Imagine a way of connecting with other people around the world, without knowing each other. Think of establishing your own rules, and making your own decisions autonomously encoded on a Blockchain in a well-framed organisation? Sounds unreal, right? Well, DAOs are making this real.
A Decentralized Autonomous Organization, DAO, is a growing legal structure which has no central governing body. The members of this organization share a common goal to work towards the best for the entity. In a bottom-up management system, DAOs are incorporated to make important decisions. This concept has gained its share of promotions through crypto enthusiasts and blockchain technology. We will understand all the possible tangents of the DAO technology in this lesson.
1. DAO: An Overview of the New-Gen organization
DAOs run on blockchain technology! Through this system, everyone gets to have his say. This is collectively owned by its members, wherein decisions are voted upon by them.
We all know that blockchain is a technology fostering data storage which is impossible to change, hack or alter. DAO works on the blockchain platform for proper functioning.
| KEY TAKEAWAYS
DAO is a system collectively owned by its members, therefore we call it a fully autonomous, community-led and transparent entity with no central authority controlThe information stored cannot be altered by anyone without the group’s permissionSmart Contracts are the backbone of DAO |
For instance, if you and your friends start an online business of apparels on a DAO concept. None of you get more say than the other. No one is the boss and at the same time,everyone gets to lead. All calculations will be automatically done by an algorithm. Ideally, your organization is completely decentralized! Thus, it can run on its own. Isn’t it interesting? Let us dive into the objectives of DAO!
1.1. Objectives of DAO
After being inspired by the decentralization of cryptocurrencies, the developers came up with the concept of a decentralized autonomous organization in 2016. The major objectives of DAOs could be covered in the following points:
- To promote the management of an entity without the need for a central governing authority
- To allow the collective group of leaders in participating the decision-making process of a body
- To facilitate transparency and security while ensuring the seamless decision-making process in a bottom-up management approach
With such objectives, DAOs could be called the revolutionary set of applications accentuating the tech-related upgrades and flawless work environment in the next-gen world!
1.2. How does DAO work?
As mentioned earlier, DAOs work on smart contracts. These logically coded smart agreements decide on the decision-making based on blockchain activity.
- The rules of DAO are set by the core team of the community through smart contracts. These contracts lay out the foundational framework.
- They are highly verifiable and all the members can understand the protocol easily.
- Once the rules are written on the blockchain, the next step is funding.
- Token issuance is done to bestow governance, where protocol sells tokens to raise funds and fill the DAO treasury.
- The voting process for DAOs is posted on a blockchain with the power of voting in the hands of users holding the tokens. The ones with 100 tokens have more power in voting over the ones with 50 tokens.
- This is to make sure that the users who are more invested in terms of money are incentivized in good faith.
- DAOs have securities which contain tokens that can be issued in exchange for fiat. Members get to vote on how to use the funds.
- Once the funding is done, DAO is ready for deployment.
- Code pushed into production cannot be altered until a consensus is reached through voting.
This is how effortless DAO functioning is! All you need to do is understand the basics.
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1.3. How do DAOs govern?
There are several types of DAO governance models. After understanding how DAOs function, let us study some distinct governance models with practical examples:
It refers to the type of DAO which could help users in pooling resources and gain shared ownership of assets through cryptocurrencies. It is highlighted owing to its power of DAO governance for encouraging collective effort among people.
- Friends with Benefits DAO
It is a community of Web 3.0 fans with functions equating to a decentralized social networking platform. This model uses a governance token for allowing entry to the users.
It is an unaudited platform which helps different projects to raise funds from the public through smart contracts on Ethereum. It helps in designing fundraising pages and creating a funding structure.
Ethereum Name Service DAO or ENS DAO is useful for issuing ENS tokens to the registered Ethereum domain.
