What is a DAO?
While a decentralized autonomous organization (DAO) can be defined as a group united by a shared mission that operates according to a set of rules executed on a blockchain, DAOs embody a much broader concept.
DAOs empower individuals to collaborate in a decentralized and transparent manner, enabling them to make collective decisions and take actions without the need for intermediaries.
In essence, DAOs represent a paradigm shift in organizational structure, offering a new level of autonomy and self-governance that can be applied to a wide range of industries and applications.
DAO vs Traditional companies
Decentralized autonomous organizations (DAOs) offer several advantages over traditional companies.
One of the most significant benefits is their transparency, as all actions and funding within the DAO are visible on the blockchain to anyone. This level of transparency significantly reduces the risk of corruption and censorship, which can be problematic in traditional companies.
Although listed companies are required to provide audited financial statements, shareholders can only see a snapshot of the organization’s financial health at a given time.
In contrast, the balance of a DAO is publicly visible on the blockchain, providing complete transparency at all times, right down to each transaction.
DAOs are also generally more accessible globally and have lower barriers to entry than companies. With their transparency and lower entry barriers, members of DAOs are likely to face lower switching costs if they disagree with the rules and actions of the organization.
Given that DAOs that share a similar mission may need to compete for members, transparency is even more critical.
Therefore, DAOs are encouraged to be transparent and avoid extracting too much income from the group to attract the best members. In addition, DAOs may need to evolve rapidly to meet member needs.
One of the most notorious DAOs was The DAO, launched in April 2016 as a decentralized venture capital fund. Members contributed ETH and received DAO tokens in return, which they could use to vote on which projects the funds should be allocated to. Unfortunately, The DAO was hacked, with $60 million stolen, leaving a temporary negative impression of DAOs for many people. However, despite no longer existing, anyone can see all the transactions that occurred as it is on a public blockchain and this record will never go away.
Crypto projects themselves can also consider DAOs if they are managed by a decentralized government, where token holders can vote on the direction of the project or various parameter settings, rather than being determined solely by a centralized team.
For example, MakerDAO token holders building a decentralized stable coin can rule the system and vote on parameters such as fees charged.
Another example is Curve DAO, which builds an Automated Market Maker (AMM) that generates fees and provides a revenue share for token holders who lock their tokens. The assets of a DAO can be controlled by stakeholders directly through a token, and interested parties can have a pseudonym and be based anywhere in the world.
In addition to financing investments or grants, DAOs can also legitimately hire employees. Moloch DAO is a DAO that makes grants to promote the Ethereum ecosystem, and it allows people to withdraw funds in a “ragequit” if they do not agree with the general decisions of the DAO.
Similarly, LAO is another DAO made up of Ethereum enthusiasts who have invested from the beginning in projects such as Boardroom and Aavegotchi.
These DAOs have strong access to the flow of transactions in the crypto ecosystem on par with, or sometimes even greater than, many hedge funds, as the founders want to trade.
In conclusion, DAOs are a rapidly evolving concept with numerous possibilities that are yet to be fully explored.
Through this article, I aimed to provide an introduction to DAOs and highlight some of the pioneering projects in this space.
As the DAO ecosystem continues to grow, we can expect to see more innovative use cases, from NFT collections to play-to-earn games, adopting the DAO structure.
The governance by vote and the shared treasury facilitated by DAOs make them accessible to both large multinational companies and small groups of friends alike, democratizing the process of organization and decision-making.
The potential for DAOs to reshape traditional business structures and create new forms of collaboration and innovation is truly exciting.