Jigstack Academy — DAO (intro)

What Are Decentralized Autonomous Organizations (DAOs)?

The blockchain industry loves its acronyms — PoW, PoS, AMMs, DEXs, DAOs — making it a little inaccessible to someone new to the space. But, while these acronyms stand for some revolutionary ideas and critical aspects of the market, fundamentally, they achieve something simple. Breaking down these terms is key to making the whole crypto experience — especially decentralized finance (DeFi) — more accessible to all.

For all the touting of decentralized governance in the cryptosphere, many projects in the crypto market are not ideally centralized, leading to obvious issues for all. Thankfully, the past two years have seen a fast-growing trend towards greater decentralization, especially within the DeFi space.

Here we focus on one of the most essential ideas of the past few years, Decentralized Autonomous Organizations (DAOs), which enable a fundamental aspect of decentralized systems — governance. DAOs actually have a long history within the market, as we shall see, but only in recent times have they been able to give users greater control over networks.

What Is a DAO?

Short for Decentralized Autonomous Organizations, DAOs are a democratic form of governance where decisions are executed based on open-source code and user input. There is no centralized authority leading decisions; instead, protocol changes are decided upon by participants through rules established by hard-coded computational rules.

Smart contracts play an essential role in the functionality of DAOs. Many vital processes of governance, which are typically handled by a few parties in a centralized system, are automated in a DAO through smart contracts. However, this could have some downsides, as it is difficult to alter the code once they have been set in place, like trying to fix a plane’s engine once it is already flying in the air. Sometimes, this can even lead to serious incidents, as in the case of the Ethereum DAO attack in 2016, which saw Ethereum eventually split into Ethereum and Ethereum Classic.

Several DAOs have formed since the advent of DeFi, with one of the most well-known being MakerDAO. More recently, the Jigstack DAO incorporated a wide range of DeFi applications into its DAO, letting users determine aspects of an entire suite of Ethereum-based applications.

Why Are DAOs So Important?

First off, DAOs have apparent benefits when compared to centralized systems. Management costs are lower, changes are fairer and easier to implement, and it is beneficial for the user base as a whole, serving in the democratic interest of the governing network users.

DAOs have particular importance in the DeFi space because participants can collaborate to determine what they think is best for a platform as a whole. For example, users could utilize their governance tokens to vote on fee-related amendments for a protocol, which could benefit all users on the platform. Or, there could be a rule determining how funds in a treasury are disbursed, and for what purpose.

As more people involve themselves in the running of a protocol, DAOs also help secure the network. A decentralized network means no large players can unfairly influence the game to feed their interests. However, it is critical that a DAO’s code is airtight, so no malicious attackers can exploit the project’s code to steal funds, as was the case of the 2016 Ethereum DAO incident.

Despite the growing number of DAOs accompanying DeFi development, the idea is still far from being fully realized. There are several factors holding it back, including making the whole governance participation process more accessible to all users. However, many projects (some more than others) are putting a lot of effort into the aforementioned problem of accessibility, which is critical to public adoption and, consequently, governance participation.

How Do DAOs Work?

Smart contracts are responsible for the specific rules within a DAO. Thus, the initial implementation of a DAO is critical to the robustness and general success of such an organization’s governance. This includes fundamental layers that describe how funds are distributed, what aspects of the ecosystem users can manage, and how governance itself is carried out. Once the initial framework is in place, the rules can only be changed if the DAO members vote to do so.

Participants use governance tokens — for example, Jigstack’s STAK — to vote on proposals and exert their influence on network decision making. The voting power is usually directly proportional to the number of tokens that a user provides for a decision, giving full democratically determined access to all network participants. The specific voting mechanism and conditions (like those related to quorums) may vary from DAO to DAO, but the principles in place are still the same.

When a DAO has been launched, participants can submit proposals that everyone can vote on. In Jigstak’s case, the native governance token STAK can influence decisions relating to its whole suite of products: Lemonade, Gallery, Milkshake, Santa, and J-Wallet and all others to come. Platforms have come up with novel ways to incentivize governance participation and the holding of governance tokens by providing additional benefits. The idea is to give users multiple ways to earn rewards for their participation in the ecosystem, encouraging DAO participation and incentivizing positive growth.

The Jigstack DAO Vision

There are many DAOs out there, but none are organizing the complete community control of their ecosystem in quite the same way as the Jigstack team’s implementation. Not only will the Jigstack DAO be built for the community, but it will also be built by the community, allowing all stakeholders to have a true democratic say in the future functionality and operations of the DAO. Many projects slowly ease into their DAOs, but with the Jigstack DAO, our community will be fully involved right from the start. Our users will have an impactful role immediately, with our core contributors easing out of power.

With this level of decision-making power made available, every user will have complete control over their financial destiny, with the ability to not only utilize the DAO, but also dictate the future direction of the swathe of decentralized products and features that have been made available through the Jigstack DAO. We envision a trustless ecosystem, where no matter who you are or where you are located in the world, you will be able to easily, seamlessly, and fairly access financial products in the same manner as everyone else. This autonomy is unprecedented, and what we hope to promote as the forefront of our innovative DAO ecosystem.

Conclusion

The main takeaway from the idea of DAOs is this: they are decentralized forms of governance facilitated with the use of a native asset. Instead of an organization with a centralized hierarchy composed of chief executives and managers, all participants are treated equally and have an equal say in how the platform runs and will run in the future.

Think of DAOs as companies that offer services or products, except all of the shareholders are treated equally and have an equal say in the matter. The system is truly a democratic and decentralized one, allowing people to make a contribution to a network they benefit from, free to discuss and directly propose ways of improving it.

While the idea is still being worked on and refined, DAOs have already made a tremendous impact on the market and show the world how decentralized functionality can improve the user experience and protect all stakeholders. It would not be unrealistic to think that in the future, there will be many traditional organizations turning towards DAOs, incentivizing users to direct how their company grows so that it can better improve their experience with related products, services, and features.

About Jigstack

Jigstack’s vision is to bring back wholeness, simplicity, and understanding to users. The Jigstack protocol aims to do this by developing a suite of productive flagship DeFi products that are all governed under a single Decentralized Autonomous Organization (DAO). Jigstack is positioned as the DAO of DeFi; the platform is the “one-stop-shop” for everything DeFi. On top of that, Jigstack offers an interactive and interesting interface for users, allowing them to swiftly understand each product and how to interact with it, thus gaining exposure to the DeFi ecosystem safely and effectively.

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