What is a DAO
DAO is an acronym that stands for decentralized autonomous organization. It is simply a group of people who share a common internet and shared crypto wallet.
It is an organization run by code, agreed upon by the people who run it, and smart contracts. If you don’t know what a smart contract is, a smart contract is a self-executable contract that acts as a mediator, moderator, or lawyer. If you’re smart enough to program them then they can be really good for the day-to-day operations of a company. For example, payment of salaries and acquisitions can be automated with smart contracts on the decentralized platform.
Some have described DAOs as a message group with a bank account. Similar to how shareholders of companies like Nike, Microsoft, or Whole Foods have meetings where they vote on decisions for the company. And then CEOs of those companies make sure those decisions are followed. In contrast to that, DAOs have no CEOs or presidents, instead, when there is a consensus in the decision, the code of the platform is further changed so that the company is changed immediately as well. The purpose of this is to limit human interference completely. And this noninterference lets the code and smart contracts improve over time. Yes, code does improve. In this case, they improve when shareholders of the DAO submit and vote on changes to them.
Ideally, DAOs launch with millions of tokens, and the shareholders that hold the most tokens hold the most votes in the decision-making (1 Token = 1 vote). These Tokens have a price for people who wish to join. It also has utility. This means that they have functionality that can cause them to improve and evolve as the company evolves. Also, Hiring developers and voting on a salary for members are a part of the token uses
So when the autonomous organization makes any profits in whichever sector of the crypto space they wish to join — whether it’s NFTs, or crypto investment —, the profits are distributed amongst shareholders in the native DAO token.
Benefits of a DAO
Trustless
With the absence of a CEO or president, all decisions are made through voting and executed with smart contracts. It’s almost impossible to be taken advantage of. Also, if anyone chooses to stop working, maybe a developer is inactive — the programs do not stop working.
Permissionless
DAOs need no permission to operate. This means that governmental bodies such as the FBI or CIA cannot order a DAO to stop operations or to hand in their files. Unlike centralized companies. The only way they can shut down a DAO is if this government organization had a large amount of the DAO token and submitted a vote to shut it down fairly. In other words, a government body cannot butt in.
Open Source
Because it is decentralized, all the information and code of the DAO is out there for everyone to see. This means that other developers can suggest improvements to the platform’s code or find bugs in the code.
Downsides to DAOs
Vulnerability
DAOs are vulnerable to cyber-attacks. Since anyone can look at the code, it also means that people with malicious intent can see it as well. Hackers can study the code and create reverse-engineered code that could do stuff like transfer funds or assets. The first DAO named The DAO experienced a similar hack and lost millions in assets. Also, a rug pull is also a huge risk. A rug pull is when a company is shut down by the creators after significant investment has been made. It is Imperative to vet the people running the DAO and make sure they have real profiles and backgrounds on socials that you can track on Twitter, LinkedIn, Facebook, etc.
Zero Business Secrets
As I stated earlier, everything about a DAO is open source and this means that roadmaps, ideas, and other business stuff that would usually be kept secret from competitors are open to the world anyone can look at how the DAO is set up. So, how is this bad? In business, when your competition knows all your secrets, it’s easy for them to improve on what you do and capture the market. When they do this you automatically lose the high ground and your value.
A legal downside DAOs face is by the SEC. If you create a token that they see as risk or harmful, everyone involved in the DAO, from the creators to the investors could be in legal trouble.
Exciting DAOs to watch
MakerDAO – This is a crypto lending credit facility that gives loans at predetermined interest rates
Flamingo DAO – Flamingo DAO is an NFT-focused DAO that aims to explore emerging investment opportunities for ownable, blockchain-based assets.
NEON DAO – NEON DAO is a completely metaverse-centric DAO. it focuses on creating metaverse infrastructure and environments.
Aragon DAO – Aragon is an open-source software used to maintain and create decentralized autonomous organizations (DAOs) on the Ethereum blockchain.
Conclusion
As we move from the Industrial Age to the internet age, DAOs are geared towards being the new and native way that people organize and work online. Organizations, for now, run on people and people inputs but in the future, it’s likely that it’ll be run by the people, smart contracts, and code.
Insightful stuff 👏