DAO - Decentralized Autonomous Organization.

If this is the first time that you reach my newsletter and would like to deepen other concepts, or if you feel that you are missing something, I invite you to read my previous posts below.

1. What is Money?

2.?What is Bitcoin?

3. Bitcoin mining .

4.?Blockchain.

5.?Wallets .

6.?Ethereum – Smart Contracts

7.?Dapps

8. Tokenomics

As always, if you?like?what you read, feel free to?share?it with your friends, colleagues, and family so they can learn too.

We’ll take all the things that we learned and understand one of the most common functionality changes that it brings to the ecosystem, which is the ability to create DAOs. What is a DAO? Well, a decentralized autonomous organization is a completely new way of running a business that uses smart contracts and blockchain technology to operate.?

Why do we need them and how are they different from the current organizational structures that we know?

Let’s start with the first DAO that we learned about, Bitcoin. Already in place for 13 years, it is where it all began and runs without any human or external interaction nonstop, it is reliable and immutable. Ethereum is the second DAO that was built and with it, we can create smart contracts, so we write a code to build a smart contract that will be deployed into the blockchain to be executed. Regular organizations usually have a hierarchy in a form or pyramid with a board of directors, executives, and managers, all of them make the decisions behind closed doors to shape the organization as they wish, but are all the voices heard? And here is the Why: In a DAO those who are at the bottom of the pyramid can be heard too because a solution or an idea can come from everyone. OK, but how is this operated? Code is law, and the code that is written in a smart contract that lies inside a blockchain gives the framework of a DAO′s governance. Knowing that is immutable, and the code can only be changed by the majority of the votes of the community, this community is ruled by all the members and not only by a few as in regular organizations; everyone can propose changes that after a screening according to the governance in place are voted under certain rules - the type of vote, time to vote, the weight of each vote-.?

How do we start a DAO? A team gathers together to form a community under a certain common goal, they lay out the governance and the tokenomics of the ecosystem. both of which will be the operational framework that rules the DAO using the smart contract as a judge. The code is written, deployed into the blockchain in a form of a smart contract - I know that I repeat myself, but the idea is that this will be recorded into your ROM memory in your brain-, all the DAO share that they are transparent, everything is visible and written into a white paper so everyone can understand the details from code to governance, making a system more visible, public and verifiable. Once you fully understand it (at least this is my recommendation), you can join and support it, and by doing that, you agree to the code in place that rules the DAO. To provide voting power, tokens were distributed according to the tokenomics percentages that were decided, and if you are not in the founding team, you can purchase tokens in your favorite exchange; the weight of your vote will depend on the voting power and the kind of token in your pocket. If you are lucky and belong to the starting community as an early adopter, you may receive an airdrop.?

Because of what I have mentioned, DAOs represent an innovative way to manage an organization with the help of these technologies, redefining how different parts cooperate, being automatically managed, transparent and efficient.?

To be a DAO, an organization needs the following four pillars.

1. A mechanism that guarantees the permanent autonomous functioning executable under certain parameters predefined in a smart contract that will act as a judge at a predetermined moment, always remember that Code is Law.?
2. Establish a consensus protocol to make sure and guarantee that the decisions are taken inside the DAO and not elsewhere.?
3. Tokenomics as a monetary system and exchange mechanism, to maintain the healthy sustainability of the DAO. Given voting power to the community on key decisions that are shaping the future of that DAO enables access to the decision and influence, but you also need to purchase tokens. These tokens according to a project also give an economic reward as their value increases.?
4. The last mechanism is to ensure that everything that happens is registered in the blockchain, so it can be later accessed by anyone at any time, always with the maximum-security measures that the blockchain gives.?

Like in everything in life, there are pros and cons to the system due to its governance ruled by a programmed code. Let’s review them:

Pros:

1. There is no hierarchy in the creation of the organization, making it easy to form. All the members of the DAO can come up with ideas and vote for them when the time comes, decentralizing the entire system.
2. It is a completely transparent ecosystem due to the blockchain technology that registered every move in it making it public, including the code in which the smart contracts were written.
3. Part of the decentralization is that there is no geographic location, anyone can access it from anywhere; this opens opportunities to people that could not have access before.
4. It is super easy to form: you only need a code to be deployed via a smart contract to the blockchain, then it starts to run. Saving time, money, and resources that a typical organization encounters.?

Cons:

1. Programming a smart contract is not something that anyone can do, you need certain skills. All the decisions need to be taken ahead of time, thinking of all the possibilities that the members laid out in the governance to automate the entire ecosystem. In the case that an error in the smart contract is made, it can cause devastating consequences to the DAO since its entire economic system is at risk, and we’re talking about losing millions of dollars that the community trusted.?
2. Due to the lack of a regulatory system worldwide respecting the blockchain technology, sometimes the DAOs face different challenges because as we mentioned before, it has no geographic place and can be accessed from any part anonymously.

To overcome the con presented in point 1, some companies have built a no-code system to make it even easier to make a DAO, for example, Colony and Aragon .?

Do you want to build your DAO? Here is a YouTube video on how to do it with the tools that I gave you before.

Aragon:

Colony

Before we end today, I'll like to leave the main types of DAOs, in the next article to expand with real-life examples!

1. Protocol DAOs
2. Grant DAOs
3. Philanthropy DAOs
4. Social DAOs
5. Collector DAOs
6. Venture DAOs
7. Media DAOs
8. SubDAOs

See you next week !!

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