What Is A DAO? Decentralized Autonomous Organization Explained
Crypto Guides
Crypto Guides
May 25, 2023

What Is A DAO? Decentralized Autonomous Organization Explained

What Is A DAO? Decentralized Autonomous Organization Explained

No central leadership? A totally automated decision making process? No board of directors? It might sound crazy, but we’re describing the latest business organization, the DAO. Short for decentralized autonomous organization.

What Is A DAO?

A DAO, or decentralized autonomous organization, is an organization represented by rules encoded as a transparent computer program, controlled by the organization members, and not influenced by any central government. As the rules are embedded into code, no actual managers are necessary, this removes bureaucracy or hierarchy hurdles. For example, it may be an interest in rare NFTs or financial market forecasts. Because of this, it is often utilized to raise money for a certain cause.

A DAO differs from traditional business arrangements in at least two ways. Members of DAO’s seldom meet in person since they are mostly virtual organizations. Rules and goals are created using a digital ledger powered by blockchain, which is a permanent record of digital information that isn't overseen or regulated by any central authority.

To be successful while working on a project that involves money and finance, you must have a high level of trust in your teammates. The trouble, though, is that it's tough to put your faith in someone you've only ever spoken with over the internet. When utilizing DAOs, you no longer need to place your trust in anybody else in the group since the code of a DAO is transparent and verifiable by everyone. These new global cooperation coordination opportunities open up new worldwide collaboration and coordination opportunities.

How Does A DAO Work?

The smart contract that underpins a DAO act as its basis. The contract, which outlines the organization's rules and regulations, is where the group's money is kept. After a contract has gone live on Ethereum, it can only be modified by a majority vote. Anything else would invalidate the contract. The code will fail if someone tries to perform anything that is not permitted by the rules and logic of the code. As a result, no one will be able to utilize group money until they have received permission from the smart contract.

Consequently, decentralized autonomous organizations (DAOs) do not need a centralized authority. When a majority of the group votes in favor of a certain course of action, payments are issued automatically. It's a possibility since smart contracts on Ethereum are impervious to manipulation once they've been put into operation. Because the DAO's rules are available to the public, modifying the code will attract the public's attention.

To make this more accessible, here are some examples of how you may utilize a DAO:

  • A non-profit group

People from all around the world may join and give you gifts, and the group can decide how the money they get is spent.

  • Networks of freelancers working online

You may create a virtual cooperative of independent freelancers for items like office space and software subscriptions.

  • Dash

Many people use Dash as a form of digital cash. Dash is an example of a decentralized autonomous organization due to the way it is run and the way its budgeting system is established. If not already, more DAOs are likely to enter the market shortly.

DAO Features:

DAOs are decentralized organizations with no central authority or leadership instead of relying on the collective wisdom of the whole community to make choices. Because each DAO member has a say in how the organization is run and where it is headed in the future, some members have a stronger voice than others. When a person joins a DAO, they are required to acquire the group's bespoke crypto tokens. The greater the number of tokens a person holds, the greater the number of votes they are allowed to cast.

As a result of decentralized finance (DeFi), decentralized autonomous organizations (DAOs) are emerging that can take full advantage of this new technology. When it comes to financial applications and transactions, the word "DeFi" refers to those that are powered by blockchains. For starters, individuals are not required to go through a third-party intermediary such as a bank. The use of DeFi’s services makes it feasible to maintain a digital wallet, trade cryptocurrencies, and even make predictions. A single individual can utilize defi. DAOs, on the other hand, have the potential to bring together a far bigger community of cryptocurrency traders.

On the other hand, some people aren't quite ready to get on the DAO bandwagon just yet. The blockchain ecosystem is wild and unregulated, as anyone who has delved into the blockchain realm beyond the occasional Bitcoin trade will attest to. Even though there is a lot of excitement surrounding Defi and the DAO community, the sector is still a mess and vulnerable to scams. Based on the findings of a study conducted by blockchain analytics firm Elliptic, internet theft by hackers on the blockchain is expected to surpass $12 billion by 2021. Because the Defi industry is still in its infancy, it is quite simple for hackers to modify the code and steal from unwary users.

DAO Membership

A member of the DAO Membership in the DAO can take on several shapes and sizes. The membership of the DAO determines the DAO's voting procedures and other essential features of the organization. Crypto Tokens are used to determine membership. Depending on the token, it is typically totally permission-less in operation. On a decentralized market, the majority of these governance tokens may be traded without the need for a third party's permission. Others, such as establishing liquidity, necessitate 'proof-of-work' requirements. It makes no difference whether or not you have the token. This sort of mechanism is widely used to regulate decentralized protocols and/or the tokens themselves, among other things. For example, Maker-DAO's MKR coins are routinely traded on decentralized exchanges, and their value is increasing. Anyone can purchase a stake in the future of the Maker protocol by purchasing a stake in the future of the Maker protocol.

There are certain advantages to utilizing share-based DAOs over other types of DAOs. Participants in the DAO are required to submit a proposal and typically provide some sort of tribute in the form of coins or work to be considered for membership. Securities are a representation of ownership and the right to vote. If a member decides to quit the organization, they will receive a refund of the amount they contributed to the treasury. Charities, labor collectives, and investing clubs are all examples of organizations that make use of this phrase. Additionally, it can control protocols and tokens.

Charities, labor collectives, and investing clubs are all examples of organizations that make use of this phrase. Additionally, it can control protocols and tokens. MolochDAO is a crowdfunding site that specializes in Ethereum-based projects. Prospective members are required to present a written proposal as part of the application process, demonstrating their competence to make informed choices about grants and other applicants. You cannot just purchase admission to the DAO on the open market.

The Future Of DAO’s

What does the future hold for the DAO? As of mid-2020, the DAO has not returned in the way it was originally designed. A broader range of individuals is becoming increasingly interested in the notion of decentralized autonomous organizations, which is growing increasingly popular (DAOs). MakerDAO, the company that created the DAI stable coin, said that it would take over the Maker Foundation's activities in 2021 and dissolve by the end of the year, establishing it as a crypto industry icon. Despite the numerous unanswered questions and potential legal, security, and organizational structure difficulties, some experts and investors believe that this type of company could eventually climb to prominence, maybe even surpassing regular corporations.

Final Thoughts

So do think the DAO is a better business structure than current mechanisms? Are they really the future?