With the crypto boom of 2021, many blockchain enthusiasts and cryptocurrency traders believe that decentralized autonomous organizations (DAOs) could be the future of typical organizations and cultural communities. Tracheopteryx, a noted DAO air traffic controller and Yearn.Finance core contributor commented on the future of decentralized finance (DeFi), non-fungible tokens (NFTs) and DAOs—the backbone of the virtual currency sector.
“The way I’ve been thinking about it, if you look at DeFi, it’s a bet on the future of finance. NFTs are a bet on… the future of the property,” he continued, “But, DAOs are a bet on the future of the human organization itself, which is an even bigger thing.” So, the way we complete financial transactions is changing, but where do these DAOs fit in?
What Are Decentralized Autonomous Organizations (DAOs)?
DAOs are internet-native organizations with no centralized authority. Rather, they have a built-in treasury that can only be accessed by approval of the community, meaning that a community governs them without hierarchical management. Therefore, DAOs are managed from the bottom up, and decisions are made based on a precise set of rules implemented on a smart contract in a blockchain, usually Ethereum. This means the financial institution allows access to the cryptocurrency market based on rules not a “come one, come all” approach.
Therefore, the DAO’s users are the most important element. If the community — the group of token holders spread around the world — desires to change an aspect of the DAO, they have to organize voting, contribute more money, or complete other tasks. However, this doesn’t make every organization with governance abilities a “DAO,” because another must-have quality is being autonomous, or having the ability to control its own affairs.
The term DAO might have a negative connotation to those who have witnessed the first DAO hack in 2016. The DAO was one of the largest crowdfunding DeFi projects, raising about $150 million in 3 weeks. Its developers soon encountered a bug in The DAO’s smart contracts, allowing an attacker to siphon assets from The DAO.
Some believe that the Bitcoin (BTC) network is an excellent example of DAO. Although Bitcoin’s network scales via the power of its community, most of its community members have never met each other. BTC miners and nodes have to signal support instead of having a structured management mechanism, also known as a semi-autonomous structure. For these reasons, BTC wouldn’t be considered as a DAO.
What Can DAOs Do?
DAOs are doing what the Dot-com bubble did to businesses in the 90s when many companies boomed thanks to the new technology of the internet. Mirroring then, DAOs are propelling DeFi and the crypto world forward in terms of massive growth and innovation.
DAOs can be created for almost any purpose thanks to the support of the community members. Some of the use cases for DAOs are:
- Governance protocols for yield optimizers and lending platforms such as Uniswap and Aave.
- As investment and grants that operate with pooled capital or fund new innovative projects such as MetaCartel, Gitcoin and Moloch. Unlike hierarchical organizations, they rally with the token holders on the investments to be made such as new projects or upgrades.
- As a collector, it can pool funds to purchase anything from a piece of digital art to real-life antiques like the US Constitution.
- It can control transaction fees and drive adoption instead of focusing only on the almighty dollar.
- Social DAOs, also called community clubs, let users gain membership by purchasing a certain amount of tokens.
In addition, DAOs can operate with different kinds of memberships. Token-based memberships are usually fully permissionless, allowing governance tokens — tokens that are used solely for platform utility and voting — to be traded without needing to ask for permission on a decentralized exchange (DEX). On the other hand, share-based memberships are limited to some rules engraved into the smart contract, meaning that members can’t leave the DAO with their proportionate share of the treasury.
Examples of DAOs on Ethereum’s Network
- PleasrDAO: A collective DAO that invests in high-value NFTs. It purchased a $5.5 million NFT from Edward Snowden and the only copy of Wu-Tang Clan’s album, “Once Upon A Time In Shaolin'' for $4 million.
- ConsitutionDAO: It was created to buy a rare copy of the United States Constitution by gathering over $47 million. Unluckily, the DAO lost the bid at Sotheby’s.
- Uniswap: A DeFi protocol that is used to exchange altcoins. Their innovative combination of the automated market maker (AMM) and liquidity pool concept is praised by many. Uniswap is the largest DAO and second-largest DEX on Ethereum.
- MetaCartel Ventures: A for-profit investment DAO to fund creative projects that are building new applications on top of Ethereum.
- Gitcoin DAO: A grant DAO designed to fund and foster promising open source projects within the DeFi ecosystem. They have already funded more than $49.8 million to well above 300,000 developers.
How to Make a DAO
Although the whole concept of creating a DAO seems hard for a non-techie crypto native, platforms like Aragon, Colony, District0x, and DAOhaus, among others, will let a user create a DAO almost hassle-free. These platforms often encourage individuals to go for a DAO because, as Colony stated, “politics are at play,” meaning that the higher-ups in a normal company could take credit for the work from those under them.
Moreover, Colony’s founders noted that “Instead of being monitored and evaluated by someone higher up the hierarchy, any individual’s merit within a colony [DAO] is calculated through systematic peer review of completed work, and represented numerically on the blockchain.”
These platforms let you easily set up company ownership, issue tokens, raise funds and create rules like voting rights, membership type, or even the ballot percentage needed for a movement or project to be approved.
Moreover, DAOstack works on bigger projects. They are developing “WordPress for DAOs.” Imagine being able to use and re-use a couple of governance plugins depending on the type of DAO that you’re trying to create — nearly everyone could create a DAO with little hassle.
Is Joining a DAO Worth It?
DAOs can be an easy method to change the hierarchical governance. Instead of a board of directors, a community can vote on decisions for the DAO. Although Wyoming gave DAOs the same legal power as limited liability companies (LLCs), they are still unrecognized on a national level, making it harder for them to be widely adopted.
Mark Cuban, the billionaire investor, shared his idea of DAOs on Twitter: “The future of corporations could be very different as DAOs take on legacy businesses.” He went on to state, “Entrepreneurs that enable DAOs can make money. If the community excels at governance, everyone shares in the upside.” At the same time, federal securities laws will begin to change and you must keep an eye on how this will change the manner in which DAOs are run.
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