefs and convictions rather than geographic proximity. They decentralize and democratize control, offering a fresh approach to organizational management. Critics argue this reduces efficiency, but proponents like Vitalik Buterin believe decentralized organizations can be more productive. Increasing stakeholders raises the number of contributors.
Zero-knowledge will enhance DAOs’ competitiveness. Soon, projects like Findora will allow DAOs to balance confidentiality and transparency just as traditional businesses do now.
At times, culture drives technology; other times, technology shapes social norms as new possibilities emerge. Zk and DAOs fall into the latter category, as society-altering innovations.
Zk grants users greater control over their data and the ability to define relationships with individuals and organizations. The full cultural impact remains uncharted, but one primary effect will be the rethinking of our working relationship with data and with each other.
To learn more about DAOs or ZK, here are some suggested resources:
- What are DAOs? - from Ethereum.org
- ZK and Proof of Reserves – Vitalik’s blog
- What Can ZK do for Web3 – The Findora Blog
- Basics of ZK – Ethworks.io
Findora is a Layer-1 protocol delivering zero-knowledge solutions to Web3.
Findora integrates two ledgers into a single chain: an EVM ledger for interoperability and a UXTO ledger optimized for zk operations. This dual-layer architecture lets Findora encrypt blockchain data for programmable transparency and public use. By providing new use cases, Findora’s zk tech prepares Web3 for real-world adoption.
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