DAOs Explained
A one-pager on the mechanics and types of DAOs
The curation of Web3 is centered around its focus on building a decentralized and collaborative internet space where members are incentivised to uphold this system. DAOs or Decentralized Autonomous Organizations are a manifestation of this ideology. DAOs are member-owned communities without any central leadership, built for a designated purpose. During the initialization of a DAO, the founding community members decide on some core rules the organization will run by. These rules are encoded and executed in a computer code called a smart contract. These smart contracts are transparent and can be accessed by anyone so members can always refer to the foundations of the organization. Changes to the smart contract are not made by any one centralized power, they can only be made after all community members vote on the changes.
Once the foundations are laid, DAOs begin to raise funds by selling a native token. To become a member of a DAO, individuals must purchase these native tokens. The allocation of funds raised, and its utilization are defined by the purpose of the DAO and votes from members. Members hold voting rights in proportion to the amount of native tokens they own, but all members can vote on decisions pertaining to the organization. This arrangement incentivises members to be cautious and equitable in their decision making since these votes affect the whole community, but more so those who have invested heavily into it. There is no specified way in which a DAO must function, but the process expanded on above is the general practice at present.
DAOs can usually be categorized by the purpose they are built to serve.
Protocol DAOs
The most common kind of DAOs are the protocol DAOs. These DAOs work to maintain and govern decentralized protocols on Web3. A simple use case is the protocol DAOs that oversee lending and borrowing through decentralized protocols. Individuals who wish to have a say in the direction of a certain protocol must buy the native token of the pertaining protocol DAO and participate in votes to implement their changes.
Protocol DAOs tend to be most popular in the Decentralized Finance (DeFi) space.
Collector DAOs
Another big category of DAOs are collector DAOs. As the name suggests, these DAOs aggregate funds through their treasury and collect blue chip NFTs. Members of the DAO can share ownership of rare and expensive NFTs without risking the whole investment.
Collector DAOs in the music space are a good way to support artists and incentivise members through collection of rare, high-value NFTs. Noise DAO is one such initiative that supports artists by creating a pool to purchase NFTs but it also uses this pool to help launch artists.
Investment DAOs
Similarly, there are investment DAOs which function as a decentralized VC firm. The members of the DAO contribute to a fund and can then vote to decide what Web3 projects that capital will be used to fund. It allows communities to encourage growth of projects beneficial to them and in a larger sense support the growth of Web3 initiatives.
Mudd DAO is an up and coming investment DAO in the music industry that aims to function as a decentralized record label for independent artists. The treasury pool will be used to support artists in their career and provide a suitable platform for them. As the DAO grows they are looking into using these funds to support projects and technology that will be significant in shaping the Web3 music industry.
Social DAOs
Finally there are Social DAOs, which have less clearly defined goals but they bring together like-minded individuals who share certain interests and then empower them with the shared treasury. Members can then vote on how to use these funds and act as a medium to grow the subject of their interest and act as an opinion leader and aggregator of influential figures in the space.
Social DAOs play an important role, especially in promoting a budding space such as the music industry. Dreams never die DAO and MODA DAO are both prominent social DAOs looking to create a community that will help promote Web3 music and create a shared resource point to encourage more independent artists. JOMO DAO, based in Hong Kong, is another example of a social DAO that is working towards growing awareness of Web3 developments and building a community to bring together innovators in the space.
DAOs are versatile and community driven; they gather individuals and their resources to help achieve common goals that are regularly reiterated through votes to ensure the needs of the community are sufficiently being met.
