The conversation around Blockchain technology is never complete without mentioning Decentralized Autonomous Organizations (DAOs). But what is a DAO? Most people, including crypto newbies and self-acclaimed veterans, are unfamiliar with the term. Here, we will help you understand the definition and modus operandi of Decentralized Autonomous Organizations.
What is a DAO?
A DAO is an organization governed by rules in the form of a computer program. The program is controlled by the organization’s members and devoid of a central authority. Unlike traditional organizations managed by committees and executives, DAOs use the Smart Contract model to authenticate collective management involving all organization’s members. As a result, they also pose as the next generation of organizational framework, promoting grassroots ownership. Anyone can contribute to the decision-making process irrespective of their background or upbringing. The only qualifications require passion for the brand, community or organization and the focus for success. The more successful the community, the more valuable the DAO. The more valuable and exclusive the DAO, the more valuable the NFT’s.
How Does a DAO Work?
DAOs use smart contracts to automate changes when specific terms are fulfilled. This includes treasury and assets management. The organization’s members can create proposals based on their choices then initiate a consensus, allowing every member to vote on each proposal.
As a result, the proposals with the highest votes are accepted and enforced by the rules within the smart contract. Every vote counts! That’s why no one can tamper with the treasury without the consent of all members.
Since voting is restricted to only members, how do you attain full membership in a DAO? For token-based DAOs, you can become a member and have access to voting by owning the governance token of the organization. You can buy from any verified crypto exchange. You can also join a share-based DAO by contributing tokens or any other form of assistance to the organization. However, membership via this method is difficult, especially if it requires existing members to vote on your acceptance.
DAO Pros and Cons
Advantages of DAOs
- The smart contract framework allows members to collaborate with confidence even without knowing each other
- Every member has equal rights to participate in governance
- Transactions, votes, and other decisions are automated, preventing human manipulation
- DAOs are transparent, as they operate on an open-source blockchain platform
Disadvantages of DAOs
- Any code error can affect the entire DAO
- Delay in decision-making is inevitable due to the number of members. The higher the number of stakeholders in a DAO, the longer it takes to effect changes
- You can lose money if tokens drop in price
Final Thoughts
As many organizations adopt Blockchain technology and the smart contract model, it is safe to see DAOs as the future of corporate governance and a great competition to traditional organizations.
References
https://www.google.com/url?sa=t&source=web&rct=j&url=https://forkast.news/what-is-a-dao-decentralized-autonomous-organization/amp/&ved=2ahUKEwjSqqyS-tz1AhXBiv0HHZjmAhY4ChAWegQIBxAB&usg=AOvVaw36YzeX_F3r1iUh-05HZxYo
https://www.google.com/url?sa=t&source=web&rct=j&url=https://ethereum.org/en/dao/&ved=2ahUKEwjytK2D-tz1AhX_iv0HHchABckQFnoECD8QAQ&usg=AOvVaw33kE-PSUC3WdlIUIDJXQCr
https://www.google.com/url?sa=t&source=web&rct=j&url=https://limechain.tech/blog/what-are-daos/&ved=2ahUKEwj9wfbM-tz1AhUsgv0HHSMlCooQFnoECC0QAQ&usg=AOvVaw3bCbrOQq403_n5ydPumnlj