Decentralized Autonomous Organizations and MakerDAO

By jeffthebaker | Baker Crypto | 7 Mar 2019

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The potential applications of cryptocurrency and blockchain tech are numerous, and as the space continues to grow, so to does the number of possibilities that are floated around. Naturally, some of these use cases are more legitimate and impactful than others- do we really need to tokenize the dental industry? Among the ideas that are being actively discussed and worked out, Decentralized Autonomous Organizations represent perhaps the most significant of any.

If you've spent some time in crypto circles you've probably heard the term DAO thrown around every now and again. Decentralized Autonomous Organization (DAO) refers to an ecosystem that leverages blockchain technology to create an environment that is orchestrated and propagated wholly by its participants. Anyone can participate in these organizations, and their participation ideally leads to positive influence and fruitful production from the DAO itself. Participation in a DAO is tied to the participant's individual holdings of the cryptocurrency pertinent to the organization, so each participant-holder has an intrinsic desire to participate as best as they can to build the worth of the DAO.

Let's take a step back- that's a lot of technical speak. For a more digestible approach, we'll compare DAO to worker coops, a type of organization that already exists throughout society. A worker coop represents a business or coorporation that is entirely owned and operated by its workers. In the United States, there are several instances of worker coop grocery stores. At one such grocery store, every employee (from baggers to managers) has ownership of their business and stake in its decisions. They do their job as best as they can, and that good work is directly correlated to their take-home pay. There are no outside shareholders or Wall Street CEOs that keep the pie to themselves.

A Decentralized Autonomous Organization works kind of like the worker coop grocery store, with one key distinction. Just because the coop is worker owned doesn't mean there isn't a hierarchy- there still needs to be executives and managers that take responsibilities and leadership in the organization. Workers might cycle between labor and management positions or the higher-ups may be elected by the working body. While this may be seen as more egalitarian than for-profit counterparts, it's not a perfect formula by any means.

In the DAO, this burden of management and disproportion of power among participants is eliminated. Instead, the "management" is upheld algorithmically by the rules and protocols agreed upon by the DAO participants. When implemented properly, the algorithm that manages the participants runs without possibility of error. It is the perfect manager.

In more nuanced terms, the real beauty of DAO comes in its ability to govern and organize in a manner not previously thought to be possible. When applied to the real world, a successful implementation could have paradigm-shifting effects that rocks our society and completely redefines the way humans produce and interact with one another in the global economy.

Something important to keep in mind is that this conversation about DAO is not completely hypothetical. There are several instances of successful DAOs and quasi-DAOs in the crypto niche already. The DASH funding protocol represents a DAO- the DAO network autonomously, consistently contributes to a development fund with every block mined. The purpose of those funds are voted upon by the community, and then distributed as is most appropriate. Steem's rewards system, while not completely autonomous (hence the term quasi-DAO), is another prime example. Since its launch, Steem has grown to take on millions of users that have spawned dozens of projects, all fueled by the autonomous rewards program. (The non-DAO component of Steem is that the blockchain development and upgrade process is not dictated by the community, but at the discretion of its development team).

While these examples are certainly impressive, the most impactful DAO to date is, without a doubt, found through MakerDAO. Maker is a Decentralized Autonomous Organization that, in its current state, primarily incorporates financial services. This includes the decentralized, transparent stablecoin, DAI, which is pegged to USD. More impressively, Maker offers a peer-to-peer lending system. Through this system, participants can borrow value directly from the DAO for leveraged trading. Maker also encapsulates a decentralized exchange allowing users to get into and out of MKR.

This system is not running on a small scale, either. Over 2% of all Ether is locked up in the DAO, or close to US$300 million. Holders of MKR govern the DAO to issue any tweaks or additions to the ecosystem. Additionally, the market cap of Maker represents over US$650 million. Holders of MKR earn from a deflationary market that entails some amount of MKR is continuously burnt with participation in the ecosystem.

In my next post, I'll provide analysis on exactly how MakerDAO works and what its future could entail.


jeffthebaker
jeffthebaker

Skin in the game since 2013. Perpetual gem hunter and crypto optimist :) Experienced as a freelance writer and marketer for numerous projects and news sites over the course of my stay in the space.


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