What are DAOs, and why do they make sense to crypto investors in 2022?
Organizations still conduct meetings behind closed doors, and only a select few are behind the decision-making process. DAOs aim to eliminate these localized positions of power.
DAO stands for Digital Autonomous Organization, and it is more than just a crypto buzzword. You will learn more about these crypto concepts if you read crypto theme blog websites like CoinSwitch Kuber. .
The majority of modern-day businesses are still centralised, which means that there is always a top-down governing body in place. Proposals to facilitate organisational changes that affect all of its units/employees aren’t transparent, the consensus isn’t respected, and even finances aren’t clearly defined or allocated, with only a few in charge of the influential processes.
DAO, as internet and blockchain-native entity, offers several advantages over traditional businesses. While we could write an entire whitepaper to explain the advantages, here are two points that will help you sum up the concept more effectively.
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DAOs are trustless Unlike a formal organisation, where trust is the primary motivator for bringing people together, DAOs have parties who trust the code. And the code that governs the smart contract oversees every task necessary for the organisation to function.
DAO solves the Principal-Agent problem The Principal-Agent conundrum, also known as the PA dilemma, is a common problem in physical organisations where the agent’s interests aren’t aligned with the principal or primary stakeholders.
Imagine the agent as the CEO of a company and the principal as the stakeholders.
Agents accept work at their own discretion, which may jeopardise the firm’s overall goal. DAO solves this problem by introducing community governance, in which stakeholders aren’t required to trust any agent, but are instead rewarded for their efforts by the smart contract.
In simple terms, it’s like giving the power of the organisation in the hands of the people running it and not the intermediaries managing it.
Key characteristics of a DAO
The rules governing a DAO are encoded into smart contracts by the ideators. And from there, changes can be proposed by any DAO member. However, the weight of the proposal, courtesy of the voting rights, is determined by the number of governance tokens that the member holds, which plays a significant role in giving a better seat at the table.
Here are some of the key DAO characteristics that separate it from any traditional organization:
A core group of people came up with the concept.
Completely visible framework
No single person is in charge, and it can be verified at multiple points.
Any DAO member can view any financial aspect of the firm without difficulty, making it publicly auditable.
Changes to the code or protocol must be voted on in a transparent manner.
DeFi, NFT, and utilitarian use cases can all be built into the system.
Types of DAO & the relevant Blockchains
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Here are the categories that a DAO can fall into, depending on its structure, modus operandi, and technology:
Operating Systems– Standalone platforms that allow organisations to create their own DAOs. Key projects include Orca and Colony.
Protocol DAOs– Common DAOs are decentralised autonomous organisations that use tokens as a voting metric to implement the protocol and financial changes. Key projects include Uniswap, Maker, Yearn, Synthetic, Curve, and more.
Investment DAOs– Supports capital pooling for various DeFi operations and investments. Key projects include The LAO, BitDAO, and more.
Grants DAOs– More like decentralised Venture Capitalists with communities, where governance tokens are used to vote on capital allocation. Key projects include Audius Grants, MolochDAO, and more.
Collector DAOs– Meant for NFTs and artists to support fractional or complete ownership of art and content. Key projects include Flamingo.
Service DAOs– Talent hunting and acquisition model for agencies and individuals. Key projects include MetaverseDAO, DaoHaus, and more.
Social DAOs– Decentralised platform for interactions like social networking. Key projects include Seed Club, FWB, and more.
Media DAOs-More like a decentralised news aggregator that is transparent and works in the consumers’ common interest. Key projects include Mirror.
Investors can keep a close eye on the tokens relevant to these DAOs as they will eventually determine their position and decision making power in the concerned ecosystem.
The flipsides of DAO
While the concept of a Digital Autonomous Organization sounds liberating and progressive, there are a few roadblocks that you must consider before jumping right in:
DAOs are still coded, and codes are sometimes vulnerable.
The majority of DAO-based products are still out of sync with their centralized and offline counterparts.
It is still in its infancy and requires a more critical perspective.
A few key processes can be slowed down by consensus and voting mechanisms.
DAOs are already significant, with a market valuation of close to $13 billion, according to DeepDAO. Uniswap (UNI) is leading the charge, with over 2,75,000 members in the ecosystem. DAO ecosystem tokens like MKR, UNI, and CRV are also worth paying attention to if you’re an optimistic investor. Even billionaire Mark Cuban believes that DAOs have it to be the future of legacy businesses. According to him, ‘Trustless can surely pay’ in the long run.
DAOs, as a concept and even a technology, have the potential to transform how businesses operate. Also, like most crypto use-cases, Digital Autonomous Organizations have a bright future ahead of them if people invest time in learning the ins and outs of the concept. To sum up, everything we have discussed, DAO can be anything from a channel to a social networking platform to a trading platform (Automated Market Makers) and everything in between. It’s just a representation of a far-fetched physical concept turned into a massive decentralised enterprise.
If you enjoyed reading about DAO, keep reading articles like this and other important crypto concepts with CoinSwitch Kuber.
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