DAOs for Dummies

Introducing Decentralized Autonomous Organizations (DAOs)

The core idea…

A Decentralized Autonomous Organization (DAO) is a community with membership pegged to its unique crypto-token, that operates based on rules laid out via its smart contract on a blockchain network.

Right, so let’s break that down some more:

Tokenized Membership: You can’t sit with us…unless you buy one of our unique tokens, usually issued in fixed, limited quantities. That membership token is not a physical element, but a digitally-native asset encrypted on blockchain. Where can you buy it? On online exchanges where the DAO lists.

Crypto-Tokens: It sounds very SciFi Channel, but technically the “crypto” in crypto-token is in reference to the “cryptography” or encoding of each unique element so that even the savviest Sherlock cannot solve to decode and subsequently illegally replicate. Think, like the serial numbers on paper dollar bills (if you’ve actually seen one of those in the wild recently), but much more complex.

Smart Contracts: A whole lot of <If, then> scenarios coded into a blockchain program that builds the structure to govern interactions within the network or community. Ex: If Member A proposes a new idea & a minimum of 10% of the community upvote it, then a community-wide vote on the proposal will commence and run for 72 hours. If a majority vote in favor, then the proposal is implemented.

Community: Individuals engaging with the network constitute the community. Each community has a raison d’etre around which the individuals have self-selected to organize.

Blockchain Network: Fancy computer code that is more secure and incorruptible than your average computer code. Disclaimer, my working knowledge of blockchain is non-technical and still in its infancy. However, to the best of my understanding, blockchain is writing in pen verses pencil (when pencil is the current standard). The difference is not in the written words themselves, but in the way they are preserved.

The only way to edit a statement written in pen is to scratch it out and add an amendment to it. In this world — there is no whiteout allowed. Even *if* someone had smuggled illegal whiteout into the network to use, you would be able to tell by the clumpy gross residue left behind. And the community would sound the alarm.

For those born after the era of pen & paper, know that whiteout got better prior to becoming almost obsolete. However, you could still always tell when it was used on a document. Don’t believe me? Ask your mom.

whiteout in real life — for the Gen Z’ers 😙

What’s in a name….

So we now know that a Decentralized Autonomous Organization (DAO) is a community with membership pegged to its unique crypto-token, that operates based on rules laid out via its smart contract on a blockchain network.

But let’s keep in mind that the term is Decentralized Autonomous Organization, which emphasizes the following:

• Decentralized — operations that exist for and by the organization, an ecosystem subject to its own inherent rules and economics
• Autonomous — freedom to govern by the community, within the community, made possible via smart contracts coded into blockchain and community voting protocols
• Organization — rules & governance centered around a mission

How are DAOs being used?

It’s not just computer nerds building a virtual treehouse and asking for a secret password to join…

It is a best-estimate that as of February 2022, there are 4,227 decentralized autonomous organizations. That is an increase from approximately 80 as of 2020 or a +5000% growth over a period of two years.

As of February 2022, the research platform DeepDAO (in alpha) estimates that the current DAO structured entities have $8.5 Billion in assets under management. So, yes — this is a thing.

Some examples include:

• Investment DAOs such as Flamingo which leverages capital from token sales to purchase valuable NFTs (digital art). The OrangeDAO brings together alumni of the Y-Combinator program as non-transferable token holders in a fund that will invest in web3 startups.
• Crowdfunding DAOs such as a Clock raise funds to cover the legal fees of infamous WikiLeaks Founder Julian Assange who is labeled as a criminal or activist (depending on who you ask). The now famously failed ConstitutionDAO pooled funds to attempt to purchase an original copy of the US founding document. Perhaps, Crypto Island DAO — crowdfunding to purchase a private island in the Bahamas during 2022— will have more success with their appealing drone footage of turquoise water.
• Games & Virtual Realty DAOs such as DecentralandDAO enable token-holding players to control the evolution of the game’s virtual realm.
• Worker Collective DAOs toted as potential “unions” of the future, like Braintrust which brings in-demand freelancers together and Friends with Benefits/FWB which is a best-practice swapping, ideation, & job sourcing hub for “digital creatives”.

Here to Stay?

Timing is everything…

“History suggests that the discussion about the social contract is most active in times of broad technological, economic, social, and political upheavals” ^4.

That is not a radical insight —no surprise when lives are turned upside down, individuals reconsider their relationships with each other and the world around them. It also does not take a PhD to recognize that the last two years have been laden with “upheavals” from the ongoing pandemic, international border closures, travel restrictions, massive protests, school closures, layoffs, inflation, supply chain shortages, & work from home’ing.

So is this the setting against which a new type of organization — born of blockchain — will emerge as a mainstream tool?

Maybe…

We will continue to explore the ever-evolving concept of a DAO, both as a champion and as a critic of the construct. We will explore the legal and financial structures of existing entities, poll the audience, and further ideate around the application of DAOs in the wild.

Teach Me DAO is a deep dive into the evolving landscape of decentralized autonomous organizations (DAOs). We’re learning as we go — all things Decentralized Autonomous Organizations (DAOs) including research, conversations, questions, & case studies 💥

Sources:

1. The Number of Active DAOs is up 660% since 2019 via Coin Telegraph
2. What are DAOs? Here’s what to know about the ‘next big trend’ in crypto via CNBC
3. DAOs are Novel but Not New via EXO Insight
4. The Social Contract in the 21st Century via McKinsey & Company
5. What is a DAO? via Aragon blog
6. DeepDAO Launches ‘Google for the DAO Ecosystem’ via Yahoo
7. The DeepDAO Dashboard via DeepDAO
8. Hundreds of Y Combinator Alumni Join Crypto Collective to Back Web3 Startups via TechCrunch
9. Explaining the Crypto in Cryptocurrency via Investopedia