What are DAOs?

Understanding the new crypto trend

If you ask me for a definition I could tell you that a decentralized autonomous organization (DAO) is a group organized around a mission that is coordinated through a shared set of rules applied on a blockchain, but DAOs are more than that.

Interconnectivity between DAOs is the key

DAO vs Traditional companies

One of the main benefits of a DAO is that they are more transparent than traditional companies and that all actions and funding in the DAO are visible to anyone on the blockchain

This significantly reduces the risk of corruption and censorship. Listed companies are required to provide independently audited financial statements, but shareholders can only see the financial health of the organization in a snapshot over time.

Since the balance of a DAO exists on a public blockchain, it is completely transparent at all times, up to each transaction.

DAOs are generally more accessible globally and have lower barriers to entry than companies. Given the transparency and lower barriers to entry, there are likely to be lower switching costs for DAO members who disagree with the rules and actions.

DAOs that share a similar mission may need to compete for members and are encouraged to be as transparent as possible and not extract too much income from the group to attract the best members. DAOs may also need to evolve rapidly to meet member needs.

DAO examples

Perhaps the most notorious DAO was even?The DAO, which was launched now in April 2016 as a decentralized venture capital fund.?Members contributed ETH and received DAO tokens in return that they could use to vote on which projects the funds should be allocated to. It raised $ 150 million in ETH and was hacked with $ 60 million stolen.

An interesting part is that even though the DAO no longer exists, anyone can see all the transactions that occurred as it is on a public blockchain and this record will never go away. Unfortunately, the DAO hack temporarily left a negative impression or skepticism of the term DAO for many people, but DAOs are an extremely powerful form of organization and it didn’t take long to see a resurgence in DAO activity in the crypto space.

Crypto projects themselves can consider DAO if they are managed by a decentralized government where token holders can vote on the direction of the project or various parameter settings, rather than being determined solely by a centralized team.

For example,?MakerDAO?token holders building a decentralized stable coin can rule the system and vote on parameters such as fees charged.

Another example is?Curve DAO?which builds an Automated Market Maker (AMM) that generates fees and provides a revenue share for token holders who lock their tokens. The longer the Curve Token (CRV) is locked, the greater the amount of voting power and the rewards received for the DAO member.

Unlike traditional companies where profits are paid proportionally, this DAO is set in such a way that voting power and revenue share are weighted according to how long a token holder has been invested.

The assets of a DAO can be controlled by stakeholders directly through a token. Interested parties can have a pseudonym and be based anywhere in the world. These pseudonymous stakeholders can come together to allocate a DAO’s assets for anything, including hiring employees.

This is something that is happening today. The DAOs, consisting of hundreds of known members and pseudonyms, have legitimately hired employees regularly in the reputation of the community.

We have seen a series of DAOs created for financing investments or grants.?Moloch DAO?is a DAO that makes grants to promote the Ethereum ecosystem. They also allow people to withdraw funds in a “ragequit” if they do not agree with the general decisions of the DAO. MolochDAO contracts have been forked many times to create other DAOs.

MetaCartel Ventures?is a for-profit fund that invests in apps and is an early investor in many prominent crypto projects, including?Zapper?and Rai. Members consist of experienced builders in the crypto community.

Similarly,?LAO?is another DAO made up of Ethereum enthusiasts who have invested from the beginning in projects including Boardroom and Aavegotchi. MetaCartel Ventures and The LAO are examples of DAOs that have strong access to the flow of transactions in the crypto ecosystem on par with or sometimes even greater than many hedge funds, as the founders want to trade.

CONCLUSION

It is still too early to determine the possibilities that DAOs have. With this article, I wanted to give you a little introduction and talk about some of the DAOs that started all this.

Every week new projects are emerging and more and more NFT collections or play2earn games will end up becoming a DAO.

The governance by vote and the joint treasury offered by a DAO allows a multinational company to create it the same as a group of friends.

Author Bio

KAF?is a consultant and writer helping people get closer to NFTs, DAOs, Defi, and metaverse.

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