What is a DAO?
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Wondering what the term “DAO” means, Here is an in-depth look at how decentralized autonomous organizations work and what they mean for the future of Web3. DAO, as the name implies, is an acronym for “Decentralized Autonomous Organization”, an organization with no central authority in charge. Unlike traditional organizations today, where a Board of Directors and CEOs manage the organization. It is an entity structure in which token-holders participate in the management and decision-making of an entity. There is no central authority; instead, power is distributed across token holders who collectively cast votes.
In the case of a DAO, it’s the people who take matters into their own hands. People are the ones in charge, making the whole thing decentralized. Most DAOs will require users to stake or HODL a certain amount of tokens if they wish to vote and govern the network. Be aware that some DAOs with lower TVLs can be manipulated easier by crypto whales.
DAOs have built-in treasuries that no one can access without the group’s permission. Proposals and voting govern decisions to ensure that everyone in the organization has a voice and that everything happens transparently on-chain.
The following group of people makes up a DAO, they are:
To function, DAOs rely on smart contracts. The majority of the work is done by code. The people vote on something, and the code is changed as a result. The people’s collective vote determines the course of action. These smart contracts lay the groundwork for how the DAO will function. They are highly visible, verifiable, and publicly auditable, allowing any potential member to fully understand how the protocol will work at each stage.
Once these rules have been formally written onto the blockchain, the DAO must determine how to receive funding and how to bestow governance. Typically, this is accomplished through token issuance, in which the protocol sells tokens to raise funds and replenish the DAO treasury. Token holders receive voting rights in exchange for their fiat, which is usually proportional to their holdings. The DAO is ready for deployment once funding is completed. Once the code has been pushed into production, it can no longer be changed without a consensus reached through member voting. That is, no special authority has the authority to change the DAO’s rules; it is entirely up to the community of token holders to decide.
During the development of the DAO Platform, the core members of the organization must decide how an investor can enter the DAO. There are two approaches to this, which are as follows:
Token-based DAO: DAOs based on tokens are widely used in blockchains and protocols. One of the ultimate states of any protocol is decentralization. As a result, DAO integration is required because it can give the collective community control. Token holders can decide whether to change the parameters of blockchains or protocols that use the token-based DAO mechanism. These decisions will steer development.
Share-based DAO: Share-based DAO uses shares to represent voting rights to anyone who owns them. Contributors must first meet certain requirements to receive several shares. This means that even if they own the project token, they will not be able to obtain shares. As a result, a share-based DAO restricts the number of members who can vote. This simplifies all governance processes, but it is difficult to scale up and become more decentralized. Every project doesn’t need to be a token-based or share-based DAO.
Here are some reputable DAOs you can do some research on, or check out the articles on my website:
Yes, Decentralized Autonomous Organizations (DAO) have both pros and cons, some of which will be highlighted below.
DAOs have the potential to help democratize financial services by making them available to all people, regardless of financial situation.
This has the potential to democratize venture capital and other financial services. More sophisticated investment products, such as exchange-traded funds (ETFs) and artificial intelligence embedded in smart contracts, are likely to emerge as the technology matures.
So far, DAOs have been used for a variety of purposes, including investment, charity, fundraising, borrowing, and purchasing NFTs without the use of intermediaries. To give you an example, a DAO can accept donations from anyone in the world, and the members can decide how to spend the funds.
Another added value of a DAO and web3 is the ability to build community. DAOs represent “a powerful alignment engine to collapse the categories of user or buyer, company or team, and investor into a single group that’s aligned and part of a community that cares about a certain artifact or a certain experience.
We must note that DAOs play a very vital role in Cryptocurrency, making it more Decentralized. The DAO is open to all because it is built on the blockchain. Anyone with access to the code can examine it. As a result, the code should be thoroughly tested for vulnerabilities. Because DAOs have been hacked in the past. A public, decentralized, people-centered organization sounds exciting, as it adds a democratic element.
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