DAO stands for decentralized autonomous organization. But what is DAO all about? So, it’s an entity that has no central leadership.
Here, decisions are taken ‘from the bottom-up,’ and a community governs the organization around a certain group of rules that can be enforced easily on a blockchain.
The members of these internet-native organizations collectively own and manage each organization.
Additionally, DAOs come with in-built treasuries that you can access only after the organization’s members approve. Moreover, important decisions are taken via group votes over a specific period of time.
In addition, DAOs can work without any hierarchical management toward multiple goals. Today, we will talk about DAO – what the craze is all about and, more importantly, its crypto connect. Stay tuned!
So, How Does A DAO Work?
As we were saying, DAOs are organizations where all decisions are taken from ‘the bottom-up.’ It’s more like a collective of all the members who own them. So, there are different ways to participate in a decentralized autonomous organization, typically through a token’s ownership.
DAOs primarily operate with the help of smart contracts, which are essentially just chunks of code that execute automatically every time a group of criterias are met. While Ethereum was perhaps the first to use smart contracts, multiple blockchains currently deploy these.
In the case of a decentralized autonomous organization, the smart contracts establish the rules of the DAO. The members with a legitimate stake in such an organization get the right to vote. The member can now play a role in the functioning of the organization by creating or deciding on new operation and governance proposals.
This model ensures that DAOs are not spammed with too many proposals. Moreover, a proposal can pass only after a majority of stakeholders are able to approve it. Also, how a DAO can look at the majority can vary from organization to organization.
Additionally, DAOs are entirely transparent and autonomous. Since these decentralized autonomous organizations are developed on the standard open-source blockchain, everyone can see their code. Also, everyone can audit their in-built treasuries since the blockchain records all transactions anyway.
Launching A DAO: 3 Steps
Typically, you can launch a DAO in just three steps. Scroll down to find out how to launch a DAO without any hassle!
1. Smart Contract Creation:
First, a group of developers or a single developer creates a smart contract that stands firmly behind all DAOs. After all, once a DAO is launched, the only way they can change the rules is with the help of these contracts.
As a result, it is imperative to test the smart contracts extensively to make sure that they don’t end up overlooking vital details.
Once the developer(s) creates the smart contracts, the DAO’s next objective is to get hold of funding.
At this stage, the DAO also has to figure out how to actually enact primary governance. In most cases, tokens are typically sold for raising funds. Moreover, these are the same tokens that give their holders the right to vote.
Once everything is ready and set up, you will have to deploy the DAO on the blockchain. Once deployed, stakeholders become the decision-makers for the organization’s future.
Also, the creators of the organization – the ones who were responsible for writing the smart contracts – will have no influence over the project.
The Disadvantages Of DAOs:
Decentralized autonomous organizations, or DAOs, are not entirely scoot-free. In fact, this brand-new technology has attracted so much criticism because of lingering issues regarding its structure, security, and legality.
For instance, MIT Technology Review spoke about how it thinks it’s a bad idea to have faith in the masses for crucial financial decisions. Now, this is MIT in 2016, and years have passed since then. But it seems like MIT will publicly never change its thoughts on DAOs.
Moreover, DAOs have raised several security issues since flaws in the smart contracts are difficult to fix, even after you spot them.
Additionally, DAOs can be spread across several jurisdictions, and there is no official framework for them. In fact, any legal problems that might come up will include all involved parties dealing with multiple regional laws in a complex legal battle.
Wrapping Up: Making Money As A DAO!
Initially, DAOs trade fiat currencies for their native digital tokens. Now, this particular native token represents ownership proportion and voting power across members. In case a DAO turns out to be successful, the native token’s value increases.
Then, the DAO can start issuing tokens at a higher value and raise even more capital. Also, a DAO can invest in different assets in case the members decide on approving such a measure. For instance, DAOs can acquire other tokens, NFTs, or companies. The value of the DAO will increase if those assets appreciate in worth.