Decentralized Autonomous Organizations (DAOs) have been gaining traction in recent years as a new way of organizing and governing groups, communities, and even businesses. At its core, a DAO is a blockchain-based entity that operates according to predefined rules encoded in smart contracts without the need for intermediaries or central authorities. This means that decisions are made collectively by members of the organization, who can participate in governance and decision-making processes using cryptocurrencies and other digital tools.
The rise of DAOs has sparked excitement among proponents of decentralization and blockchain technology, who see them as a way to democratize access to resources, knowledge, and economic opportunities. However, DAOs are still largely uncharted territory, and there are many questions. In this article, we will explore what DAOs are, how they work, and some examples of successful DAOs in action. We will also discuss the advantages of DAOs and look at some potential use cases for this emerging technology.
How was DAO Founded?
DAOs have their roots in the blockchain and cryptocurrency space. The concept of a decentralized organization that operates through smart contracts on a blockchain was first proposed by Vitalik Buterin, one of the co-founders of Ethereum, in 2013. However, it wasn't until 2016 that the first DAO, "The DAO," was launched.
In May 2016, a few individuals from the Ethereum community led by Ethereum co-founder Anthony Di Iorio introduced The DAO, also known as Genesis DAO, designed as a smart contract on the Ethereum blockchain. With the goal of creating a decentralized venture capital fund, allowing anyone to invest in projects built on the Ethereum platform. While the Slock.It team had created the open-source coding framework, and it was the Ethereum community members who deployed it under the name "The DAO." During the creation period, anyone could send Ether to a specific wallet address and receive DAO tokens on a 1–100 scale in return. The DAO raised over $150 million worth of Ether (ETH) from thousands of investors, making it one of the largest crowdfunding campaigns in history at the time.
Why is DAO needed in the modern digital era?
DAOs, which are internet-based organizations, have some advantages over traditional organizations. One important advantage is that trust depends not solely on individuals but on the code itself. In traditional organizations, trust is needed in the people running the organization, especially from investors. However, with DAOs, only the code needs to be trusted, and it can be publicly accessed and thoroughly tested before it is launched. Once a DAO is launched, the community must approve any action it takes and is open for everyone to see.
To understand better, below is the comparison chart between a DAO and a Traditional Organization.
DAO vs Traditional Organization
Decentralized, based on the consensus of members through smart contracts
Centralized, with decision-making authority held by executives or managers
Flat, decentralized hierarchy
Hierarchical, with a clear chain of command
Open to anyone who meets certain criteria, such as owning a specific cryptocurrency.
Closed, with membership limited to those invited or hired
Transparent, publicly visible, and immutable
Opaque, with little transparency into decision-making processes
Crowdfunded, raised through token sales or other mechanisms
Funded through equity investment, loans, or grants
Token-based incentives for participants, such as voting rights or dividends
Salaries, bonuses, and stock options for employees
Focuses on achieving a common goal or mission rather than maximizing profits
Primarily focused on generating profits for shareholders
Can adapt quickly to changing conditions due to decentralized decision-making
Slower to adapt due to the centralized decision-making process
Publicly transparent and accountable, with all actions recorded on the blockchain
Less transparent, with limited accountability
Secure, with data stored on a distributed ledger (blockchain)
Vulnerable to data breaches and cyber attacks
Minimal intermediaries, with most interactions happening directly on the blockchain
Multiple intermediaries, such as lawyers, brokers, and banks
Lower costs due to lack of intermediaries and automation of processes
Higher costs due to intermediaries and manual processes
Fast, with transactions settled in real-time
Slow, with settlement times ranging from days to weeks
Types of DAOs that changing the way organization works
There are several types of DAOs in the web3 ecosystem. While new types of DAOs are being developed regularly, here are some of the most common categories which are working in different sectors:
Investment and Venture DAOs: These DAOs pool capital to invest in early-stage web3 startups, protocols, and off-chain investments. They provide opportunities for individuals to participate in investment activities traditionally limited to venture capitalists and institutional investors.
Media DAOs: Media DAOs aim to reinvent traditional media platforms by creating community-driven content. They enable individuals to actively earn a share of the decentralized organization's profit by contributing to the content creation process.
Collector DAOs: Collector DAOs focus on establishing ownership of non-fungible tokens (NFTs) and supporting artists who create art using NFTs. They enable fractional or complete ownership of art and content.
Operating System DAOs: These are standalone platforms organizations can use to create their own DAOs. Examples include Colony, which provides an operating system for creating and managing DAOs.
Service DAOs: Service DAOs offer specific services or provisions to individuals or agencies. For example, MetaverseDAO offers talent hunting and supports acquisition models.
Social DAOs: Social DAOs are collaboration platforms for social networking in the crypto space. They provide a digital democracy where everyone's opinions are heard, and people can share common interests.
Protocol DAOs: Protocol DAOs are focused on implementing and modifying protocols. They use a DAO governance token as a voting indicator for making decisions related to the protocol. Examples of protocol DAOs include Yearn, Uniswap, and Curve.
What are the Key Advantages of DAO
DAOs offer many advantages, and we can expect these advantages to grow for specific purposes as time goes on. As blockchain technology becomes easier to use, more people can take part in DAOs without needing advanced technical skills. Now, let's explore some of these benefits.
