Welcome to DAOs Part II
Hi, it’s good to have you back!
And in case you are new here, I highly recommend to check out our first blog post about DAOs: What is a DAO?
In our previous article we discussed the most important aspects of DAOs, but we only scratched the surface of what they really are. Today, we will go even deeper down the rabbit hole and explore how DAOs work.
Here is a brief summary of what you will find in the blog:
- What is a token?
- What is the token used for in DAOs?
- How are the tokens distributed in DAOs?
- How do I execute my voting power?
- What are the tools to manage DAOs?
- A sum-up of the blog
There are many technical components that come into creating a DAO. However, there is one that I would definitely consider as the most important: the token.
Fine, but what is that?
Let’s avoid the whole technical, code-based mumbo-jumbo and explain it as simply as humanly possible.
A token is a virtual badge. It carries a value and on top of that some of them allow its owner to interact with the blockchain world. So, one could say, it is a virtual, new kind of value-carrier that can be applied to a blockchain-based platform or turned (“burned”) into money.
So, some tokens can be used plainly for investing. However, in this article we will be focusing on specific tokens — the governance tokens.
What is the token used for in DAOs?
Tokens are amazing — they can actually give you the power to make a change!
To make this easier to visualise, let’s compare the governance token to an American dollar. An American dollar can be traded in any shop within the USA borders. On top of that, only USA can release official American dollars.
Imagine that instead of being in the USA, you are in a world created by a DAO.
You need the right currency to interact with this world. In order to do that, you would use your governance tokens provided only by the organisation you belong to. Therefore, you cannot use any token to vote in any DAO. For example, if you own an Ocean Token you can only use it for voting in Ocean Protocol.
Let’s put theory into reality. Here are three examples of the most known governance tokens out there. I encourage you to check out their websites.
How are the votes distributed in DAOs?
You might think: but what if everybody owns so many tokens that the voting basically loses its sense?
This will not happen. Tokens cannot be collected like daisies on a field. There are two most common ways to distribute tokens properly.
1Some DAOs simply sell their tokens. So, the more money you spend on the tokens the higher is your voting power.
2Or, which is my go-to choice, you gain your tokens based on how engaged you are with the DAO project. It means that the more you are invested in working for your organisation, the more tokens you get awarded with. The ones who are trying the hardest to make a change, get the proper compensation for their commitment. I think this is an amazing solution. It brings fairness into the organisation.
There is, however, countless possibilities of how it could be distributed and it only depends on what a certain organisation needs.
How do I execute my voting power?
The voting power is used in so-called proposals.
A proposal in a DAO is a digital form. It simply creates a layout for explaining what the voting is about and space, where members can leave their vote or leave a comment.
Every DAO establishes their own features of the proposals. Some DAOs want to use proposals for resolving *tricky cases*. Others, just like Ocean Protocol, use it only for distributing funds to certain projects.
The only limit, of how proposals should be executed, is your imagination.
There is even this one example of a legendary DAO — The DAO*- that has voted to close down the whole organisation (spoiler alert: consequently they shut down the organisation). So be careful what you wish - and vote - for…
*link to the story behind this peculiar case study attached
What are the tools to manage DAOs?
To be able to execute such a complex process, there must be proper technical support provided.
Since this article is dedicated mostly to the governing processes such as token voting, I am going to focus on that area. However, if you are curious and want to read more in detail about this topic I highly recommend to have a look at this article: Organization Legos: The State of DAO Tooling.
There are special platforms whose sole purpose is to make our lives easier by providing us with proper voting tools. They are easily accessible online and most of them as well as the organisations using them are visible to everybody.
Each is slightly different regarding the user experience but they all have the following things in common:
- They enable the execution of voting processes in DAOs.
- They provide an interface for creating and participating in proposals.
- They offer space for discussion.
- You can only use them if you are an owner of a crypto wallet.
Here is a list of the well known DAO voting tools currently dominating the market. Feel free to look around and explore.
And finally, the last key aspect of voting execution in DAOs are the earlier mentioned crypto wallets.
As mysterious as they may seem, their main purpose is simply verifying your identity and keeping your tokens safe and sound, ready to be used on a blockchain-based platform.
Let me visualise it for you based on what you already came across online. You want to write your CV and need to set up an account on Canva. Once you are on the platform, there are two options available for you.
- Set up an account directly on Canva
- Log in via Google, Facebook, Microsoft etc.
Crypto wallets work like the second option.
By setting up a crypto wallet, you will be able to log into blockchain-based platforms without having to create another account. On top of that, you are fully anonymous. No one is going to see your name, just a super long code made of numbers, big and small letters.
Only the people that you inform about this code will be able to acknowledge it is you.
In case you want to set up a wallet, these are the most commonly used crypto wallets that I could recommend to you.
Let’s shortly sum up all the components needed to rock as a DAO user.
- Tokens are the means of action.
- There is software specifically built to create proposals and to convert the token into voting power.
- Crypto wallets verify you and enable the conversion of tokens into votes.
Of course that is just a piece of what DAOs are as a whole.
These are still companies with employees and lots of work to do. However, they use the advantage of modern web3 technology to provide people with an alternative to a typical 9–5 corporate job that struggles to implement democracy into business life.
In the next blog we will discuss the benefits and challenges that DAOs need to overcome, so stay tuned and in the meantime…
…feel welcome to jump on our Discord-spaceship to join the UFOstart community!🚀
Thank you so much for reading our blog. Remember to stay tuned and stay safe!
Your UFOstart Team
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