The DAO, short for decentralized autonomous organization, is an organization that is both decentralized and autonomous of any central authority or control. Initially, the DAO came to fruition through a small group of tech-pioneers combining cryptography and technology with an aligned community. The original goal of the DAO was to remove the middleman from transactions, thus removing any counter-party risk, ultimately creating a truly decentralized financial system, open and accessible to anyone.
As we begin what looks to be another leap through an exponential tech race, it’s easy to forget that a few years have already passed since we saw the first successful decentralized platforms. Small startups have already began taking over some of the biggest industries, such as the taxi industry steadily declining to the rising popularity of ride-sharing companies like Uber and Lyft.
A Brief History of the DAO
Bitcoin (BTC) was the 1st attempt to take down the financial system with a decentralized community. Following the 2008 financial crisis, the cypherpunk movement created the first DAO, Bitcoin, because they believed the financial system was flawed and unfair. Their goal was to create a new world where one network could create an inclusive financial system where trust depended on technology. Below is an excerpt from A Cypherpunk’s Manifesto, published online by Eric Hughes on March 9th, 1993.
“For privacy to be widespread, it must be part of a social contract. People must come and together deploy these systems for the common good. Privacy only extends so far as the cooperation of one’s fellows in society. We, the Cypherpunks, seek your questions and your concerns and hope we may engage you so that we do not deceive ourselves. We will not, however, be moved out of our course because some may disagree with our goals.”
Eric Hughes is an American mathematician, computer programmer, and a founding member of the cypherpunk movement, alongside Timothy C. May and John Gilmore. Hughes famously created the first anonymous remailer – an encrypted server that receives messages with embedded instructions on where to forward them, the key being that this is all done without revealing where they originated.
Examples of DAOs
The sphere of decentralized finance (DeFi) is ripe with specific use cases serving specialized purposes. The concept of DAOs is intrinsically relevant to conversations about DeFi, but – its potential applications have use-cases far extending beyond decentralized finance alone. DAOs are more of a model for governance than a specific use case within the blockchain-powered financial product sector. They now take distinct forms, with many of them DeFi products, but the DAO’s concept is likely to be applied in many different sectors of society of the future.
Examples of popular DAOs that have seen tremendous success among DeFi users are:
Unlike any other system, DAO token holders are all aligned and engaged in the project, unlike a traditional company which requires users and shareholders, and management that may or may not have shared goals and function independently.
How Does a DAO Work?
The DAO takes the concept of traditional financial institutions, such as banks, and decentralizes them. Achieving true decentralization of the DAO is by utilizing a hierarchical management model within a central legal system. In this case, the central legal system is replaced by a network where participants interact accordingly to the specified protocol’s code – all of this governed on the blockchain. While the idea is not particularly new, it is with the advent of blockchain technology that the DAO came into prominence, most notably with DASH, BTC, and Ethereum (ETH).
The definition of society and work has changed over time. From the agricultural to the industrial evolutions and now technological, everything we value slowly becomes different – and for a lot of regular people, decentralization is becoming one of those values.