A Concise Guide to DAOs
Blockchain technology is changing the world by replacing the concept of centralization from most industries, including business, education, and even the entertainment industry.
Can you imagine a group of people collaborating from all across the world, agreeing upon establishing an organization, making their own decisions and rules autonomously via blockchain? DAOs make this possible.
To understand the concept of DAO, we can call them online communities with a bank account. Everyone among the group contributes to the fund, which is utilized to regulate a specific DAO. Let’s go a little deeper into the concept of DAO and understand how exactly it works and what problem it solves.
What are DAOs?
DAO is the abbreviation for Decentralized Autonomous Organization, designed to be transparent and fully governed by the members. Powered by blockchain technology, DAOs intends to build a decentralized infrastructure beyond the influence of any central authority.
The rules and policies required to regulate DAOs are embedded into code and are executed through smart contracts, eliminating the need for any centralized authority. With such uniformity, the decentralized autonomous organizations bring bureaucracy or hierarchy to an end.
DAO’s mechanism is getting huge traction. It encourages internet users and startup enthusiasts to leverage the next-gen technology, DAO, and start their own autonomous social organization in a fair and safe environment with like-minded people.
Why are DAOs needed?
Starting a business is often challenging for people, and it involves funding, trust from the members, and their equal contribution in defining the roadmap; all these require trust.
With DAOs, people do not need to search for investors or business members, and they can even invite people with whom they have interacted on the internet. That’s since DAO uses codes to run the organization. These codes are rules encoded in the smart contract, which is 100% transparent and verifiable by everyone.
How are DAOs being used today?
DAOs are useful for many purposes, including charity, fundraising, borrowing, trading NFTs, and investment. For instance, a charity-based DAO can accept donations from people worldwide and allow the members of organizations to decide how to spend the charity for fair use.
As the next level utilization, DAOs are powering a Metaverse organization that supports the integration of various small DAOs inside a DAO Metaverse and regulates these mini DAOs in a complete virtual universe.
How do DAOs work?
Blockchain-based DAOs are powered by smart contracts and high security. Following three main elements are required to allow DAOs to work as a fully functional and automated organization:
Set of rules: Rules are defined and written in smart contracts to regulate the decentralized autonomous organizations. Therefore, the associated members should discuss and define the required rules.
Voting mechanism: Voting rights are significant for establishing the operation of rules those are defined in smart contracts. Any amendment in these rules should get approval from all the members.
Funding: DAOs are funded with tokens, which can be the native token of the blockchain on which DAO is built, or it can be a token commonly accepted at various blockchains.
What problem does DAO solve?
DAOs solve many problems that exist in traditional organizations, some of the core issues are mentioned below:
Distribution of incentives is not a challenge for small organizations, but bigger organizations have difficulty recognizing the proper value addition of employees and incentivizing them. For instance, a company CEO does not evaluate the performance of someone who works in the sales department. This way, some employees are left unincentivized as their contribution to the organization doesn’t count.
Since DAOs are automated and decentralized, these powers the user sovereignty. Every member can see each other’s contributions and decide incentives based on a collective opinion.
Voting or governance mechanism
Contrary to how voting is done in traditional organizations (which is cast and tallied manually by an authorized person), DAOs automate the process of voting and implementation of decisions without any intermediary. The result is also announced automatically based on the majority of votes. All these activities are regulated through smart contracts.
For an organization to expand, flexibility is important. Traditional companies require months to act on a proposal, and its implementation can take even longer. With DAOs, plans can be made and executed quickly using smart contracts. Since every member is the owner of a DAO, there’s no room for a hierarchical system. Thus, DAOs are likely to expand faster than organizations in the real world.
The Future of DAOs!
Brand and businesses should keep abreast with the latest trends and technologies to discover more impactful ways to engage with customers and stay in the competition. While DAOs are not much prevalent yet, they seem to be the future of many successful companies. With that, we can expect the DAO to be the future of worḳ