A hot topic among the crypto community ever since the 2020 market crash is the idea of decentralised autonomous organisations (DAO).
The idea arose in 2016, when a group of developers were inspired by the decentralised nature of cryptocurrencies. While the concept is similar to the management of a corporation, DAOs lack a central authority and work with community participants – who act as the central governing body.
Many projects and platforms have since taken the DAO governance model into their platform and used it to entice community involvement and support with their projects.
What is a DAO?
DAOs are a community-led entity with no central authority. The organisation is fully transparent and autonomous in which the rules of the foundation are designed and structured by smart contracts.
The contracts make it possible to easily execute any necessary decision, proposals, and votes. Since there is no central authority, all members within the DAO often share a common goal and will act in the best interest of the organisation.
How do DAOs work?
As mentioned earlier, DAOs operate with no central authorities in place. With a bottoms-up management approach, the DAO can easily make decisions via smart contracts and community proposals and votes.
All voting powers on a DAO are distributed across various users all depending on the number of tokens they hold or how engaged they may be in the organization. It’s important to note that the voting process of DAOs are posted on a blockchain. Once posted, the users will often need to choose between mutually exclusive options.
Let’s walk through an example:
Say that a platform has voted and decided to increase their circulating supply. This would require a set of code to be implemented in which a selected amount of reserve tokens will need to be burned or existing token holders will be issued rewards. All this requires code.
Having mentioned a little about tokens, it is important to know that DAOs often have treasuries which have tokens that can be exchanged into fiat. The members of the DAO can decide how to use these tokens.
A good example of tokens being used is SharkDAO. SharkDAO pools and facilitates the funds of token holders to acquire rare NFTs that would be too expensive for an individual to purchase. The overall approach allows individuals to work together and leverage the collective power of pooled assets.
What is the purpose of DAOs?
The main purpose of a DAO is simple. The idea is similar to cryptocurrencies in which it is intended to change and transform the current landscape of management structure of organisations.
DAOs are unlike traditional methods of management, where only a small collective has access to power and general direction of the organization. By giving every member in the DAO the ability to vote, speak up, and propose initiatives, the DAO offers equal opportunity to all members. Not to mention, DAOs operate on a strict governance structure where everything is achieved through code on the blockchain.
How to be a part of a DAO
Before you decide on joining a DAO, you need to first decide on what your goal and missions are.
The main purpose of a DAO is to achieve an objective; hence this is where your personal expertise and interests play a role. Having decided on that, you should secondly, look for DAOs that will fit your needs. You can usually find one that interests you through the mission statement which outlines the clear goals and guidelines of the DAO. This will also provide you with a good sense of idea as to how you can participate.
Once you’ve found your DAO, get involved and join the community! The best way for you to understand the DAO culture is through participating in the community via its social channel. Finally, ss great as DAOs may seem, there are many out there that are cash grabs. Make sure to always DYOR and be careful!
The cool thing about DAOs is that there are many different types of memberships depending on the needs of members and the mission that the organisation looks to accomplish. A few of these memberships include:
Token-based Membership – Membership given by holding governance token which provides voting benefits. Most of the time, fully permissionless and can be traded on DEXs. Good example is MakerDAO which has decides on the future of Maker protocol.
Share-based Membership – A much more permissioned membership but still open. Members can submit a proposal to join the DAO on the basis of contribution or token. The shares will represent a direct voting power and ownership. Members are free to leave the DAO at any time. An example of this is MolochDAO which has funded many Ethereum projects.
Reputation-based Membership – These memberships often require a proof of participation in order to receive voting power in the DAO. These types of DAOs cannot transfer ownership and cannot be bought.
The membership is solely based on a member’s participation. Voting is permissionless and all members can submit proposals to join the DAO while receiving reputation and tokens as a reward for contribution. A good example of this is DXdao which is focused on building dApps ever since 2019.
A New Model for DAO Governance: Proof of Contribution
Put simply, Proof of Contribution ensures the DAO is contributed with positive on-chain activity by DAO members. With positive contribution, users will receive more voting rights. If you’re looking to learn more about Proof of Contribution, check out our in-depth blog on it!
With so many DAOs out there, one DAO is transforming the landscape of crypto investing. DecentDAO is a DAO focused on supporting open-source decentralized systems that includes tokenisation as an economic driver.
The DAO was launched by Decent Labs in partnership with BlockTower Capital and Digital Currency Group earning it a valuation of $56 million. The hopes of DecentDAO is to build a shared decentralized studio for VCs, builders, and others alike to come together and create protocols.
Ultimately, DAOs are powerful tools in the crypto space that provide true believers to participate and contribute permissionlessly to a common mission and goal. While many DAO concepts might fail and won’t stick around, the concept of DAOs will continue to evolve and change, finding its rightful place in the crypto space.