Decentralized Autonomous Organizations
A complete guide to DAOs
Web3, the Metaverse, cryptocurrencies and NFT’s are the new building blocks of the Internet and driving a different sort of wave around the globe, today we’ll go in depth about organizations trying to build this ecosystem to fruition.
If you’ve been following the evolution of the Ethereum’s space you’ve probably heard of them including dAaps and DeFi (Decentralized Finance) projects, you’ve probably heard of the term DAOs. If you haven’t let me bring you up to speed !
What’s a DAO
A key Ethos in the crypto space is decentralization. Society has grown tired of the powerful keeping all power and leverage to themselves. Removing a central figure to control the entire stake of an organization and misuse of power was the primary aim for this concept.
The folks who created the DAO concept wanted to remove human error and manipulation of investor funds by placing decision making power in the hands of an automated system and a crowd sourced consensus mechanism to allow investors to send funds anonymously.
A decentralized autonomous organization is essentially an online company that operates according to the rules written in code known as a smart contract. Think of it as a traditional company minus the hierarchical control structure. DAOs operate in a flattened hierarchy which means everyone has the same stake and no single person controls the entity of the company as a traditional CEO would. DAOs are entirely online and utilize blockchain technology that acts as a public ledger to record every single happenings in the group.
DAOs can have an apt amount of contractors. It all depends with the tasks. The contractors would submit a proposal for the development of products and services. These are smart contracts and for security reasons we end up having signatories that validates the proposal and only after that are the contractors eligible to ether from the DAO. These group of validators are all known as curators and for decentralization, a curator might be dismissed for a good reason by the whole DAO as each participant has a single vote.
Membership in a DAO is typically restricted to people who are able to afford DAO tokens in exchange of Ether. Debates can occur both on & off chain through a chosen service depending with what the participants are comfortable with.
In a nutshell DAO’s are internet -native organizations owned and managed collectively by their members. They have in-built treasuries that members can only access with the community’s permission. Proposals form the basis of decisions which the group votes for in a period of time. Proposals can have a variety of complexity. From being very simple to being very complex. a DAO can realize a trust factor issue and can only give money to the Contractor on a monthly basis instead of providing the whole sum at a time.
Another example is that it can send money to one or many accounts simultaneously where these many accounts represent a trusted individual who contributes to some part of the proposal or the project.
These features allow smart contracts representing DAOs to stay immutable, be secure and flexible at the very same time as it is the responsibility of a smart contract to define the rules of an organization and hold the group’s treasury. Once the organizational rules have been programmed and run in the blockchain, in this case Ethereum, no one can change the rules unless a vote is passed. if anyone tries to make changes without a vote, the code will fail to pass.
Another fantastic thing about DAOs is that no one can spend the group’s money recklessly without the entire group’s approval; a smart contract also defines the Daos treasury. The DAO members collectively vote on the spending decisions, and payments are authorized when the vote passes.
The three steps of creating a DAO
Generally DAOs follow these three steps when being created.
- Developers create rules via smart contracts.
The developers of the project will create the rules that the DAO will operate under. Such as the voting mechanism, etc.
2. Funding.
Although the DAO will not need to pay a CEO, it will need funding in order to operate. This could be to pay freelancers to do work for the DAO, to donate to charities, or invest in projects the DAO wants to fund. The organization will need money, so funding will be required.
Often, this is done through auctioning the DAOs native cryptocurrency token.
3. Governance tokens influence the DAO.
The holders of the DAOs tokens, also known as governance tokens, are now able to submit and vote on proposals. The DAO is now up and running.
How voting is done in DAO
Community members create proposals on the future operation of the protocol, members can use these proposals for decision making purposes like adding and removing members, allocating shares, distributing funds, interacting with other communities online.
The community members then vote on each proposal, it is in the best interest for an individual to vote for a proposal that actually makes sense to the protocol because a robust protocol will serve more purpose and increase it’s usage which ultimately increases the value of the DAO token.
Proposals that have a general acceptance are passed and enforced by the smart contract, everything is transparent and open sourced in a secured blockchain ledger.
What was the first DAO
The first DAO was a venture capital fund simply called “The DAO” built by a German company called Slock.it , it was built in the Ethereum blockchain with the main purpose to raise money in order to connect the physical world to the blockchain and ended raising over $150 million worth of Ether which was around 14% of all Ether in circulation at that time.
Unfortunately The DAO suffered one of the biggest hacks in recent crypto memory losing 3.6 million of Ether which was $50 million back in 2016.
Benefits of DAOs
1. Decentralization
Well, as we’ve echoed a thousand times already in this piece, it’s decentralized. This means it’s a trust-less model for consumers and investors.
2. Open-source
DAOs in crypto, web3, and the NFT space are open source. This means that the source code is freely available for the public to look at and improve upon. Community members can dive into the code, improve the DAO and submit a proposal to implement their improvements.
3. Community driven
DAOs, just like many things in the blockchain ecosystem, are community-driven. This means that the consumer can shape the project they love so much.
4. Lack of government control
A DAO can’t be shut down or forced into revealing data by a government or regulatory body. With regular organizations, the government can force them to shut down or give them information on something or someone. This is not the case with DAOs.
Types of DAOs
There are several types of DAOs. I have listed them below
Education DAOs, Investment DAOs, Collector DAOs, Protocol DAOs
Summary
We learned that DAO is more or less an organization which is designed to sustainably develop diversified crypto-assets and products/services backed by some crypto assets(ETH). These accrue value for DAO members who invest in DAO for the initiative they want to pursue. It is like a clean capital pool with the agenda to make everything autonomous with code and try to make an organization which is not influenced by the mishappenings or politics of the outer world but at the very same time is global.
The concept of DAOs will set a new standard for managing modern businesses and can foster new avenues of productivity by valuing collaboration and transparency among team members. If you are interested in this space, find a project that aligns with your passion, find their Discord, and join the conversation.