WHAT IS DAO
By Engr. Ohazulike Stanley. A community/ social media manager and a crypto content writer
Decentralized autonomous organizations (DAO) are internet-based organizations. It’s a community-driven organization (controlled by its members), it’s autonomous and has no central control or authority
The operations of DAOs is only possible with the use of smart contract (smart contracts are programs or codes that are stored on the blockchain and are executed when certain predefined/predetermined conditions are met)
Unlike the hierarchical operations that we are familiar with in big corporate organizations, DAOs operations are quite different (flattened structure), it is community-driven and each community member of the DAO has right over the decision-making process as it relates to the operations of the organization.
For every decision taken by the community members and executed by the smart contract, community members first create a proposal as it relates to the future operations of the organization and every community member of the DAO will vote on each of the proposals and like every democratic setting, majority wins. However, this majority vote will be a certain predetermined condition embedded within the smart contract. Immediately after this predetermined condition is met, the proposal is automatically executed by the smart contract.
Some examples of DAOs
Decentraland
When it comes to the virtual world (metaverse), decentraland is a household name and it is governed by a DAO. Stakeholders participate in administrative and governance decisions in a democratic style, anyone who owns the native token (mana) can participate in the process.
DASH
Dash is a cryptocurrency that was forked from the bitcoin protocol, run by a subset of its users that are known as masternodes.
Uniswap
Uniswap, a cryptocurrency built on the Ethereum blockchain, is considered to be one of the biggest and most populous DAOs. Holding a Uni token grants access to become a member of this DAO and in turn, provides a voting right as to how the organization is administered.
makerDAO (a software that helps in maintaining stablecoins)
AssangeDAO
This DAO is governed by holders of $justice token and it’s committed to the freedom of WikiLeaks founder Julius Assange who spent several years locked up in Ecuador’s embassy in London before being transferred to the UK prison.
HOW DOES DAO WORK
As stated above, DAOs operate a flattened structure, the organization is community driven and decisions are taken by vote. Usually, ownership of a token grants one access to a DAO
At the initial stage of the DAO, core team members or founding fathers set up rules of the DAO, with the use of a smart contract. These rules (codes) on the smart contract are visible to the public, auditable, and can be verified by any of the team members. Once the DAO is formed, next is funding in other to build the treasury of the DAO. This is majorly achieved through the issuance of governance tokens in exchange for voting right. Those who purchase the token become members of the community. Each voting right is proportional to the token in his position. After funding is completed, DAO is fully ready for deployment.
After deployment is achieved, stakeholders (community members), decide on the future of the DAO via proposals and voting and if a majority vote is achieved, the proposal is automatically executed by the smart contract.
Advantages of DAOs
DAOs are driven by the community
Unlike corporate organizations, which operate a top-down hierarchical structure, thereby granting exclusively, the CEO or a few board members decision-making rights. Sometimes creating management issues and forcing the will or decision of few on all.
DAOs operate a flat organizational structure and create room for all stakeholder’s voices to be heard by exercising their voting right, thereby ensuring that all members of the DAOs are independent of any external influence or intervention.
Equality of Stakeholders
Another important benefit of DAO is that any member of the DAO can submit a proposal as it relates to the future operation of the organization, this proposal is subjected to voting and voted for by members of the community, and the voting right of each community member is directly proportional to the amount of token in his possession.
Minimizes or eradicates the risk of organizational conflict
There are numerous reasons, which include misunderstanding, goal difference, lack of trust, a threat to status, etc which creates conflicts in corporate organizations. These organizational conflicts can be greatly minimized or eradicated with DAOs. DAOs offers a trustless environment and smart contract code are public, verifiable, and auditable.
It’s also important to note that once smart contract code has been written and deployed, it is free from any external intervention, and cannot be changed or altered by anyone. Any other adjustment or change toward the effective operation of the DAO must be submitted as a proposal and voted for by the community
Disadvantages of DAOs
Slow decision-making process
In a corporate organization, the CEO or a few board members may be required to make a fast decision as it relates to the effective and smooth operation of the organization, however, this is different with a DAO system. This is because the decision must be submitted as a proposal and voted for by stakeholders, which requires so much voting period.
Voting Power vested in those with high stake
Though DAOs are autonomous and each stakeholder has voting power, however, the extent of the voting power of a DAO member is directly proportional to the tokens in his possession (the higher the tokens, the more his voting right). What if a few members buy an unreasonable amount of the governance token? What happens if these few members take a decision that is unfavorable to other members of the community by exercising their voting rights?
Security risk
Having a decentralized and democratic setting has completely eradicated manipulation in the operation of DAO. However, smart contract codes are written by a human.
No matter how careful or perfect the developer is, he cannot ensure the security and flawlessness of the smart contract code. There might be some imperfection in the smart contract codes, which can be exploited by hackers leading to a great loss to community members
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