DAO projects are an effective and safe way to work with like-minded folks around the globe. Think of them like an internet-native business that’s collectively owned and managed by its members. They have built-in treasuries that no one has the authority to access without the approval of the group. Decisions are governed by proposals and voting to ensure everyone in the organization has a voice.
There’s no CEO who can authorize spending based on their own whims and no chance of a dodgy CFO manipulating the books. Everything is out in the open and the rules around spending are baked into the DAO via its code. Some of the best-known DAOs are appearing in the financial services space, in an area known as ‘decentralized finance’ or DeFi. These include Uniswap, Sushi Swap, Synthetix, Compound, and Aave. But many others have appeared in areas relating to grants, social media, traditional media, gaming, collectibles, and computer operating systems.
The underlying technology behind the DAOs is “Smart-contract”
However, these new business models have also created risks for developers and members of the communities. They operate in a legal black hole. Laws don’t recognize them as legal entities.
How DAO projects are better than traditional institutions:
The ideology of the crypto developers is to remove faulty institutions across the globe by developing a blockchain technology-based model from scratch. Initially, the visualization of cryptocurrency was not an asset but rather a substitute payment gateway. Smart contracts, proposed by blockchain, are an attempt to establish a trustworthy form of legal governance. Incorporating both to develop a reliable, efficient, and secure financial system is the sole purpose of DeFi (Decentralized Finance). However, DOA is the reconceptualized on-chain design of the traditional operation. Stan Larimer was initially the creator of the DAC (Digital Autonomous Corporation) concept, which was later reconstructed as DAO (Digital Autonomous Organization) by Vitalik Buterin, the originator of Ethereum.
- DAO is usually flat and fully democratized whereas a traditional organization is usually hierarchical.
- In DAO Voting is required by members for any changes to be implemented whereas in a traditional organization depends on structure, changes can be demanded from a sole party, or voting may be offered.
- In DAO Votes are tallied, and outcomes are implemented automatically without a trusted intermediary whereas in the traditional organization if voting is allowed, votes are tallied internally, and the outcome of voting must be handled manually.
- In DAO services offered are handled automatically in a decentralized manner (for example distribution of philanthropic funds) whereas in traditional organizations human handling, or centrally controlled automation, is prone to manipulation.
- In DAO all activity is transparent and fully public whereas in the traditional organization activity is typically private and limited to the public.
The latest application of DAO amid Russia’s invasion of Ukraine: $6.75 million raised in ETH came from Ukraine DAO, a decentralized autonomous organization formed by the founder of the band Pussy Riot, which raised the funds by selling a simple NFT of the Ukrainian flag.
- Uniswap (Market Cap- $6.2 Billion): One of the most successful applications of the DAO concept is Uniswap. That is, to take the conventional underlying system underlying a foreign currency exchange, the order book- and update it with a Blockchain identical that works as well, if not better. Evaluating the achievements of the DAO model can be done by comparing Uniswap to any traditional crypto exchange, which still uses the conventional order-book method.
The major innovation is the hybrid of the Liquidity Pool Concepts and Automated Market Maker (AMM). This combination allows the investors to trade their assets by eliminating the requirement of intermediaries. This is made possible because of an algorithm that guarantees that prices are regulated relatively. The governing set of rules allows automated transactions amongst crypto tokens on the Ethereum blockchain platform through the employment of smart contracts. Thus, the efforts of bots and humans are brought together, with the bots accepting tasks such as automated liquidation of positions while the market makes unexpected moves.
- MakerDAO (Market Cap- $1.9 Billion): MakerDAO is one of the founding agencies of the new DeFi monetary system. MakerDAO permits the participants to lend and borrow in a way that mirrors an everyday bank.
The lending and borrowing aspects in a regular bank are decided by something of the political process, involving numerous internal departments negotiating over what the spread ought to be between loans and deposits. Smart Contracts are responsible for managing the borrowing and lending process in the MakerDAO. The pairing of cryptocurrency with Dai stable coin opens opportunities for crypto investors to borrow a coin and predict the payback amount. Surprisingly, MakerDAO has achieved a complete circle in phrases of decentralization.
DAOs will replace key people’s decisions in traditional organizations like CEOs and CFOs, border meetings, and routine operations in organizations, thus avoiding extra meaningless work. In addition, voting by shareholders can be done through tokens.DAOs can change the recruitment process, salary decision, or hiring developers, all by the power of tokenomics and play a crucial role in charity/donations, freelance network and ventures/grant money pool utilization powered by smart contract technology and not by few key players.
DAOs are trustless and secure that offer continuous functionality built on open source technology.
DAO is still in its nascent stage and with continuous technology innovation it will replace the traditional organization and its key players’ role in the coming near future, it is evident that there is something at the core of the DAO revolution that is here to stay. Therefore, it will be pretty interesting to witness its growth to the peak.