What exactly Is a DAO (Decentralized Autonomous Organization)?

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DAOs employ smart contracts and governance tokens to allow members to reach an agreement on how the organization’s resources should be allocated.

Have you ever felt that your employer isn’t paying attention to you? It’s a regular complaint at work. A new sort of organization, with a flatter management structure and a set of rules that are automatically enforced on a blockchain, is altering that.

Decentralized Autonomous Organizations (DAOs) promote collaboration by allowing everyone to take part in discussions. And they’ve created some very amazing work.

 

What is a DAO?

A DAO is a corporate organization in which control is distributed among team members rather than being concentrated on a single authority figure.

A DAO may be viewed as a machine, with the work it is directed to perform set by pre-written smart contracts.

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How do DAOs work?

A community can adapt a DAO and program it according to its own goals.

  • 👩‍💻 Code is written in the form of smart contracts, which provides some sort of governance mechanism.
  • 🗳️ Members typically use governance tokens to vote on topics such as fund allocation.
  • 📊 In the case of many DAOs, the impact of a member’s vote can increase based on the amount they have contributed to the project.
  • 💪 The outcome can be based on the degree of participation as well as voting preference.

What was The DAO?

The DAO was the largest and most well-known example of a DAO. It was designed by Slock. It was created on the Ethereum platform.

the network Its source code was open source, and anybody may contribute to it.

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The DAO was created to serve as a venture capital platform for cryptocurrency businesses. A pitch would be given, and everybody with DAO tokens would be able to vote on which initiatives would receive financing. The DAO, on the other hand, was never able to take off.

 

Did you know?

The DAO raised 12.7M Ether, worth around $150M at the time.

What went wrong with The DAO?

On June 17, 2016, a hacker was able to breach a few lines of code, allowing the transfer of 3.6 million Ether, valued at $70 million. However, the assets were transferred to a “Child DAO” and could not be transferred for 28 days, allowing the Ethereum community time to devise a solution.

They created a hard split on the Ethereum chain, leaving the old fork, Ethereum Classic, behind. During this fork, they rewrote the blockchain to ensure that the hack never occurred, implying that the blockchain was no longer immutable.

“[The DAO] raised massive awareness around the platform […] demonstrating unequivocally the need for a decentralized structure of this nature.”

Stephan Tual, founder of Slock.it

A dark time for DAOs

DAO development proceeded, albeit in the shadows. Projects like Aragon, DAOstack, DAOHaus, and Colony learnt valuable lessons from the original DAO and are currently building and running DAOs for some of the most important decentralized finance (DeFi) protocols. The 2020 DeFi boom sparked renewed interest in the DAOs that drive many of the prominent initiatives.

DAOs come in all shapes and sizes

  • Crypto projects – considered to be DAOs if they are managed by decentralized governance where token holders can vote on the direction of the project. e.g. MakerDAO.
  • Grant funding – a DAO can be used to award development funds automatically based on set criteria. e.g. MolochDAO.
  • Investment – MolochDAO has been forked many times to create for-profit DAOs which can distribute and transfer shares and other assets between members. e.g MetaCartel Ventures.
  • Collecting – the non-fungible token (NFT) boom has seen collector DAOs flourish e.g. FlamingoDAO.

What advantages do DAOs have?

  • 📖 Transparency – voting, funding decisions, and other actions are viewable by anyone.
  • 🔥 More firepower – members across the world can contribute, giving DAOs lower barriers to entry than companies.
  • 💵 Cheaper – the concept has firmly taken root in the DeFi, and there are many tools—which can be used like Legos, so little needs to be built from scratch.
  • 👨‍👩‍👦‍👦 Collaborative – giving everyone a voice pools mass knowledge for a proposal and enables experts to invest in the ecosystem they are building.

“We believe the DAO will play a starring role as the world makes the shift to Web 3.0, paving the way for fully decentralized companies.”

Jademont Zheng, Waterdrip Capital

What disadvantages do DAOs have?

  • 🏢 Flat structure – by not having a clear authority figure, or chain of command, decentralized organizations are slower to operate as decisions take longer to make.
  • 😡 Disagreements – when the community disagrees strongly, it could split the organization into two.
  • 👸🏽 No change – in some DAOs, those with the most tokens call the shots, so governance looks very similar to traditional organizations.
  • ⚖️ Legality – minefields abound in relation to token projects that might be deemed to be securities.

The future

DAOs are seeing a surge in popularity, with hundreds of developers working on technological advancements, governance mechanism enhancements, and voting solutions.

Meanwhile, groundbreaking legislation in Wyoming, a crypto-friendly state, is attempting to clarify the legal status of DAOs.

DAOs, according to enthusiasts, will grow more complex in the near future. Anonymity, greater decentralization, and improved incentives for involvement are among the trends. Future DAOs may use prediction markets, as well as start voting and serving as delegators in other DAOs.

Will they begin to alter the way businesses function and raise funds? Without a supervisor instructing you what to do, you may soon be having a conversation about the best route for your company to move ahead. The grass appears to be greener.

 

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