The ABC of DAOs

A decentralised autonomous organisation (DAO) is a non-centralized organisation. The community is managed by a set of rules enforced on a blockchain, and decisions are made from the bottom up.

DAOs are decentralised autonomous organisations (DAOs) that are cooperatively owned and governed by their members. They have built-in treasuries that may only be accessed with the members’ permission. Decisions are made by suggestions that the group votes on over a set period of time.

The ABC of DAOs 1The ABC of DAOs 1

A decentralised autonomous organisation (DAO) operates without the need for hierarchical management and can serve a variety of objectives. These groups can create freelancer networks where contracts pool their funds to pay for software subscriptions, philanthropic organisations where members approve payments, and venture capital businesses run by a group. A DAO can be joined in a number of ways, the most common of which is through the ownership of a token.

Smart contracts, which are essentially bits of code that execute automatically when a set of criteria is met, are used by DAOs. Smart contracts are now used on a variety of blockchains, while Ethereum was the first to do so.

The DAO’s regulations are established by these smart contracts. Those who own a share in a DAO are given voting rights and have the ability to influence how the company functions by voting on or proposing new governance proposals.

This methodology protects DAOs from being overwhelmed with requests by requiring that a proposal be approved by a majority of stakeholders. The method for determining that majority varies from DAO to DAO and is described in the smart contracts.

DAOs are completely self-contained and transparent. Anyone may see their code because they are built on open-source blockchains. Because the blockchain records all financial transactions, anyone may audit their built-in treasuries.

A DAO is typically launched in three stages:

  • Making a smart contract: To begin, a developer or group of developers must create the DAO’s smart contract. They can only amend the rules specified by these contracts through the governance system after they launch. As a result, they must thoroughly test the contracts to ensure that essential aspects are not overlooked.
  • Following the creation of the smart contracts, the DAO must decide how to acquire financing and how to implement governance. Tokens are frequently sold to raise funds; these tokens grant holders voting rights.
  • The DAO must be launched on the blockchain once everything has been set up. Stakeholders will now make decisions on the organization’s future. The founders of the organization —individuals who developed the smart contracts — no longer have any influence over the project more than the other stakeholders.

DAOs offer significant advantages over traditional organisations since they are internet-native. The lack of trust required between two parties is a significant advantage of DAOs. While a typical organisation demands a great deal of faith in the people who run it — particularly on behalf of investors — DAOs just require trust in the code.

It’s easier to trust that code because it’s open source and can be thoroughly tested before being released. After a DAO is started, every action it performs must be approved by the community and is totally public and verifiable.

There is no hierarchy in such an organisation. Despite this, it can still complete tasks and grow while being governed by its native token. Because there is no hierarchy, any stakeholder can propose an original concept that will be considered and enhanced by the entire group. Internal conflicts are frequently resolved quickly using the voting method, which follows the smart contract’s pre-written regulations.

DAOs let investors to combine assets and invest in early-stage enterprises and decentralised initiatives while sharing the risk and potential gains.