What is a DAO in Crypto?
What is a DAO in Crypto?
Digital Autonomous Organization (DAO) is not just a crypto fad or buzzword. It’s a concept that proposes to change the way businesses get access to finance.
What problems does the DAO concept resolve?
Most businesses are centralized. Top-down governing bodies run these organizations. These governing bodies have full authority to make organizational changes that impact stakeholders or employees down the line of authority. The processes of making structural changes are typically non-transparent and not dependent on consensus views.
While these changes impact all employees/stakeholders, only a few are responsible for making all the influential decisions. In many cases, low-level stakeholders in companies don’t even know what finances the corporate “leaders” are allocating and for what causes.
These are the problems with traditional financing and corporate rule-making that DAOs aim to resolve.
Understanding the Concept of DAOs
DAOs are autonomous, community-led virtual entities with no centralized authority. DAOs are transparent as all decision-making processes and treasury management decisions are managed over open-source code, Blockchain Technology.
Smart contracts are used to clarify the foundational rules. All votes, proposals, and community-led decisions are conducted via smart contracts. Hence, these blockchain-native entities’ management structures are intrinsically more transparent and open.
For example, every member of a DAO has aligned interests. All members want whatever blockchain protocol they follow to be transparent, efficient, and consensus-driven. That’s why community members have incentives to use their voting decisions to support organizational decisions that will benefit the protocol.
Plus, every decision made by a DAO member regarding technical upgrades or treasury allocations is public knowledge. All members of the DAO can see the decision-making process of their fellow members on the public blockchain ledger.
Principles of DAOs
The founders of a DAO will encode the rules that will govern the organization’s future decisions into smart contracts. When a DAO is launched, every member essentially agrees to these rules. In the future, rule changes can be proposed by any member. Each DAO member receives voting rights.
The more governance tokens you possess, the more influence you have over the DAO’s decision-making processes. No single person is in charge of these decisions. If you want more decision-making power, commit to the DAO by minting or buying more DAO tokens.
A core group of founders come up with the concept of launching a tokenized, decentralized investment fund. This investment fund has a fully visible framework. Every decision concerning the DAO is recorded on the blockchain. Every DAO member can see what the other members are doing.
All financial movements of the DAO are publicly auditable. E.g., if a founding member sells his tokens, other members will be instantly notified. Members can check the public ledger to see where the DAO tokens are being sent, who’s holding how many tokens, etc.
Changes to the protocol/code that every DAO member initially agreed upon have to be voted on. Just because one DAO member has more tokens doesn’t mean that he/she gets to make major decisions.
Unlike traditional businesses where people had to trust each other before investing their money, DAO members-only trust the code. If the DAO’s original protocol is transparent, mathematically logical, and trustworthy, anyone can invest in the DAO.
Since smart contracts oversee every function necessary for the DAO to thrive, there are no trust-related risks. Want to invest in a DAO? Display your commitment to the DAO’s cause by staking more tokens.
Every member of the DAO has aligned interests. That’s why as a technological concept, DAOs have the potential to transform how firms operate in the future.
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