In the last few years, world governments have become increasingly interested in blockchain technology’s potential to enhance the complex process of governing. So far, examples include institutional NFT marketplaces that stand to make visits to the DMV a thing of the past, while NFT sales envision Web3 as fundraising channels for political campaigns, and even national defense.

But the Japanese government may be among the first to explore the possibilities of Decentralized Autonomous Organizations (DAOs).

On November 2, the Digital Agency of Japan announced its intentions to convert its Web3.0 Study Group initiative into a full-fledged DAO. The aim is to grant a study group the means to more deeply survey Web3 and all it has to offer, and in turn, influence the Japanese government’s further investment into Web3 technologies and systems.

And depending on how things go for Japan, the practical merits of a core Web3 feature could see new test cases that will serve as a crucial model for the rest of the world — and potentially outpace some private sector implementations of blockchain technology.

What’s a DAO? And should governments form them?

Decentralization is one of the core tenets of Web3, implying that no centralized hub of power has overbearing authority over the actions and experiences of the wider community. So it makes sense for the next stage of the internet to organize itself to work autonomously. As a structural means for communities to perform checks and balances on themselves, DAOs are, in theory, fool-proof. Thus, the term, decentralized autonomous organization (DAO), was born.

And in theory, DAOs allow Web3 communities to scale and grow without the risk of collapsing into an oligarchy, where the few rule over many. For most DAOs in Web3, gaining membership in a DAO could be as simple as purchasing an NFT or donating a fixed sum of crypto to a crypto wallet address. Once you’re in, you’re in.

So what does that mean? On paper, all members of a DAO hold comparable levels of authority over its direction and future. It functions as one entity, and democratically divides decision-making processes so the entire group has a say. Some might think this is an open invitation to chaos, but DAOs are also held together with a technology the NFT community uses every day: smart contracts. These smart contracts function as the rules of a DAO, ensuring the rules are enforced in a trustless, objective manner.

Since Japan’s DAO is part of a government agency-led initiative, its aims are to enhance the Japanese government’s capabilities — specifically, the DAO hopes to serve as “a role model in the future,” and promises to publish its “establishment template” along with any other pertinent documents, according to a translation of the Digital Agency of Japan’s announcement. This could enable the Japanese government to streamline the process of forming a DAO should it ever decide to go that route again, even if through the efforts of a state-sponsored agency.

A state-mandated Japanese exploration of Web3

Depending on the study group’s findings as it maintains and operates its DAO, the Japanese government may push forward into Web3 — or pull out entirely. Despite the country’s reputation as a technological powerhouse, much of the country remains stuck in the past. Fax machines remain a mainstay in Japanese offices to this day, and Japanese society at large remains cash-based.

Reportedly, the DAO will enable its members to “recognize issues and possibilities through the user experience of the DAO, and deepen the discussion of the study group.” Following the collection of more data, the “Web3.0 Study Group DAO” hopes to uncover “what can be done with DAOs, issues that DAOs cannot solve,” to discern the practical limits of DAOs.

Initially formed in July 2022 under the Japanese government’s Ministry of Economy, Trade and Industry (METI), the Web3.0 Study Group began as a research project meant to explore the unique creator economies forming thanks to Web3 in the rest of the world. During the Web3.0 Study Group’s preliminary stages as a DAO, it’ll dive into that field of study on a much deeper level, thanks to a planned initiative to distribute tokens amongst its members, per the announcement.

The DAO members will uncover whether members can “equally share the tokens necessary for the launch and operation of the DAO.” As for who would comprise this newly-formed DAO, the announcement indicated that in addition to the members of the initial study group, the Digital Agency of Japan’s secretariat “and related parties” will make up the initial core membership. New members will be chosen for inclusion into the DAO if deemed necessary by the study group as it “gradually [expands] the scope” of the study.

While the Japanese government has made careful, measured progress in fully engaging with Web3, its private sector has been far less tentative. Take Japan’s financial sector, for example. The formation of this DAO comes months after the Bank of Japan (BoJ) scrapped its plans to launch a central bank digital currency for the country. Conversely, the Sumitomo Mitsui Banking Corporation (SMBC) doubled down on onboarding Japanese citizens into Web3 earlier this year, with a planned token business in the near future. Should the Web3.0 Study Group DAO prove successful, the Japanese government might take the SMBC’s lead in Web3.

Blockchain and the government

A paper published by the University of Houston’s Computer Science Department outlined how the evolution from IT- to blockchain-assisted governance may prove to be necessary for the coming decades. Citing the security risks imposed by the “highly centralized IT infrastructure[s]” touted by most governments around the world, the paper poses a more secure, and potentially more efficient, solution: DAOs. More specifically, a proposed eGov-DAO. This would serve as a discrete public-facing arm of a government, and is intended for use in interacting with government contractors.

If private vendors engage with the government for contracted services, the paper argues that doing so via an established eGov-DAO would “increase transparency and trust, reduce costs, and simplify the process.”

Since documents minted on the blockchain can’t be tampered with or forged after the fact, these goals are attainable. Moreover, the documents will be made public, enabling a government’s constituents to directly hold its governing body accountable. Likewise, the government could more closely monitor milestones on projects handed out to contractors, holding contractors accountable to a greater degree. Japan hopes to study Web3 technologies and their potential utility in the lives of everyday people. But in the near future, they may be the key to good governance in an increasingly technologically-reliant world.

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