Decentralization and Transparency: DAOs are built on blockchain technology, which enables decentralized decision-making and transparent governance. This means that all members of the DAO have equal voting rights and can participate in the decision-making process. Members can suggest new regulations, propose amendments, and vote on proposals using governance tokens.
Accessibility and Inclusivity: DAOs allow anyone with an internet connection to participate, regardless of their location or background. This opens up opportunities for individuals without access to traditional organizational structures or investment opportunities. DAOs can remove potential biases around gender, ethnicity, socio-economic status, sexual orientation, nationality, and other personal identifiers, leading to more inclusive and meritocratic communities.
Autonomous and Self-Managed: DAOs are designed to be autonomous and self-managed organizations. They operate based on a set of rules encoded in a smart contract, eliminating the need for traditional hierarchies and intermediaries in decision-making and management. This allows for greater efficiency and agility in executing tasks and making decisions.
Community Ownership and Governance: DAOs give community members a sense of ownership and control over the organization. Each member typically holds governance tokens that grant them voting rights and influence over the direction of the DAO. This fosters a more democratic and participatory decision-making process where the community can submit, discuss, and vote on proposals.
Innovation and Experimentation: DAOs provide an environment for experimentation and innovation. With the ability to propose and vote on new features and changes, DAOs can quickly adapt and evolve based on the needs and preferences of the community. This flexibility allows for rapid innovation and the exploration of new ideas and projects.
Financial Incentives and Rewards: DAOs often have mechanisms to incentivize and reward community members for their contributions. For example, in some DAOs, members can earn tokens or other forms of value in exchange for their work or participation. This aligns the interests of the community members with the success of the DAO and can attract talented individuals to contribute to the organization.
How to Get into DAO?
Once you have identified a project that interests you, there are various ways to participate actively. It's important to note that not all DAOs have the same objectives, so the first step is to understand the core function of each DAO. For DAOs that focus on technical governance, it is crucial to grasp the voting rights granted to token holders and the types of proposals at stake, for example, projects like Uniswap.
In other protocols like Compound, token holders can vote on allocating these fees towards bug fixes and system upgrades. This approach also provides opportunities for freelancers and those genuinely interested in the project to join and receive compensation for their work through DAO grant-funded projects.
These projects are regularly posted on the DAO's Discord server. On the other hand, some DAOs concentrate less on technical governance and more on treasury pooling and allocation. An example is SharkDAO. By pooling their assets, individuals can leverage the collective power of the DAO.
One notable aspect of DAOs is their transparency. The details of each proposal are easily accessible, voting history is continuously recorded, and even the voting records of specific token holders can be observed. DAOs frequently involve the community in building innovative ideas through grant-funded projects. Individuals with an entrepreneurial mindset can freely submit proposals to contribute to the future development of a protocol. There are different levels of participation in DAOs. You can choose to hold governance tokens and be attentive to Snapshot votes. You can join the DAO's Discord and engage in actual projects where you will be compensated for your contributions.
Some Best DAOs to Checkout
Uniswap (UNI): Uniswap is the largest decentralized exchange (DEX) in terms of trading volume and the top-ranked DAO by the amount held in treasury.
MakerDAO: A decentralized autonomous organization that operates the Maker protocol, allowing users to generate the stablecoin DAI by locking up collateral in other cryptocurrencies.
Friends With Benefits DAO: Friends With Benefits is a social DAO where top Web 3.0 influencers congregate. You need to buy some FWB DAO crypto tokens to join this community. The more of these you possess, the more you can do.
Aragon: Aragon allows others to establish their own DAO. It enables users to create and manage decentralized organizations on the Ethereum blockchain.
Dash: A DAO that operates the Dash cryptocurrency aims to be a fast and secure digital cash system.
RaidGuild DAO: RaidGuild DAO offers consulting, design, development, and marketing services.
Developer DAO: Developer DAO is a community of web3 developers with a strong commitment to shaping the future of web3 technology. To become part of Developer DAO, individuals must either possess a Genesis NFT or be fortunate enough to receive an invitation to the private Discord server as a talented developer.
BitDAO: A decentralized autonomous organization that aims to support the development of the DeFi ecosystem by investing in promising DeFi projects.
BanklessDAO: BanklessDAO is a decentralized community focused on organizing and spreading bankless media, culture, and education with the aim of promoting the adoption of a fully bankless financial system.
Wall Street Memes: A meme-based campaign DAO that raised $25 million and aims to bring humor and satire to the world of finance.
Bitcoin BSC: A fast-selling Bitcoin replica DAO that operates on the Binance Smart Chain.
In conclusion, Decentralized Autonomous Organizations (DAOs) represent a groundbreaking evolution in the way organizations operate in the modern digital era. These blockchain-based entities offer numerous advantages over traditional organizations, fundamentally changing the dynamics of decision-making, ownership, and participation. DAOs thrive on decentralization, transparency, inclusivity, and community governance, making them attractive to a wide range of individuals and communities.
As DAOs continue to evolve and expand their influence across different industries, they hold the potential to redefine how organizations function, making them more inclusive, transparent, and responsive to the needs of their communities. With the continued growth of blockchain technology and the increasing interest in decentralized governance, the future of DAOs appears promising, shaping the landscape of the digital era.