What is DAO and How is it connected with NFTs?
Along with the DeFi and NFTs’ increased adoption, other blockchain technologies are also gaining popularity in the digital world — namely Decentralized Autonomous Organizations (DAOs). But what is a DAO and how can DAOs and NFTs be connected to foster ecosystem growth?
Let’s figure it out.
What Is a DAO?
DAO (pronounced as “Dow”) is an acronym for Decentralized Autonomous Organization, a community-led organization in which its members use tokens or NFTs to grant voting rights over the direction of that organization.
Benefits of DAOs
There are several reasons why an organization would decide to adopt a DAO structure, including:
- Decentralization. A DAO is an entity with no central authority. Power is distributed across DAO members, decisions are made bottom-up by the community, which are the token or NFT holders of that organization.
- Participation. Members of a DAO are not bound by any formal contract, unlike those in a traditional corporation. Instead, they are tied together by a common goal or incentives written into their rules. A DAO allows its members to have a voice in the planning and strategy of the entity, and then receive additional benefits from its success in return.
- Publicity. The DAO rules are written on a blockchain using smart contracts (digital one-of-one agreements). The blockchain records all votes and activities related to the DAO, making those data visible to the public. This helps encourage behaviors that will enhance the reputations of voters.
- Community. DAO inspires individuals from all around the world to collaborate and share the same vision. Members of a DAO may feel empowered to collaborate with like-minded people within a single community to achieve the same goal. People just simply need to hold the organization’s tokens or NFTs to become its DAO member.
The collaborative relationship between DAOs and NFTs
DAOs and NFTs are connected in form of NFT DAO system.
Investing in an NFT can sometimes be just for fun and that could be difficult for owners to have other benefits from it. NFT DAO lets users own NFTs, earn real yield benefits entitled to the NFTs whilst having DAO voting power. If a DAO is successful, the value (and benefits from NFTs) will increase.
DAOs can also help launch other NFT projects via community governance. Creators and the Community can collaboratively come to decisions for the future direction of the project.
Moreover, NFT DAO unlocks the ability for small projects to build a dedicated community. Working like a crowdfunding platform, NFT DAOs can help raise funds and engage communities for different projects by allowing people to vote on the projects they most want to succeed.
Conclusion
DAOs provide a wide variety of use cases to improve blockchain implementation. Due to the expanding adoption of NFTs and DAOs, we can definitely look forward to their intensive growth in the near future.
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