They are some special mystery terms or words, which attract attention from the first time you spotted them. Even if you do know the meaning, the gut feeling tells you – Yep, you came across a new powerful one!
DAO is certainly one of those examples and it stands for Decentralized Autonomous Organization. Nothing more, nothing less, just it! But what a DAO is?
In simple words, a DAO is a group of people who come together to make decisions through a decentralized system 1 (Reiff, N.2022).
The decision-making process is automated through a blockchain network, which ensures that decisions are made based on a predetermined set of rules and without any central authority.
DAOs are often used in the context of decentralized finance (DeFi) applications, where they allow users to pool their assets and make collective decisions about how to invest or allocate funds.
Also, we can talk about early, traditional, and conservative DAO models and later versions of flexible DAOs. But for this article, I stop here with no further explanation of DAO sub-models.
It is worth noticing that DAO operates on the blockchain, which means that all decisions are recorded and stored immutably on a usually public ledger. This ensures transparency that all members of the organization are on the same page and can see what decisions have been made and how funds have been allocated, making it difficult for any one member to engage in fraudulent behaviour.
To simplify, it is a new model of organization that operates on the blockchain.
At its heart, a DAO is a group of people who come together to achieve a common goal, but instead of being controlled by a central authority like a government or a company, a DAO is governed by its members through a set of rules encoded in smart contracts on the blockchain.
Think of a DAO as a digital version of a traditional organization, where members can participate in decision-making, propose their own ideas, and even vote on how funds should be allocated. But unlike a traditional organization, where decisions are made by a few individuals at the top of the hierarchy, DAOs give every member an equal say in the organization’s direction. At least in theory, as no one solution is 100% ideal, or prefect.
DAOs can be created for any purpose, from investing in cryptocurrency to governing a charity or social enterprise. Some practical use cases may include:
Decentralized Finance (DeFi)
DAOs are a very important component of DeFi applications, where they allow users to pool their assets and make collective investment decisions. A group of investors might create a DAO to invest in a particular cryptocurrency, or digital assets with each member contributing a portion of the overall investment. The DAO would then make investment decisions based on the rules encoded in its smart contracts, which might include factors like market conditions, trends, or the performance of the asset.
The good news is that DAO operates on a decentralized network, they can operate without the need for intermediaries like banks, investment firms, or corporate structures. This allows for greater transparency and reduces the risk of fraud or corruption.
Non-profit Governance
This model can also be used to govern non-profit organizations, ensuring that decision-making is transparent, fairer, and more democratic. For example, a group of people might create a DAO to govern a charity or social enterprise, with members collectively deciding how to allocate funds and make strategic decisions.
Because DAOs are automated, they can operate more efficiently than traditional, human-only-run, non-profit organizations, which often require lengthy decision-making processes and often red-tape bureaucratic structures.
Decentralized Autonomous Companies
DAOs can also be used to create decentralized autonomous companies (DACs), which are organizations that are entirely run by smart contracts and operate without human intervention. In a DAC, all decisions are made by smart contracts, which are programmed to follow a set of rules and guidelines.
DACs are still a relatively new concept, but they have the potential to revolutionize the way that businesses are run. Because they operate without the need for human intervention, DACs can reduce costs and increase efficiency, while also ensuring transparency and accountability. Usually, a human-in-the-loop is a good idea, even for Decentralised Autonomous Companies. At least in the author opinion.
Decentralized Autonomous Communities
Finally, DAOs can be used to create decentralized autonomous communities (DACs), which are groups of people who come together to achieve a common goal. For example, a group of people might create a DAO to fund a particular project, with members collectively deciding how to allocate funds and make strategic decisions.
DACs are like non-profit organizations, but they operate on a decentralized network. Because decisions are automated, DACs can also operate without the need for middle-man-powered intermediaries.
Content Creation and Curation
It can be used to fund and curate content creation, such as articles, videos, or podcasts. For example, a group of people might create a DAO to fund a blog that covers a particular topic. Members of the DAO can collectively decide which articles to publish and how to allocate funds for content creation.
This business model can also be used for social media platforms, where users can earn rewards for creating and curating content. By using a DAO, content creation, and curation can be more democratic and transparent, with users having a say in the direction of the platform development.
Gaming
It is allowing players to pool resources and make collective decisions about in-game activities. A group of players might create it to fund and govern a guild in a multiplayer game. Members can collectively decide how to allocate resources, make strategic decisions, and manage the guild.
This model can also be applied to other aspects of gaming, such as funding and developing new games. By using a DAO model, game developers can raise funds from a community of investors and involve players in the development process. How cool it is?
Real Estate
In the real estate industry, DAO organised investors may pool resources and collectively make decisions about property investments. Investors might create a DAO to invest in a real estate property, with members collectively deciding how to allocate funds and manage the property.
By using a DAO, real estate investment can be more transparent and democratic, with investors having a say in the direction of the investment.
You do not need to be a youngster, nerd, or tech enthusiast to benefit from DAO.
It can be useful for people of all ages, including seniors, and here are some reasons why:
Help to understand new technology.
DAOs are a relatively new technology that is changing the way organizations are run. By understanding what a DAO is and how it works, seniors can stay up-to-date with new developments in technology and be better prepared for future changes.
It gives opportunities for participation.
This model enables a new way for individuals to participate in decision-making and governance. Seniors who may have retired or have more free time on their hands can join a DAO and use their skills and experience to contribute to the organization’s goals.
Opening the way to financial benefits
Many DAOs operate on the blockchain, which can offer financial benefits such as lower transaction fees, increased security, and lighting fast processing times. Seniors who are interested in investing or managing their finances can benefit from understanding how DAOs operate on the blockchain.
Community building.
It is possible to build communities around shared goals and interests. Seniors who may be feeling isolated or looking for new social connections can join a DAO that aligns with their interests and values and connect with like-minded individuals from all over the world.
Philanthropy and social impact.
It can be used to support social causes and philanthropic efforts. Seniors who are passionate about giving back to their community or supporting a cause they believe in can join a DAO that supports these efforts and make a real impact and difference.
Art and music.
It is a powerful tool that can be used to support artists and musicians. For example, a DAO could be created to fund the production of a new album, with members receiving a share of the profits based on their investment.
Sports.
Finally, DAOs can also be used in the world of sports to manage fan clubs, sponsorships, and even player salaries. As an example, a Sport-Club DAO could be created to manage a professional sports team, with members voting on coaching decisions and player salaries.
Whatsoever you think after reading this short introduction to governance by DAO, is it wrath to read about it more 2 (Ris, K. 2022). Just start a small private study, join a Discord Server, and try to experience a real DAO, in Action!
You can even establish your own home purpose or commercial DAO 3 ( Benson, S. 2021). Just for fun, many making or both.
I wish you luck with your DAO journey from now, author 😊
References:
- Reiff, N. (2022) Decentralized Autonomous Organization (DAO): Definition, purpose, and example, Investopedia. Available at: https://www.investopedia.com/tech/what-dao/ (Accessed: 20 May 2023).
- Ris, K. (2022) How to start a DAO: Complete step-by-step guide, Lumen Spei – Digital transformation is a web 3.0 experience. Available at: https://lumenspei.com/how-to-build-a-dao/
(Accessed: 20 May 2023).
- Benson, S. (2021) How to build a DAO. Available at: https://www.youtube.com/watch?v=DFpEWATDego (Accessed: 20 May 2023).