In today’s post, I’m going to expand upon what I’ve already covered when we discussed smart contracts and decentralized applications and look at decentralized autonomous organizations (DAOs). These take what would traditionally be an organizational structure, and turn it into code that runs without a central authority dictating how the organization operates.
For the usual disclosure, I am not a financial advisor, I don’t even work in finance at all. My day job is as a telecommunications software engineer. Treat everything you read here as some educational resources and not financial advise.
What Is A DAO
A decentralized autonomous organization lets a group of people work together in a trustless way, generally towards a common goal. Think of it like a company that does not have a corporate level pulling the levers and making the decisions.
When you think of the structure of a traditional organization, there is a lot of people, all in a generally tangled mess of a hierarchy. A DAO tends to be a very flat organization, any all the decision making comes from the members and not a select few at the top of the chain.
Why Use A DAO
All the rules the govern the organization are baked into the code. Any decisions that need to be made are handled through proposals and voted on by the members. There is no dictation of rule coming from a CEO, every member of the DAO has a voice and the ability to help control how the organization runs.
Any funds that are stored in the treasury of a DAO are also controlled through the same mechanism, and any access to those funds would need to be approved by the group. There is no accounting team in the background trying to manipulate funds, and you don’t have to worry about anyone being dishonest and trying to skim from the top. Everything happens on the blockchain and is therefore able to be seen and audited by anyone.
Since a DAO is managed by code, which is fully auditable and on the blockchain, there doesn’t need to be trust between the people interested in joining the organization and the developers that created it. There is far less risk about being scammed when investing in a startup, and this can lead to a lot more opportunities for people that may otherwise have had a hard time acquiring funding for their project.
Another key benefit is of course the speed at which things can occur and changes can be implemented. In a traditional organization, once a decision has been made to do something, people still have to do about implementing it. In a DAO, since it’s all handled by code, once a proposal is approved, everything can be immediately implemented.
And obviously the fact that the organization is decentralized and exists on the blockchain, it has all the same benefits that a decentralized application would in protection from being shut down from attack, censorship, and all of those other factors that can affect a more traditional system.
An Example DAO
For an example of a DAO, I would say your best option would be to take a look at the MakerDAO project. They are a very big DAO, and arguably one of the most well known and popular ones. It’s a large decentralized finance ecosystem, and something I will cover in greater detail in a later post, but they are a DAO that is governed by a token.
Their Maker (MKR) token is a governance which is what dictates the voting power. Owing that token gives you voting power, and obviously the more of it you are holding, the greater weigh you vote holds. You can somewhat think of it like holding shares in a company, other than in a DAO, every “share” counts as much as the next one, and there are not different classes of them, nor is there a governing body that can still do what it wants despite what the votes come in as.
Decentralized autonomous organizations are a very powerful new blockchain technology that has the potential to change the way new projects can bootstrap themselves into existence. It is offering new opportunities to many people that may not have been afforded them previously, and it lets anyone have a stake and say in how an organization operates.
Of all the blockchain technologies I have talked about in my articles to date, I personally thing that DAOs have the potential to have the greatest impact on the world in general. They take all the various parts and tie them all together, and can become the decentralized heart of some powerful projects in the future.
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Originally Posted On My Website: https://ninjawingnut.xyz/2021/06/16/daos/