A Peek in Decentralized Autonomous Organization (DAO) Realm

Decentralized Autonomous Organizations (DAO) are slowly changing the financial realm; here’s a beginner’s guide into the DAO realm. A DAO is a collectively-owned, blockchain-governed community. Members of which work towards a collective goal without third-party intermediaries or a central governing body. 

When writing, there were 4,830 DAOs, which controlled around $9.6 billion of assets and governed $27.8 billion of total value locked (TVL).

DAO – Governance Structure

The governance structure usually works on a token-based incentive system, and members earn their ownership shares by buying or accumulating participation credits. They facilitate collaboration and coordination at a global scale for funding unique opportunities, pooled resources, and several enterprising ideas for Web3 projects.

The unique structure openly challenges traditional forms of management and governance. They completely remove the need for a hierarchical, centralized organization, which is known to hamper growth with constant power hustle.

DAOs Working Explained

In the absence of a central authority, the governance system of DAO depends on the members and their active participation in developing the organization. Smart contracts work as the bedrock for DAO’s decision-making protocol. These are used to set some ground rules by creating a transparent and trustless environment, and these rules are encoded in the blockchain. 

Any change required can only be done by a majority vote. The inherent quality of blockchain avoids data tampering as it would require 60% ownership or vote for any change. 

Token economics is used to facilitate a fair electoral process. Where voting power is defined by the native token held by the member, some platforms also consider the time spent on the network. 

Before joining any DAO, it must be chosen carefully; the following are the types. 

Protocol DAOs

Generic DAOs are used as a mechanism of governance and ownership in decentralized pools, with the sole purpose of maintaining and evolving the platform in a decentralized manner. 

For instance, MakerDAO, UniSwap, and YearnFinance, etc.

Grant DAOs

These communities gather capital in a grant pool, which is decided via a vote about fund allocation and distribution. They majorly fund many innovative DeFi projects, where organizations place their applications for their support. 

For Instance: Aave Grants DAO, MolochDAO, MetaCartel, etc.

Philanthropy DAOs

For a belief in a cause, these DAOs use their inherent advantage for low-cost, international transfers at high speeds to create an impact. They generate endowment funds along with democratizing the spirit of giving. 

For Instance: Big Green DAO, UkraineDAO, etc. 

Social DAOs

These bring together like-minded individuals, like on a social network, but specific regarding entry and membership. Making it exclusive. 

For Instance, Developer DAO, Friends With Benefits, etc.

Collector DAOs

The main purpose is to pool the funds, allowing the community to share the costs, thereby increasing the chances of acquiring valuable collectibles in Web3 space. Each member co-owns digital assets and is remunerated accordingly. 

For Instance, FlamingoDAO, ConstitutionDAO, etc. 

Venture DAOs

Create a pool for early-stage investment in various Web3 projects, protocols, startups, off-chain investments, etc. 

For Instance: DAOhaus, BitDAO, MetaCartel Ventures, and Bessemer DAO, etc. 

Media DAOs

Delegates the media content to the community; product owners of content are member DAOs, including creators and consumers.

For Instance: BanklessDAO, Decrypt, etc.  

SubDAOs

They are a smaller, autonomous group within an existing DAO. Slowly they mature the main DAO into super DAO. Facilitate speedy execution by providing smaller majority requirements. 

For instance: Balancer Grants SubDAO, etc. 

How is DAO beneficial?

With all these types of DAOs, it can be made out that they facilitate a wide array of specialized purposes. Putting the power in the masses’ hands truly justifies blockchain’s decentralized nature. 

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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