What is a DAO in crypto?
Regulations regulate what is and is not authorised for all forms of corporate enterprises. These governance principles may exist as private agreements between firm owners, such as shareholder contracts. In the past, corporations could only operate through persons or corporate entities; therefore, the law could require the enforcement of such agreements.
However, rule enforcement raises two fundamental issues: the parties do not always follow the rules, and mutual consent is not always obtained prior to the implementation of such restrictions. So, who suffers the most?
Stakeholders with little or no power to participate in governance decisions or with little authority to notice problems are more likely to engage in financial mismanagement and lose money. Is there a way to solve this problem?
Decentralized autonomous groups (DAOs) are a solution to the aforementioned concerns. But what exactly is the goal of a decentralised autonomous organisation?
One of the advantages of DAOs is their transparency, which solves the principal-agent problem (more on this later). But what exactly is a DAO?
The DAO ecosystem is built on blockchain technology and smart contracts, where governance rules are established, automated, and enforced using software, and members manage contributed funds, eliminating the need for third-party involvement.
To become a member of a DAO, users must first purchase its native coin. DASH, Augur, MakerDAO, and virtual worlds like Decentraland are examples of decentralised autonomous organizations. The first successful DAO, however, was BitShares, a virtual e-commerce network. Bitshares was labelled a “decentralized autonomous firm,” a term coined by the company’s founder, Dan Larimer.
Furthermore, Slock. It launched the DAO (an investor-operated venture capital business) as the first decentralised autonomous organisation on the Ethereum blockchain in 2016. The DAO, on the other hand, was abused due to the revelation of a coding fault, resulting in the attacker stealing $70 million in Ethereum (ETH).
This article will explain what a decentralised autonomous organisation (DAO) is in blockchain, how decentralised autonomous organisations work, the many types of DAOs, why DAOs are essential, and how to construct a DAO.
Types of decentralised autonomous organisations
DAOs can be classified into several types based on their mode of operation, structure, and technology, as mentioned below:
Protocol DAOs
When tokens are used as a vote metric for implementing protocol changes, such a governance structure is analogous to protocol DAOs. MakerDAO, for example, has transformed the DeFi industry with its DAI stablecoin.
Other examples include decentralised exchanges (DEXs) like Uniswap, which rewards liquidity pool contributors with native governance tokens. The tokens can be used to cast votes on DEX governance decisions.
Collector DAOs
Artists who make art with nonfungible tokens (NFTs) rely on collector DAOs to demonstrate ownership of their work. Flamingo is an example of a DAO. A collector DAO is PleasrDAO, which reduces the limits on NFT investments.
Operating systems
Operating systems are standalone platforms like Colony that corporations can utilize to establish their DAOs.
Service DAOs
Service DAOs are projects such as Metaverse DAO, which provides individuals and agencies with talent-seeking services and supports acquisition models.
Investment DAOs
They are also known as “Venture DAOs” because they enable money pooling to democratise investing in various DeFi businesses. Millennials support investment DAOs because they are transparent and accessible to everybody around the world. Krause House is an example of a DAO business run by basketball fans to run the National Basketball Association.
Grant DAOs
In a grant DAO, the community contributes funds to the grant pool and votes on fund allocation and distribution decisions. These DAOs are used to fund innovative DEFI projects, demonstrating how decentralised communities are more flexible with funding than traditional organisations.
The Grants architecture is used by Aave Protocol, one of the most well-known Grant DAOs, to support and build its community of DeFi initiatives. Those with excess funds can lend via this protocol, and those in need can borrow from the protocol’s participants.
Entertainment DAOs
Entertainment DAOs provide decentralised entertainment by allowing creators to bring their innovations to life while maintaining control over their administration. Flufworld members, for example, can customise 3D NFT Flufs (a collection of one-of-a-kind bunnies) and license them out.
The Bored Ape Yacht Club (BAYC) will also launch its Entertainment DAO, which will allow BAYC native token holders to vote on creative decisions.
Media DAOs
Media DAOs enable content creators (readers, for example) to contribute directly in the native currency as a reward in exchange for their contributions without involving marketers. For instance, Forefront provides DeFi aficionados with a tonne of opportunities, such as a crypto education hub and growth opportunities for incubated enterprises.
Social DAOs
Media DAOs allow content product owners (readers) to contribute directly without the involvement of marketers in exchange for the native token as a reward for their contributions. For example, Forefront provides numerous alternatives for DeFi aficionados, including a crypto education centre and growth prospects for incubated enterprises.
Technology layer for DAOs
Blockchain technology serves as the foundation upon which numerous protocols (including but not limited to Dash, Cosmos, Colony, and Ethereum) are developed. Companies on the platform level include DAOstack and Aragon, which use Solidity and may be referred to as DAO software as a service (DSaaS) models.
Aragon and DAOstack DAOs are deployed at the application level. However, it is not necessarily necessary to use these platforms to establish DAOs because you can fork existing DAOs to create the one that meets your requirements. DAOs, for example, are a component of the layer-2 ecosystem built on top of Ethereum.
Cryptocurrencies and digital assets can be moved directly within the DAO thanks to a feature called composability (a.k.a. “money legos”). Protocols and applications can be chosen and built in a variety of ways thanks to composability.