When people come together to start an organization, a body is often assigned to govern it. This body must follow the set of rules laid down by all members of the organization. However, with DAOs, decentralized autonomous organizations, the governing body is a set of programming codes.
What Are DAOs?
DAOs are organizations formed by a group of people with similar interests and financial willingness to contribute to the achievement of a common goal. This common goal can be funding a startup or investing in a crypto coin or buying virtual land.
All the members of the group gain profit when the organization makes a profit and the profit gained is proportional to the amount contributed by investment in tokens.
How Do DAOs Work?
DAOs function by themselves, hence regarded as decentralized as they are not people-controlled. The set of codes it will run with are created by the founders, more of a smart contract run on a decentralized blockchain with cutting-edge security like the Ethereum blockchain.
Once the DAO is launched, changes cannot be made to the codes. However, it automatically follows whatever decision is reached by members.
Whenever a decision is to be made, all members will vote and members with larger tokens (just like shares) command more voting power. The option supported by the highest number of votes at the end of the voting process is executed by the code.
Therefore, all members have a voice and can submit proposals for changes whenever they feel the need to. Also, capital-intensive projects that members may not have been able to invest in are done collectively ensuring that the members are satisfied with their membership.
Although there have been a few cases of crashes where money contributed by members got stolen, most recent DAOs employ good security to evade such threats. Intending members of DAOs are advised to do due diligence before opting to become a member of any organization.
The founders must be traceable or show signs of reliability. The codes used in the launch must also be properly understood. This is to avoid uncomfortable scenarios and possible loss of funds or investments.
Benefits of DAOs
The goal of most projects in the web3 space is to push for complete autonomy and decentralization. DAOs appear to be the biggest success so far. Having survived the resistance and troubles faced in the early years of its launch, lots of DAOs have been created in recent times and many of them are thriving.
The time and energy devoted to this project demonstrate its usefulness to society as well as its long and short-term benefits.
Companies may be shifting towards this model of leadership as opposed to the conventional style in future years. The success of already established DAOs is enough to convince anyone open to the idea of such change.
There are basically three main benefits of DAOs, for the founders, members, and all it will affect.
1. Freedom From External Influence Like the Government
DAOs are decentralized organizations that are free from the influences of capitalists who are not members and the government. It’s no news that the Government has a duty to regulate and control all financial activities within an economy. Since DAOs are built on the blockchain, even the government has no means of influencing them.
Although, the rules governing a DAO must be clear in order not to clash with constitutional laws.
2. The Leaders are the Members
Conventional organizations do not give so much power to their members or staff. Changes are only effected when top management officials accept and endorse them. With DAOs, all members have a say. They can propose changes, vote for or against changes, and demand transparency free from bureaucratic bottlenecks.
3. General Involvement
Due to the stakes, most members have in DAOs, there is a higher level of involvement compared with member involvement in conventional organizations.
Also, since all decisions are jointly made, members tend to be more present and invested in activities that affect the organization’s growth.
Types of Most Popular DAOs
Just like there are different types of conventional organizations, there are also different types of DAOs.
When groups come together, there is a wide range of goals they may want to work for. Some could be for money gains or philanthropic purposes. DAOs can be classified into the following.
- Protocol DAOs
These decentralized organizations focus on managing protocols that affect other decentralized entities like decentralized apps and decentralized exchanges.
An example is UniSwap, a decentralized exchange governed by tokens where investors can make proposals and vote based on the number of tokens amassed.
- Investment DAOs
Decentralized organizations whose aim is investment will pull funds to invest in web3 start-ups, crypto, virtual land, and many more. The portfolio of such organizations revolves around non-traditional investments.
Meta Cartel Ventures is a typical example, a profit-based investment that supports decentralized apps and web3 start-ups.
- Grants DAOs
Grant DAOs are similar to investment DAOs but unlike investment DAOs, the goal is not profit but support and donations. They often exist as entities tied to existing organizations.
An example is Aave which provides grants quarterly.
- Collector DAOs
The collector decentralized organizations are run by people with an interest in investing in collectibles. They pull their funds together to invest in collectibles like art and NFT.
Flamingo DAO and Constitution DAO are good examples.
The constitution DAO is recorded to have raised an ETH of about $47 million for the purchase of a copy of the first edition of the US Constitution. Although, the attempt is said to have been unsuccessful.
- Social DAOs
These types of decentralized autonomous organizations are built by people who share similar or the same interests, hobbies, beliefs, or faith. A network is created to support this shared identity.
Also, the social DAO is not so decentralized as it is founded on principles that can be influenced by external factors. It is more of a middle ground between centralized and decentralized principles as it is also not a centralized body either.
Members also enjoy relative freedom to act as they please but other members retain the right to vote out a member found wanting of unacceptable behavior.
Friends with Benefits is a popular example of a social DAO.
- Service DAOs
The service DAO often offers its services to other decentralized entities but it also accepts clients from other spaces.
This decentralized organization is built by and for professionals. When a professional adds or creates value in the community, a share is awarded as an incentive along with a share of the organization.
Members are welcomed and encouraged to make contributions in ways they can.
Employers of the service of this organization enjoy smooth service delivery as the service provider relates to and understands the issues faced by clients.
Metaverse DAO is an example of a service DAO.
- Entertainment DAOs
Decentralized fun sounds really cool, right? Well, that’s what entertainment DAOs stand for.
Members are creators and they are in full control of their creativity and creation. They are free to share their creative work without fear of censorship of any kind.
Fluffworld is a typical entertainment DAO.
Future of DAOs
We are edging towards a new technological reality where people do not have to work for people but themselves and creating art or playing video games will count as real work.
This will drive the birth of a series of technological advancements, changes in work culture, and income generation.
More and more DAOs will emerge and newer metrics will be developed to assess comparative success.
Ever since the launch of the first DAO, DAO, other DAOs have launched and attained reasonable success. The goal to push for a decentralized space is fast becoming a reality as the current success is serving as a trajectory for bigger growth.
This will have a tremendous effect which will be felt greatly and businesses have to look out for these growth milestones in order to adapt accordingly.
Hi, my name is Brandan Henry, and I’m an NFT, Blockchain, and Research enthusiast, as well as a content writer for NFT-onomics. I’m deeply passionate about exploring the potential of NFTs and blockchain technology. My mission is to educate people on the capabilities of non-fungible tokens and their applications. I stay up-to-date with the latest NFT news and trends, and as a full-time writer, I excel at generating creative, out-of-the-box ideas surrounding NFTs.