Everything You Wanted To Know About DAOs
Lately, a number of DAOs have started to grab the attention of more conventional investors, including billionaire Mark Cuban, who called them “the ultimate combination of capitalism and progressivism.” Venture capital firm Andreessen Horowitz (a16z) has also led multimillion-dollar fundraising rounds in both individual DAOs and companies that support DAO creation.
Over the past couple of years, crypto fanatics have collectively poured over their money to gain maximized profits. Crypto technologies have grown exponentially over the past couple of decades to grab the attention of more crypto investors. The creation of DAO is also one such innovation that has helped several business entrepreneurs access cryptocurrencies and make crypto payments. Furthermore, market analysts and crypto critics believe that the year 2022 will bring forward the full potential of DAOs, as more individuals and businesses will collaborate with such organizations.
What are DAOs?
A DAO’s financial transactions and rules are recorded on a blockchain. This eliminates the need to involve a third party in a financial transaction, simplifying those transactions through smart contracts. The firmness of a DAO is a smart contract. The smart contract represents the rules of the organization and holds the Organization’s storage. No one can edit the rules without people noticing, because DAOs are transparent and public. Up to today we are used to companies backed by legal status, a DAO may perfectly function without it as it can be structured as a general partnership. The firmness of a DAO is a smart contract. The smart contract represents the rules of the organization and holds the Organization’s storage. No one can edit the rules without people noticing, because DAOs are transparent and public
DAO is supposed to become a primary mode or method that can enable businesses to access finance without actually relying on traditional financing and corporate rule-making. As crypto enthusiasts and early investors try to find various ways of inculcating cryptos in businesses, the association with more DAOs can definitely be expected.
Both social and media can fit quite efficiently in an entrepreneurs’ model. Providing the customers with a common interest to discuss will eventually promote brand loyalty and increase customer engagement for a brand.
Decentralized Organizations vs Traditional Organizations
In comparison to traditional companies, DAOs have a democratized organization. All the members of a DAO need to vote for any changes to be implemented, instead of implemented changes by a sole party (depending on the company’s structure). The funding of DAOs is mainly based on crowdfunding that issues tokens. The governance of DAOs is based on community, while traditional companies’ governance is mostly based on executives, Board of Directors, activist investors. etc. DAOs’ operations are fully transparent and global, meanwhile, traditional companies’ operations are private, only the organization knows what is happening, and they are not always global.
Types of DAOs
Many DAOs fall into one of two general buckets: Those that manage open-source, blockchain-based projects together and those that make investments. They can act similar to limited liability companies (LLCs), VC firms, or investment firms, like PleasrDAO.
How DAOs operate?
To understand DAOs, you first need to understand the technology behind them. Most DAOs rely on blockchain technology and smart contracts, which are collections of code that run on the blockchain. For DAOs, the blockchain can act as a backbone, keeping the structure and rules of each on-chain.
In traditional organizations, there’s typically a hierarchy. A formal board of directors, executives, or upper management determines the structure and has the power to make changes.
DAOs, on the other hand, are decentralized, which means they aren’t governed by one person or entity. The rules and governance of each DAO are coded in smart contracts on the blockchain and cannot be changed unless voted upon by the DAO’s members.
Instead of a select few having the majority of say, members of each DAO can vote on decisions together, typically on equal footing.
For example, PleasrDAO members collectively decided to buy the Wu-Tang Clan album. After doing so, they created an NFT to represent a deed of ownership to the album. The members of PleasrDAO co-own the NFT deed, and in turn, share ownership of the album.
Sometimes, in larger DAOs, teams may form to tackle different aspects of the organization with leaders that have been voted in. That way, not every single member is needed to vote on every nuance.
The most important aspect of DAOs is transparency, Turley says. Every decision within the DAO is pitched, discussed, voted on, and documented publicly.
How Do DAOs Work?
Typically, a DAO launch occurs in three major steps
Smart contract creation: First, a developer or group of developers must create the smart contract behind the DAO. After launch, they can only change the rules set by these contracts through the governance system. That means they must extensively test the contracts to ensure they don’t overlook important details.
Funding: After the smart contracts have been created, the DAO needs to determine a way to receive funding and how to enact governance. More often than not, tokens are sold to raise funds; these tokens give holders voting rights.
Deployment: Once everything is set up, the DAO needs to be deployed on the blockchain. From this point on, stakeholders decide on the future of the organization. The organization’s creators — those who wrote the smart contracts — no longer influence the project any more than other stakeholders, DAOs have a democratized organization.
All the members of a DAO need to vote for any changes to be implemented, instead of implemented changes by a sole party (depending on the company’s structure). The funding of DAOs is mainly based on crowdfunding that issues tokens.
The governance of DAOs is based on community, while traditional companies’ governance is mostly based on executives, Board of Directors, activist investors. etc. DAOs’ operations are fully transparent and global, meanwhile, traditional companies’ operations are private, only the organization knows what is happening, and they are not always global.
Do We Need DAOs?
Being internet-native organizations, DAOs have several advantages over traditional organizations. One significant advantage of DAOs is the lack of trust needed between two parties. While a traditional organization requires a lot of trust in the people behind it — especially on behalf of investors — with DAOs, only the code needs to be trusted.
Trusting that code is easier to do as it’s publicly available and can be extensively tested before launch. Every action a DAO takes after being launched has to be approved by the community and is completely transparent and verifiable.
Such an organization has no hierarchical structure. Yet, it can still accomplish tasks and grow while being controlled by stakeholders via its native token. The lack of a hierarchy means any stakeholder can put forward an innovative idea that the entire group will consider and improve upon. Internal disputes are often easily solved through the voting system, in line with the pre-written rules in the smart contract.
Conclusion
If you are working on a project that requires funding and includes transactions with a lot of unknown people, it can be hard to trust them most of the time. Using a decentralized autonomous organization blockchain introduces several opportunities for your business. Use DAO blockchain development for 100% transparent transactions, mandatory voting for implementing new changes, and for handling services automatically in a standardized manner.
