DAOs are bringing the vision of collaborating with others without knowing them to fruition. They allow for setting one's own rules and making decisions in a collaborative environment, all thanks to Blockchain technology. So what are DAOs? How do they work? What are the current and emergent trends? Additionally, what are the real-life applications of DAOs? Find the answers to all the questions in this article.
What are DAOs
DAOs are member-owned communities without centralized leadership, represented by rules encoded as transparent computer programs, controlled by organization members, and uninfluenced by any central body.
The DAO is a group of people who agree to follow rules to accomplish a shared goal. There are smart contracts—algorithms that run if specific conditions are met—written into the organization's code to enforce these regulations. Blockchain technology ensures everyone follows the rules, tracks financial transactions, and implements the software rules of a DAO.
Anyone can join, and it doesn't matter what the organization does. The term "decentralized" refers to the fact that there is no central governing body. Unlike a traditional CEO, no individual owns or controls a DAO; instead, everyone has a stake. DAOs function entirely online and rely on blockchain technology as a ledger to record all of the group's activities, including exchanging money and making decisions.
How do DAOs work?
The DAO's functional architecture is laid out in smart contracts. Smart contracts enshrine what blockchain technology is all about as they automate code execution when certain conditions are met. Although Ethereum was the first blockchain to use smart contracts, they are now used on many other blockchains.
They're easy to see, easy to verify, and open to the public, so any potential member can see exactly how the protocol works at every stage. The DAO community sets the rules but smart contracts enforce them.
Once the code has been sent into production, it can only be altered by a majority vote of the members that make up the team. The community of token holders can only change the DAO's rules; no one else can change them. In a DAO, token ownership is the most common method of participation. Members of a DAO can vote on or propose new governance proposals if they hold a stake in the organization.
Financing and Governance
As soon as these rules are formally recorded on the blockchain, the DAO will need to determine how to acquire financing and confer governance. Selling tokens to raise money and fill the DAO's treasury is often how the system fulfils its objectives.
There are specific voting rights that token holders receive in exchange for their fiat currency. Therefore, the DAO can be deployed as soon as financing is secured.
DAOs will not be bombarded with ideas thanks to this model. The majority of stakeholders must support a proposal for it to become law. The method for determining the DAO's majority varies from DAO to DAO and is outlined in the smart contracts for each.
DAOs are self-governing and open to the public. Open-source blockchains allow everyone to see their code, making them accessible to anyone. In addition, because the blockchain records every money transaction, anybody may check their treasury.
Stages of a DAO Launch
In most cases, a DAO is launched in three stages.
Smart contracts: The DAO's smart contract must first be written by a developer or a group of developers. Only the governance system can alter the contracts' terms after launch. That implies that they must thoroughly test the contracts to ensure they do not forget any vital information.
Financing: The DAO must figure out how to get funding and put governance in place after developing smart contracts. In most cases, tokens are sold to raise money, and these tokens provide their owners voting rights."
Deployment: The DAO must be deployed on the blockchain once everything has been set up. After this moment, the organization's future is decided by its stakeholders. They no longer impact the initiative like any other stakeholder, including the organization's creators.
History of DAOs
From the beginning, DAO was defined as a self-sufficient and autonomous system in a paper published in 1997 by German computer science professor Werner Dilger. After Bitcoin's inception, the term "Decentralized Autonomous Corporation" (DAC) appeared frequently. It was defined as a self-governing firm that used tokenized tradable shares for dividends. By purchasing DAC stock or being compensated in DAC stock, anyone can become a stakeholder in the company. As a result, DAC stockholders would be entitled to a share of the profits, a stake in the company's growth, and a say in how it is run.
Bitcoin is regarded as the first decentralized autonomous organization (DAO) in certain circles. However, basic governance mechanisms present in a DAO are absent from this project. As a result, today, the name "DAO" refers to a decentralized autonomous organization (DAO) built using smart contracts on top of an existing blockchain rather than to the blockchain itself.
Slock. IT, a German firm, launched the Genesis DAO or "The DAO" in 2016, which was the first actual DAO. It was the first to function as a venture capital business run by investors. On the Ethereum blockchain, The DAO's code framework was built into a smart contract. Individuals could buy DAO tokens with ETH during a token sale that kicked off the project. Owners of tokens in The DAO were then eligible to vote in the DAO's governance process. With their votes on various projects to fund, the DAO's members might profit from their investments by sharing in the project's profits. However, the DAO was breached because of a coding flaw, resulting in the theft of $50 million in ETH. Hard forks allow token holders to remove tokens from the Ethereum network to recover the money more quickly.
DAOs have been the subject of some controversy due to this attack, with people considering the advantages and disadvantages of DAOs.
For a DAO to function effectively, it must be based on the two principles of autonomy and decentralization. Because of the rules encoded in smart contracts, DAOs may run autonomously and without human involvement because the members themselves democratically determine the regulations. In this way, open-source software ensures a high level of openness and accountability. Moreover, for DAOs to work globally, decentralization eliminates borders and provides services that would otherwise be unavailable.
As a result, developing the DAO and automating processes is a very time-consuming process. Even a single line of faulty code might cause the entire program to crash, resulting in substantial financial losses. The legality of its activities is also a concern. Global operations are hindered by the DAOs' lack of legal status.
