What Is And How Does Decentralized Autonomous Organization (DAO) Work?

The DAO’s rules are set by a core group of community members.
Membership of a DAO is determined by purchasing voting shares or tokens.
A DAO can also carry out tasks such as managing funds, and investing in initiatives etc.

A “Decentralized Autonomous Organization,” or DAO, is an autonomous organization run by the community to meet common goals. Smart contracts establish the underlying laws and carry out the chosen course of action. At any time, proposals, votes, and even the code itself may be openly reviewed by the public.

A DAO is ultimately run exclusively by its individual members, who jointly decide on important project issues including technical advancements and treasury allocations.

The fact that these guidelines are incorporated into the organization’s codes distinguishes DAOs from other systems. Smart contracts, which are algorithms that function when certain conditions are met, are used by DAOs.

One of the core aspects of DAO is that once the codes are written and implemented, it cannot be changed, and no member has any special authority to make it happen.

How Does a DAO Work?

Through the use of smart contracts, the DAO’s rules are set by a core group of community members. These smart contracts spell out the basic rules of operation for the DAO. They are very clear, easy to verify, and open to public auditing so that any potential member may completely comprehend how the protocol is to work at every stage.

The DAO will need to choose how to acquire financing and provide governance once these rules have been formally recorded on the blockchain. This is often accomplished through the sale of tokens, which the protocol uses to raise money and fund the DAO treasury.

Steps In Which a DAO Works

Creation: A group of people who come together with the same objective or purpose can build a DAO. The DAO’s rules, goals, and governance structure are established using smart contracts. Self-executing software, or “smart contracts,” is stored on a distributed ledger and is triggered to run based on predetermined criteria. In the case of a DAO, smart contracts control the organization’s operations, membership, and decision-making process.

Membership: Anyone can join a DAO by purchasing voting shares or tokens, which reflect their ownership and control over the organization. These coins are frequently exchanged on decentralized exchanges, and the demand of the market determines their price. A member’s ability to vote within the organization is determined by the quantity of tokens or voting shares they possess.

Making decisions: DAO’s members vote as a group to decide what to do. The quantity of tokens or voting shares each member has determines how many votes they can cast. Members make proposals, and voting occurs over a predetermined time period. The smart contract automatically executes the results of the vote, that is, after the voting time has concluded. This procedure guarantees democratic and decentralized decision-making.

Governance: They control a DAO’s operation and dictate the governance structure of the organization. This covers the guidelines for voting, membership, and administration. The governance structure is open and unchangeable, which means that it cannot be altered without the members’ consent.

Operations: A DAO can carry out a variety of tasks, including managing funds, investing in initiatives, and independently carrying out contracts. Smart contracts that automatically carry out activities depending on predetermined conditions are used to carry out these tasks. For instance, after reaching specific checkpoints, a smart contract can release money to a project.

Prizes and Incentives: To encourage members to support the organization’s objectives, DAOs frequently use tokens or other types of prizes and incentives. Rewards for casting a ballot, making a contribution to the community, or hitting certain milestones are examples of this. Within the ecosystem of the DAO, tokens can also be used to pay for goods and services.

DAOs can change the way corporate governance works. More and more organizations are adopting DAO models.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing