Like any other entity, the DAO comes with its downsides. Foremost among them is liability exposure. While the law is still evolving, right now a DAO could be (without proper planning) considered a general partnership. In a GP, the owners can have their personal assets seized in any kind of lawsuit against the company. There is no legal wall put in place between one’s personal life (i.e., ownership of their house) and their business liability.

As a practical matter, a DAO can be difficult if an organization grows too large. The need to have every member participate in voting can slow down operations. And in the digital world, a lack of speed can be extremely damaging to an organization’s success.

There’s also something of a paradox within the DAO — in the interests of decentralizing all decision-making, operations can still become overly centralized. Why is that? Let’s consider a large company with several divisions in it. These divisions are authorized to make their own independent decisions on a daily basis, even if the C-suite executives and the Board have ultimate control. By eliminating all of this management, the DAO still implements its own central authority with the smart contract.

In short, whether the DAO really does meet its goal of decentralizing power will depend, in large part, on the structure and goals of each specific project.