A DAO, which stands for decentralized autonomous organization, is a complex way of a group of people adhering upon a set of rules for a shared purpose. Individuals apart of a DAO buy into the DAO by purchasing the associated token. The tokens used are only used for the purpose of the group and are a form of cryptocurrency. All members who have bought in share a stake in the organization and get to control it together.
Being decentralized, DAO’s have the benefit of not being controlled by one entity or group of executives who control all decisions. Everyone who is involved in a DAO work together. Members of the DAO get to propose ideas for the betterment of the organization. Everyone in the group have the ability to vote on proposed ideas. If the vote is passed by a 2/3 ruling the proposal is enacted.
How a DAO usually works:
- A member of the DAO puts out a proposal.
- All the members of the DAO vote on that proposal.
- If the proposal gets a majority of the votes, its then adopted.
How Voting works:
Each DAO has a set of rules that need to be maintained in order to be a member. When someone is buying into a DAO the rules are set up clearly. When the individual buys in, they are agreeing to follow the DAO’s rules. If someone breaks the rules the system will know and will automatically lock the member out. Locking their funds as well. Due to the advancements in the system, it can operate to guarantee each person’s trust towards the organization.
Every person in the group gets the opportunity to propose new ideas to the group and to vote. Even though every person in the group has shared equity, not every person has the same number of tokens. The amount of tokens changes how much voting power you have. The more tokens you have the more voting power. An example of this is the number of house seats per population numbers in congress. This system does not get rid of the hierarchal dilemma of a top-down business. It’s an improvement though and now everyone gets to vote and propose ideas for the same common achievement of having a stronger organization.
The components that make up a DAO:
- Blockchain technology: this is used to keep a ledger, used to access your bank when you purchase tokens
- DAO Tokens: This is what members buy in order to be a part of the organization, voting on decisions, governance, and allow users to invest in your company.
- DAO Frameworks: are the framework to launch the DAOs. Popular frameworks include: Aragon, OpenLaw, Colony, and Syndicate.
- DAO Treasury: This is what helps you to manage and secure your funds.
- Governance tools: This is what helps with the management for the members and creates the voting framework.
Different types of DAOs
DAOs have many different types which all serve as a governance mechanism. All are used to ensure the important notions of a community are being implemented for the betterment of everyone involved.
Protocol DAO: Are designed to govern protocols. This includes borrowing and lending applications, decentralized exchanges, and any other type of dapp
Grant DAO: Strategically deploy capital assets through helping to facilitate donations, provide flexibility in funding, designed for nonprofit donations and charitable projects
Philanthropy DAO: These types support different social responsibilities around a shared purpose to create an impact on web3
Social DAO: This is meant to bring people together who have similar interests such as artists, builders, and creators.
Collector DAO: are for people who want to go in together on expensive collectables and invest together
Investment DAO: Is a pool to invest with others for early projects such as web3 startup, off chain investments, and access portfolios that are not available in traditional finance.
Media DAO: is a community type to reinvest in media platforms where content is all driven by the community.
This picture here made by @Cooopahtroopa on twitter shows the landscape of DAOs really well.
Pros
- Equal stakes: Everyone has the opportunity to shape the organization. Anyone who is involved gets to propose ideas to be voted on. This is a great way for everyone to be involved and to be heard. Many organizations have a leader, and that sole person is the decision maker. DAOs offer everyone to input ideas and have more of a role in the way the organization operates.
- Neutral environment: As everyone is making choices and votes on them it take away the need for negativity by having those who are high up come up with all decisions. This makes Everyone feel included in the organization’s choices.
- Accountability: Due to the transparency from blockchain tech, every member of the DAO is now accountable.
- Autonomous: with the implementation of autonomous structures the issue of top-down structures are resolved. This eliminates power plays as everyone now works together on the decision-making. All voting is done online making the voting process easier for groups. There are multiple online organizations, so it’s not practical to have everyone vote when they are spread out across the world.
Cons
- Voting: as everything is so heavily reliant on voting and voting works by how many coins you have; it doesn’t get rid of hierarchy entirely.
- Regulatory: with how DAOs are currently, legality is complex. As everyone has a stake in the organization, everyone owns a portion. This gets really complex in when it comes to legal issues. For example if a member needs to be removed for violating their agreement, it’s a complex issue to resolve.
In summary, DAOs offer organizations new advancements as the world is becoming more digital. DAOs will play an important role in how we coordinate, invest, and work together. With the new generation of the internet and the trends we are currently seeing of online groups, and working remote, there are many use cases for DAOs. There are still advancements we need to see in DAOs to make them a viable solution. But overall DAOs offer us with many new possibilities, and we look forward to seeing the mass adoption of DAOs.