Current Emerging DAO Trends
Over time, DAOs have grown in popularity. When it comes to DAO governance and who can participate, non-fungible tokens (NFTs) have become increasingly popular.
In September, Andreessen Horowitz funded $5 million in "Friends with Benefits", a Discord conversation made up of various crypto fans, artists, and NFT aficionados. One million dollars was raised when they decided to function as a decentralized autonomous organization (DAO) on platforms like Facebook and Telegram, illustrating the significance of established online communities even without economic incentives.
Investment DAOs are another significant new trend, allowing Web3 natives to pool and deploy capital so that individuals may now compete with established financial institutions.
As a result, it's reasonable that DAOs are producing a lot of buzz and could become as huge as NFTs were in 2021. There will, of course, be some issues, but only the future can tell.
Popular DAO Projects
Below, you’d find how DAOs are getting relevant across several sectors of business.
Holders of the $JUSTICE token manage AssangeDAO, a multilingual cross-border collective. They are a group of people that came together to free Julian Assange. AssangeDAO has achieved its first goal of raising millions of dollars for Julian Assange's legal action and is now pursuing its objectives. They intend to start and fund projects that will directly or indirectly assist Julian Assange in gaining his freedom and causes that he cares about, such as freedom of speech, freedom of information, and whistleblowing.
BeetsDAO is made up of 58 members dedicated to the advancement of NFTs. At its core, the organization is pooling fundings for group investments. BeetsDAO is also in the business of commissioning new art and music. Among the DAO’s feats was in March 2021 when it purchased four rare algorithmically generated audio files called EulerBeats Enigma NFTs. The group was also involved in the creation, launch, and sale of an NFT collaboration between Snopp Dogg and a Nyan Cat artist called “Nyan Dogg”. The project raked in a quarter of one million dollars.
BitDAO is a real force in the DAO ecosystem. The DAO has amassed a treasury of over $2.5 billion by orchestrating numerous mega-raises. BitDAO’s growing reputation is reflected in the number of big-name investors it has courted including Alan Howard, Peter Thiel, and Founders Fund. Bybit, a Singapore-based crypto exchange pledged 0.0025% of its total trading volume to BitDAO. This figure is about $1billion every year in contributions.
BitDAO has begun investing in DeFi projects and has led token swaps to diversify its treasury. The BitDAO ecosystem of autonomous entities (AEs) that are funded partially by the DAOs's Treasury is growing with partners from arts, entertainment, finance, and technology all coming together for one goal--to help develop Web 3 . Members of BitDAO community own BIT token which they use to make proposals and vote on critical matters affecting the DAO.
Decentraland is a virtual world where users can trade digital real estate. Decentraland has more than 90,000 parcels of land and is controlled by a decentralized governing body.
The Decentraland community is in charge of making decisions that affect the direction and future plans for this virtual world. They propose policies, announce important events like auctions or whitelisted contracts to be able enter specific areas within LAND inventorying (for example - construction), debate on issues relating entirely outside our scope as well if need arises! Every member has one say during these discussions through their voting rights protected by Aragon's smart contract technology .
There are two main tokens on Decentraland: MANA and LAND. MANA is what you use to pay virtual plots of land while LAND is the governance token. You can use LAND to obtain competitive locations from the finite supply of LAND in the Sandbox. You can organize events and contests on your LAND and most importantly participate in metaverse governance.
Although you wouldn’t call LexDAO a law firm, it is a group of “legal engineering professionals” who are interested in replacing inaccessible and expensive legal services with relevant blockchain services.
For instance, the DAO's LexLocker is a mechanism that allows money to be held until goods or services are supplied without relying on any bank. It has even devised ways for delivering arbitration service in which judgments can only go through multi-sig panels made up of legal engineers from TheDAOs itself! When they're not creating new tools, members blog about their ideas regarding project issues with blockchain technology such as whether there should always come an expiration date built into smart contracts
MakerDAO has established itself as the largest bank in the DeFi sector. The organization values members of its community and does not make crucial decisions without their knowledge. Apart from its native stablecoin DAI which has become widespread amongst DeFi users, members of Maker DAO community can own MKR which is the governance token. In June 2021, MKR holders voted to commence the use of tokenized versions of freight-shipping invoices, short-trade receivables, agricultural real estate, and revenue-based loans for small businesses. The proposals passed.
Mirror is a decentralized blogging platform with the aim of transforming writing into NFTs to benefit creators, that is, writers. It launched in February 2021 and it initially gave access to individuals who finished top 10 in the WRITE race. The WRITE race involved existing Mirror members voting for aspiring members. Only the top finishers each week received a WRITE token that could be minted for a Mirror-hosted blog. Mirror eventually changed this rule in October and made the platform available to just anyone. However, you still need to win the WRITE race to get a custom domain name.
Uniswap was launched in September 2020 and has not looked back since then. The popular decentralized exchange is controlled by its community. For instance, the Uniswap community voted in 2021 to reduce its trading fees for some stablecoin swaps and this caused a spike in trading volume. A bulk of this volume was from users migrating from other DeFi projects to Uniswap.
Future of DAOs
The DAO is a new form of structuring an organization that could revolutionize how we do business. With so many DAOs flourishing across several industries , it will be interesting to see which ones stick around and become integral parts in our society. After all, DAOs offer creative ways for utilizing this revolutionary resource -the cryptocurrency market!