What are Decentralized Autonomous Organizations (DAOs)?
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The Blockchain network has completely changed the traditional financial system. With the development of the Bitcoin network, people can carry out trustless peer-to-peer transfers without any intermediates.
With the development of Ethereum, governance has become the new application of the Blockchain network. An organization can operate automatically without any centralized authorities like governments and companies. In the following article, we will introduce what exactly DAOs are.
What is a DAO?
Decentralized Autonomous Organizations (DAOs) are blockchain-based, self-governing organizations that allow participants to collaborate toward a specific goal on a trustless network. DAOs are popular for transparency, openness and decentralization, as well as its ability to work with self-executing smart contracts.
The rules of a DAO are set by its members, including how assets of the DAO are managed, communication methods, the voting system, how to govern, and project management…more and more.
Every DAO member is able to access the DAO’s activity records, especially the financial record, which creates a corruption-free environment for DAO’s members to carry out trustless cooperation to reach a specific goal. It is a common organizing form to develop De-Fi, Game-Fi, DApps and crypto or token projects.
What are DAOs used for?
Traditionally, it requires a large sum of money to operate an organization like a company to achieve a specific goal. In addition, it is not easy to get enough trust to own and manage a large sum of money from people you’ve never met on the internet.
But on the Blockchain network like Ethereum, you don’t need to trust anyone else in a DAO, as the DAO’s code is 100% transparent and verifiable by anyone. This opens up so many new opportunities for global collaboration and coordination.
Compared to traditional authorities like the government or company, DAO enjoys a greater transparency which discourages corruptive behaviors. Unlike the scandals of some famous start-ups, founders appropriate the company’s funds for personal use. Founders or members of a DAO may not easily do so.
Here is the reason why we need a DAO rather than a centralized authority:
Major types of DAO membership
There are 2 major types of DAO membership. Membership owners can determine the major matter of a DAO through voting.
Token-based membership
Usually, the DAO’s toke owner enjoys the right of governance and voting. The way of getting the token is mainly from trading on exchanges. Others must be earned through providing liquidity or some other ‘proof-of-work’.
Example: MakerDAO's token MKR is widely available on Bitget. So anyone can buy into having voting power on the Maker protocol's future.
Share-based membership
The governance of share-based membership is relatively centralized but still open. Shares represent direct voting power and ownership. The more shares owned, the greater voting rights in a DAO. It increases the flexibility of a DAO.
Example: MolochDAO is focused on funding Ethereum projects. A proposal is required if you want to join MolochDAO to see whether your skill or expertise is fit for the DAO. You can’t participate by buying its tokens.
How does a DAO work?
Smart contracts are fundamental to a DAO, which is actually a computer program which executes automatically if the criteria are fulfilled.
The contract defines the rules of a DAO and manages the capital of it. Except by voting, no one can change the rules. It does not require any centralized authorities or third parties to monitor the operation.
All the financial records like expenditure need to be verified by DAO’s members. Once the decision is made, the payment will be settled automatically due to the smart contract function.
Ethereum is one of the most popular platforms for DAO, including DApps, De-Fi protocol, Game-Fi and tokens. As it is the second largest Blockchain network. Its crypto ETH’s value is just behind Bitcoin. It has established enough credibility to gain trust from different parties.
What are some examples of DAOs?
De-Fi
SushiSwap and Uniswap (UNI) are popular Ethereum-based decentralized exchanges (DEX) that allow users to swap tokens.
MakerDAO(DAI) is a software that maintains a stablecoin.
Game-Fi
The famous DAOs in Game-Fi are Decentraland, AXS tokens, The Sandbox.
Social DAOs
Friends With Benefits and Soho House are the DAO for social purposes and consist of creators from various industries.
Service Providing
Aragon is a DAO providing open-source infrastructures to help users build a DAO from scratch.
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