With the continuous growth in the cryptocurrency space, new DeFi services emerged along with new special purpose vehicles. Decentralised Autonomous Organisation is one of them.
A Decentralised Autonomous Organisation (DAO) is an organisation that has no central authority. It could be anything from an investment firm to a social club. Decisions are made based on how much authority each member was given whether it is financial or based on agreement.
It is just a safer way to collaborate with people on the internet.
How do DAOs Work?
In general, when a DAO is launched it will be started through the creation of a smart content (programmed contract). Smart contract developers will set the processes and rules of this project. Once the contract is deployed it cannot be changed unless approved by the voting of the team (based on how the agreed governance is).
The second stage is the funding stage, participants will buy tokens or submit joining proposals in order to join the DAO.
Once it’s funded the decentralise organisation start executing on their plan.
Any changes on the DAO will be addressed through members proposals whether its changes in plan or just joining/exiting the project.
8 Traits that Make DAOs Work
Programmed Contract by the Community/Founders
The contacts and rules of the DAO are made by the core team of the community which provides a framework and plan of this organisation.
Once needs contracts are established, it is difficult to change its details only occur by having the stakeholders of the DAO agree through voting.
These programmed contracts can be connected to the blockchain which allows it to have a wide range of possibility and the freedom to interact with the blockchain applications through the network.
Governed by its Members
The DAO is led by the members themselves and they are the ones who takes the decisions.
Such decisions are typically taken through proposals that the members make and vote.
This sort of structure makes it unique in comparison to traditional organisations where decisions are taken from top to bottom.
It could be a way to motivate employees in the DAO because it will spark their interest more to be participants in the decision making process.
But let’s be realistic, at the end of the day whoever owns more of the tokens will have the ability to take the decisions regardless of who voted.
Has Different Types of Voting
There are different ways to vote in the DAO.
In most cases the holders of the tokens of the DAO are the parties who have the voting rights.
It will also means that the more amount they invested the more voting it carries.
Applicants to Vote
Another way for members to get shares as a voting power and ownership is through submitting a proposal to join the DAO.
This occur when it’s an effort-based DAO that requires the members to work and who are expected to generate ownership/voting right through their efforts.
Has a Shared Treasury
Another aspect in the DAO is that there is a shared treasury holding the funds in an address in the blockchain that is treated like a wallet.
The wallet information is usually public (unless the full DAO was made private) and can be viewed by anyone.
Members will be able to vote for distribution or decision making with the funds which can be automated by programming.
Transparent and Everything is Recorded
Having said that, every transaction taken in the blockchain is recorded, whether they are members votes or funding related votes.
This means that everything will be on the ledger allowing a possible entrant to the DAO to know how the decisions were made in this DAO, or a passive investor to know whether they want to stay or leave.
Easy Entry and Exit
Members can easily propose to stay or leave from the DAO which provides them with flexibility.
Legal Registration is on its Early Stages
OK let us cover something to be aware of, DAOs are not necessary recognised legal entities (YET).
Because of the way it is structured and its global presence meaning it is not operating in one country which is hard to legally work with.
For example, if an established business decided to make a contract with a DAO it will be difficult for them to legally protect themselves as its hard to identify the organisation origin and owners.
Has Security Risk
As with any technology hacking is a possibility. And when it comes to the DAO case, because the contracts are being prepared once and then deployed, this can cause a security threat if its core code was not programmed properly.
A solution would be to create a new smart contract, and then migrate the data associated with the old contract to it which is a hassle.
What can DAOs be used for?
There are many ways DAOs are used. Here are some examples.
The first to mention has to be investment, as people would want to make funds to invest.
It means the DAO creator could create any type of fund to invest. Mainly it will be on asset that accepts cryptocurrencies which are like cryptocurrencies portfolios, investing in DeFi services, NFTs, fractional NFTs….etc
An example of an investment DAO is MetaCartel Venture. This DAO mainly invest in other DAOs.
Any social activity can be done with the DAO. Maybe car fuel fund for group of friends who car pool to university. Or just fund to buy video games, going out..etc
For example a well known social DAO is called friends with benefits that connects the holders of their token $FWB.
Raising fund for charity can be done with DAOs too. The DAO could helps raising and moving funds across different countries. It will also facilitate the votes on which causes to donate to.
Businesses/Group of Service providers
DAO allows Businesses and team of freelancers to work together and run business operations.
For the case of freelancers, DAOs could reduce the responsibility weight of running a business because they will be working on project basis and have the option to leave.
This is an example of a business/service team called Raid Guild where they provide design, marketing and consultancy
DAOs are still on their early stages, but they have proven to have advantages over the traditional organisation through the voting structure and sense of working together.
But it could take time to recognise if such business model is sustainable for the long term and what are the ideal uses of the DAOs.
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