What is a DAO?
For over six months, Vladimir Zhuravlev, head of the Waves Association’s Membership Working Group, has been studying existing DAO models and developing a DAO suitable for the association’s goals. In this article, he takes a step back to answer the basic question of what a DAO is?
A decentralized autonomous organization (DAO) is an interaction model for a community, under which it operates autonomously, based on rules stipulated as code in a smart contract. What is key here is to understand at what moment an entity that unites users and a smart contract could be called a DAO. I would single out three major characteristics of a DAO:
- The existence of a group of individuals who have the right to make decisions and act independently of each other in pursuit of a single goal (organization).
- This group exists autonomously, meaning that there is no central authority that could have an impact on the lineup of the group or its members’ behavior.
- Decision making rules are set in software protected from its owner’s interference — a smart contract.
The above principles facilitate the creation of a community, each of whose members knows precisely, what their weight in decision making is and is sure that no one could prevent them from casting their vote. In turn, decisions made by community voting are highly objective as they take each member’s expertise into account.
This approach is referred to as “wisdom of the crowd” and is based on the assumption that a group of individuals is capable of making the best decisions as long as its members can hear each other and accept other members’ opinions. A DAO facilitates this kind of interaction.
I think DAO essence and use cases are best explained on the example of The DAO, an earlier product launched in the Ethereum network back in 2016. The Stock.it team introduced a concept of a DAO for running a venture fund. The idea was that The DAO would operate autonomously, managed by DAO token holders. The latter would be represented by Curators, selected by voting. The Curators’ job would be the selection of and providing funding to Contractors — individuals applying for support of their projects and ideas.
It was assumed that DAO holders would be able to manage the venture fund in the most efficient way by expressing their collective opinion over a smart contract.
That story didn’t have a happy ending because of a controversial hack of The DAO: hackers were able to find vulnerabilities in the smart contract and steal substantial funds. But, despite that, the DAO concept gained popularity and is currently used in other projects, whose teams were able to create products without critical vulnerabilities and to prove that the DAO model is still vital.
Currently, a number of projects are exploring the DAO concept, including Aragon (for which 2020 was a breakthrough year), Colony and Moloch DAO. Earlier, I analyzed existing DAO models and made suggestions about aspects that could be improved in next-gen DAO models.
The history of DAO evolution proves that this concept can be successfully used for improving the efficiency of various entities. Thus, the Waves DAO should come as a natural step in the Waves Association’s development, enabling it to take advantage of decentralization, transparency and reliability to facilitate effective operation of the association and entire Waves ecosystem.
