All You Need To Know About Decentralized Autonomous Organization (DAO)

Decentralization is a very crucial and fundamental characteristic that sets blockchain technology apart. It offers enhanced security, trust, transparency, eliminates intermediaries, promotes inclusivity, and builds resilient systems. The space is still vulnerable to centralization agents but the emergence of Decentralized Autonomous organization (DAO) restores the belief in decentralization.

What Is A DAO?

A DAO, or “Decentralized Autonomous Organization,” is a community-led entity with no central authority. It is fully autonomous and transparent: smart contracts lay the foundational rules, execute the agreed upon decisions, and at any point, proposals, voting, and even the very code itself can be publicly audited.

Ultimately, a DAO is governed entirely by its individual members who collectively make critical decisions about the future of the project, such as technical upgrades and treasury allocations.

Each individual member of the DAO oversees the protocol at some level.

How Does A DAO Work?

The rules of the DAO are established by a core team of community members through the use of smart contracts.

These smart contracts lay out the foundational framework by which the DAO is to operate.

They are highly visible, verifiable, and publicly auditable so any potential member can fully understand how the protocol is to function at every step.

Once these rules are formally written onto the blockchain, the next step is around funding: the DAO needs to figure out how to receive funding and how to bestow governance.

This is typically achieved through token issuance, by which the protocol sells tokens to raise funds and fill the DAO treasury.

In return for their fiat, token holders are given certain voting rights, usually proportional to their holdings. Once funding is completed, the DAO is ready for deployment.

At this point, once the code is pushed into production, it can no longer be changed by any other means other than a consensus reached through member voting. That is, no special authority can modify the rules of the DAO; it is entirely up to the community of token holders to decide.

At this point, once the code is pushed into production, it can no longer be changed by any other means other than a consensus reached through member voting.

That is, no special authority can modify the rules of the DAO; it is entirely up to the community of token holders to decide.

How To Get Involved In A DAO

Once you’ve found a project of interest, there are a few different ways to get directly involved.

I feel it is important to note that not all DAOs operate with the same purpose so the first step is figuring out the core function of each DAO.

For DAOs focused on technical governance, it’s important to understand what sort of voting rights are granted to token holders and what kind of proposals are at stake.

In some instances such as Uniswap, token holders can vote on distributing a portion of the fees that the protocol collects amongst themselves.

In other protocols such as Compound, token holders can vote on distributing these protocol fees towards bug fixes and system upgrades.

For other DAOs, the focus is less about governance over the technical aspects of the protocol, but more so on treasury pooling and allocation.

DAOs often call upon the community to build out interesting ideas through grant-funded projects, and individuals with an entrepreneurial mind can freely submit proposals to help lead the future development of a protocol.

Levels of DAO participation vary. You can choose to swap into governance tokens and pay attention to Snapshot votes; you can join the DAO’s Discord and take on actual projects where you’re compensated for your contribution; you can even invest into DAOs of interest by networking at conferences. You choose how involved you want to be.

Find a project that aligns with your passion, find their Discord, and drop into the conversation. Learn how to use a Web3 wallet like MetaMask and vote using Snapshot. Contribute analysis, writing, and art to the community.

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