In brief
A DAO, or decentralized autonomous organization, is a business structure where control is spread out rather than hierarchical.
DAOs are organized using smart contracts, with participants using governance tokens to vote on topics such as fund allocation.
What is a DAO?
How do DAOs work?
👩💻 Code is written in the form of smart contracts, which provides some sort of governance mechanism.
🗳️ Members typically use governance tokens to vote on topics such as fund allocation.
📊 In the case of many DAOs, the impact of a member’s vote can increase based on the amount they have contributed to the project.
💪 The outcome can be based on the degree of participation as well as voting preference.
What was The DAO?
Did you know?
The DAO raised 12.7M Ether, worth around $150M at the time.
What went wrong with The DAO?
“[The DAO] raised massive awareness around the platform […] demonstrating unequivocally the need for a decentralized structure of this nature.”
Stephan Tual, founder of Slock.it
A dark time for DAOs
DAOs come in all shapes and sizes
Crypto projects – considered to be DAOs if they are managed by decentralized governance where token holders can vote on the direction of the project. e.g. MakerDAO.
Grant funding – a DAO can be used to award development funds automatically based on set criteria. e.g. MolochDAO.
Investment – MolochDAO has been forked many times to create for-profit DAOs which can distribute and transfer shares and other assets between members. e.g MetaCartel Ventures.
Collecting – the non-fungible token (NFT) boom has seen collector DAOs flourish e.g. FlamingoDAO.
Did you know?
MetaCartel Ventures is registered as a Limited Liability Company (LLC) in crypto-friendly Delaware.
What advantages do DAOs have?
📖 Transparency – voting, funding decisions, and other actions are viewable by anyone.
🔥 More firepower – members across the world can contribute, giving DAOs lower barriers to entry than companies.
💵 Cheaper – the concept has firmly taken root in the DeFi, and there are many tools—which can be used like Legos, so little needs to be built from scratch.
👨👩👦👦 Collaborative – giving everyone a voice pools mass knowledge for a proposal and enables experts to invest in the ecosystem they are building.
“We believe the DAO will play a starring role as the world makes the shift to Web 3.0, paving the way for fully decentralized companies.”
Jademont Zheng, Waterdrip Capital
What disadvantages do DAOs have?
🏢 Flat structure – by not having a clear authority figure, or chain of command, decentralized organizations are slower to operate as decisions take longer to make.
😡 Disagreements – when the community disagrees strongly, it could split the organization into two.
👸🏽 No change – in some DAOs, those with the most tokens call the shots, so governance looks very similar to traditional organizations.
⚖️ Legality – minefields abound in relation to token projects that might be deemed to be securities.
Did you know?
Ethereum co-founder Vitalik Buterin developed the idea of DAOs in 2013. At first they were called “Decentralized Autonomous Corporations” (DACs).
The future
Source: https://decrypt.co/5728/decentralized-autonomous-organization-dao