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Those of you who keep up with the news and updates on the blockchain may have heard that a question is surfacing about Will DAOs Replace Crypto Venture Capital? Recently, decentralized autonomous organizations were formed to buy the U.S. Constitution and a professionally certified golf course. Currently, they are organizing to deploy capital into crypto startup companies, disrupting a model used to fund waves of new technology for decades.

A cryptocurrency investment-focused DAO has replaced well-heeled venture capitalists with the new way to source deals, meet company founders, and cut checks — tasks that were typically performed by well-connected, industry insiders.

What are DAOs?

Often governed by native crypto tokens, Decentralized Autonomous Organizations are blockchain-based organizations that are decentralized and unregulated in the traditional sense.

DAOs can take many forms and structures, but simply put, a DAO is an internet community with a shared bank account.

The process is basically this: small groups of people form a chat group, and then they decide to pull capital together using Ethereum wallets. The DAO then decides how to fund its mission collectively.

There are two general kinds of DAOs: Those that manage blockchain-based open-source projects together and those that make investments. As such, they act similarly to LLCs, VC firms, or investment firms, such as PleasrDAO.

The operation of DAOs

The first step in understanding DAOs is to understand the technology behind them. In most DAOs, smart contracts run on blockchain technology, which is a collection of code that runs on the blockchain.

Blockchains are decentralized digital ledgers. Blockchains are commonly used to document transactions of cryptocurrencies, such as bitcoin, and other digital assets, such as NFTs, but they can be used in a variety of other ways as well. A blockchain can act as a backbone for decentralized autonomous organizations, preserving their structure and rules on each on-chain .

Traditionally, organizations are hierarchical. Boards of directors, executives or upper management establish the structure and have the power to make changes.

On the other hand, DAOs are decentralized, meaning they aren’t controlled by a single entity or person. Smart contracts on the blockchain define the rules and governance of each DAO, which can be changed only by the DAO’s members. Members of each DAO can vote on decisions together, typically on an equal footing, instead of a select few having the majority.

In Conclusion: Institutional investments in DAOs are an indication of industry growth, especially in a time of mainstream media coverage. As a result, it also shows the potential for greater adoption, potentially posing a threat to traditional businesses and organizations.

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