You can gain in-depth insights into these models by following the link: DAO governance models
2. Major types of DAO
The categories of DAO depending on their modus operandi and structure could be defined under eight segments. Keep reading:
- Protocol DAOs
These are the common DAOs which use tokens as a voting unit to go through financial changes. Key projects using this technology are Uniswap, Curve and more.
- Operating systems
These are the standalone places which help organizations in creating their DAOs. Orca and Colony come under this category!
- Grants DAOs
These DAOs are like decentralized venture capitalists having communities utilising governance tokens to vote for capital allocation. Some examples include Audius Grants and MolochDAO.
- Investment DAOs
They support capital pooling for different DeFi investments. BitDAO and LAO are some common Investment DAOs.
- Service DAOs
Services like talent scouting and model acquisition for agencies are made easy by these. MetaverseDAO and DaoHaus are some known Service DAOs.
- Media DAOs
They are like decentralized news aggregators which allow transparency and work for the consumer’s benefit. Mirror is one such example!
After coming across the eminent DAO types, let us go through the benefits of DAOs.
3. Benefits of DAO
Aren’t we filled with positive insights about DAO already? The benefits of this type of management are many. Let us go through the major ones:
3.1. Decentralization
The decision-making attribute of the organization is purely handled by the collection of individuals rather than a single authority. DAO makes sure to decentralize authority across a larger range of users.
3.2. Participation
By giving decision-making powers to the individuals within the organization, they feel more empowered. Equal participation is ensured by a DAO-run firm.
3.3. Publicity
Votes are cast via blockchain and are available to be viewed by the public. Thus, the user makes sure to act in a way which is unbiased and best for the company’s interest.
3.4. Community
It enables users from all across the world to come together on the same platform and make unanimous decisions. Thus, making the community stronger and more interactive.
4. Pros and Cons
We have listed down the possible pros and cons of the DAOs for understanding the concept better:
Pros:
- A Community of different users from across the world could come on a single platform to work unanimously
- Individuals have a voice in crucial decision-making, planning and operating
- As votes are publicly viewable, token holders are careful to act more responsibly
- Members of DAO feel more empowered to associate with like-minded people in a community
Cons
- It might take a bit longer for the decision-making process as voters could be many
- If DAO’s security is not apt, cases of theft of treasury might take place
However, these could be rectified if proper precautions are taken.
5. Notable real-world DAOs
We have listed down the notable DAOs of the current era and their features:
- Traders Premier League
TPL is a platform for collaborating and showing your trading skills. It gives exciting opportunities to trade with top competitors and enhance the trading journey.
- Uniswap
It is a decentralized exchange where users can trade crypto without any third-party involvement.
- Lido Finance
Launched in 2020, Lido has come up as a popular liquid staking solution for Proof of Stake-based cryptos. It is currently the largest DeFi protocol with a TVL of around $13.83 billion.
- Aave
It is a decentralized platform for lending and borrowing without any third-party interference.
- Maker DAO
It is a decentralized organization built on the Ethereum blockchain. It allows users to borrow and generate DAI by submitting collateral into a smart contract known as Collateralized Debt Position (CDP).
To know more about these DAO wonders, you can follow the link: Read here!
6. Future of DAOs
The cutting-edge organizational paradigm, DAO, will continue to gain popularity in future. With businesses investigating the potential of DAOs, it could be the next-gen organizational structure. It promises more experimentation and innovation shortly. It has demonstrated a stable future due to its latest upgrades. DAOs have the possibility of transitioning away from centralized methods of governance as more people become aware of their advantages.
The inclusive nature of DAOs has an unquestionable advantage as they investigate real-world instances and keep future prospects into account.
7. FAQs
They solve the problem of single authority governance by empowering the individuals to make decisions.
The main challenges are security and awareness. As more and more people learn about DAOs, the concept could be ahead of the current challenges!
It is a decentralized system which runs on blockchain to automate the process of voting and transactions.
Without registration, a DAO might face issues. Therefore, we advise DAOs to be registered.
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