The world of cryptocurrency is getting bigger every year. With its exponential growth, modern technologies in that space are always emerging. Some of them are good and practical. Others are, to this day, mere theory.
A DAO is one of these crypto revolutions that have just started getting noticed. DAOs will disrupt the traditional way of running and managing corporations.
So, what is a DAO? How is it being implemented today? Does it have any drawbacks? How about its benefits? Does it come with any?
If these questions preoccupy your mind, rest assured. In this article, we will answer all of them for you.
What is a DAO?
A lot of people confuse "the DAO" with "a DAO". The two are completely different.
The DAO is the first-ever founded Decentralized Autonomous Organization. It was created in 2016 by two German engineers. The project, unfortunately, did not see light. Soon after its launch, a group of hackers was able to find a security vulnerability in the code, which allowed them to steal more than fifty-nine million dollars’ worth of Ethereum from the organization. That led to the failure of the project and the split of the Ethereum network.
A DAO or a Decentralized Autonomous Organization, on the other hand, is any internet-based organization with no central leadership and whose governing rules, principles, policies, smart contracts, and assets are stored in a built-in treasury on the Blockchain. DAOs come with a built-in treasury that no one has the right to access without the consent of all the members.
DAOs are collectively managed entities whose main goals are to eliminate hierarchical management and democratize managerial decision-making.
There are three main stages a DAO goes through before it becomes up and running–the creation of the smart contract stage, raising funds for the DAO, and the actual launch of the DAO.
In the first stage of creating a DAO, the developers put the rules and the policies of the organization in what is known as smart contracts. Once the rules are established, the founders then launch a fundraising campaign to fund the project. This is where the members will start buying the DAO's token to be part of the organization. The final stage is placing the DAO onto the Blockchain.
How are DAOs being used today?
DAOs are not just imaginary entities on the internet. There are some real examples of successful uses of Decentralized Autonomous Organizations in different sectors, like charity, investing, fundraising, money lending, as well as collecting NFTs.
In the NFT space, for example, a famous example would be Unicly. This is a community governed platform where members can buy and sell fractionalized NFTs.
Pleasr is another example of a DAO. Pleasr is a collectively run platform where unique pieces of NFT are being traded.
In the charity sector, the Big Green DAO is a good example of a successful DAO. BGD was founded by Elon Musk's brother and the owner of the Big Green company, Kimbal Musk, in 2021. It provides support, training, and material for schools and communities to help them grow their own food.
Advantages of a DAO
DAOs come with a lot of advantages. These include decentralization, transparency, democracy, and financial stability. Let us look at each one of these positive aspects of a DAO.
● A DAO is decentralized
A decentralized governing structure is one of the core values of a DAO. Unlike traditional institutions, where the people at the top of the pyramid make most of the company's decisions, DAOs have an almost flat management structure. In a DAO, every stakeholder has a say in how the organization should be operated and managed. This community-based decision-making approach helps give rise to new and innovative ideas that could help the company move forward a lot faster.
● It is democratized
In an organization, all members have the right to vote and have their opinions heard. Decision-making, in a DAO, is done through a governance token. This means that to vote or share a proposal, a member must first spend their own hard-earned money. Therefore, members must think twice before voting or sharing a proposal. This filters out opinions; only serious and constructive proposals are shared.
● It is financially more stable
A DAO's funding is its own members. To be part of a DAO, a member must first buy a digital token. So, unlike a traditional company, where only a select few hold most of its capital, a DAO has no limit in the number of capital shareholders. A DAO's capital will keep growing as more members join the organization. This helps diversify the capital and takes a lot of financial risk off the table.
● It is transparent
In a DAO, all the organization's policies and principles are pre-recorded on the Blockchain. Once these are set, no one else has the right to change them, including the founders of the organization. Members willing to be part of the organization will have access to those rules before they buy their first token. The members will also be able to see where their funds are being spent in complete transparency.
Drawbacks of a DAO
DAOs have a few inconveniences too. They are as follows:
● DAOs are susceptible to security breaches
This is one of the biggest cons of a DAO and it is one of the things that prevents a lot of people from joining such organizations. Since DAOs are built with lines of code, they will always remain susceptible to attacks. The 2016 failed launch of the first DAO is proof that DAOs need to work a lot harder to be more secure.
● They are not fast to decide
While collective decision-making helps produce creative ideas that could benefit the company, it also makes the process a lot slower as the community grows.
Conclusion
DAOs have not reached a point where they can replace traditional corporations yet. However, soon, this could be possible. Because of their transparent management system, privacy, and a sense of democracy and community, they are more appealing to people than traditional top-down structured corporations. For the masses to believe in them though, DAOs should work on securing their systems, because when someone comes across stories of data leach and money theft, it's unlikely for them to take part in such a system, despite its many advantages.
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