The DAO was a forerunner of today’s decentralized autonomous organizations. On April 30, 2016, Ethereum protocol engineer Christoph Jentzsch released open-source code for an Ethereum-based investment organization, launching the DAO. Those who held DAO tokens could profit from the organization’s investments by receiving dividends.
The DAO is a revolutionary project, and it raised $150 million in Ether (ETH), making it one of the best crowdfunding efforts of the time. Investors buy DAO tokens by sharing Ether with its smart contracts.
A DAO is a decentralized organization owned and managed collectively by its members. They have built-in treasuries accessible with the permission of their members. Decision-making is through proposals that the group votes on over a set period.
A DAO operates without hierarchical management and can serve a variety of purposes. These organizations enable freelancer networks where contracts pool funds to pay for software subscriptions, charitable organizations where members approve donations, and group-owned venture capital firms.
How does a DAO function?
DAO is an organization in which decisions come from the bottom up, owned by a group of members. There are several ways to participate in a DAO, the most common of which is through token ownership. DAOs use smart contracts, code that executes whenever necessary conditions get fulfilled. Smart contracts are now used on many blockchains, though Ethereum was the first to use them.
Stakeholders in a DAO can then vote and influence how the organization operates by deciding on or creating new governance proposals. This model prevents DAOs from being flooded with the proposal by requiring an approval process for stakeholders.
DAOs are self-sufficient and transparent, built on open-source blockchains, and their code is accessible to anyone. The blockchain records all financial transactions, allowing anyone to audit their built-in treasuries.
Decentralized autonomous organization types
DAOs get classified based on their mode of operation, and technology, as discussed below:
A protocol DAO is a type of DAO intended to govern a decentralized protocol, such as a borrow/lending application, decentralized exchange, or other types of dapp. Tokens get used as a voting metric for implementing protocol changes, such as a governance structure.
Examples: MakerDAO and Uniswap are two notable protocol DAO examples.
MakerDAO, one of the first Defi applications on the Ethereum blockchain network, uses smart contracts to allow users to lend and borrow cryptocurrencies at customized lending rates and repayable amounts.
Uniswap launched its governance token, UNI, which grants the community voting rights in the development and operation of Uniswap. UNI token holders control the Uniswap governance, UNI community treasury funds, the protocol fee switch, and much more. If token-holders want to change Uniswap or add new features, they must submit a proposal with a minimum of 25,000 UNI yes votes to proceed further.
The primary goal of Collector DAOs is for members to pool funds so that the collective community can invest treasury funds in NFT art and other collectibles, with each member owning a share equal to their investment. Artists who create NFT art depend on collector DAOs to confirm ownership.
A Collector DAO reduces the restrictions on NFT investments. Notable collector DAOs rose with the explosion of NFTs, collecting incredibly expensive NFTs from digital artists such as Pak, Hackatao, XCopy, and CryptoPunk #2890 NFT, which was purchased in 2021 for USD 760k.
Examples: Flamingo DAO
Flamingo is an NFT-focused DAO that seeks to investigate new investment opportunities for ownable, blockchain-based assets. NFTs include digital art, collectibles, in-game, and other physical assets. These new types of digital property play an increasing role in the monetization of online digital content. In the hands of artists, game creators, metaverse creators, or dwellers, NFTs evolve and ascribe value. FLAMINGO intends to support, acquire, archive, collect, and potentially tokenize critical components of this ecosystem.
Grant DAOs are charitable extensions of entirely separate entities in the Defi space. They are designed to facilitate nonprofit donations and strategically deploy capital assets throughout the web3 ecosystem.
In a Grant DAO community contributes funds to the grant pool and votes on fund allocation. These DAOs fund innovative Defi projects, demonstrating more flexibility with funding than traditional organizations.
Examples: Aave Grants DAO
Aave Grants DAO is a community-led program that funds ideas and projects that power the development of the Aave Protocol, with a focus on supporting a network of community developers. Aave Grants provide a set amount of funding each quarter. Grant submissions that are eligible include, but are not limited to, Aave development, integrations, developer tools, and more.
Social DAOs are especially for crypto-based social networking like Blockster. These platforms provide digital democracy by allowing everyone to share their common interests. Social DAOs, also known as creator DAOs, focus on the DAOs’ self-organizing community aspect by bringing together like-minded individuals such as builders, artists, and creatives.
While Social DAOs are community-oriented, they usually have a barrier to entry, such as owning a certain number of tokens, owning an NFT, or being personally invited.
Examples: Developer DAO
Developer DAO is a group of web3 developers working together to shape the future of web3. Members must have a genesis NFT or be one of the lucky developers invited to the private Discord server to join Developer DAO.
They are also known as Venture DAOs, and they enable capital pooling to democratize investing for various Defi operations. Venture DAOs pool capital to invest in early-stage web3 startups, protocols, and off-chain investments, as well as gain access to portfolios not available through traditional finance. Millennials support these DAOs because they are transparent and globally accessible.
Examples: Krause House
Krause House is an example of a venture DAO run by basketball fans to run the National Basketball Association. Krause House. It comprised investors and basketball fans attempting to purchase a professional NBA team. Members of the Krause House DAO would be involved in decisions affecting the operations of a National Basketball Association team, such as general management, ticketing, merchandising, and partnerships.
The Advantages of DAOs
A DAO structure gets pursued by an entity or a group of individuals for various reasons. A few advantages are:
Instead of depending on the acts of a single person (CEO) or a group (Board of Directors), a DAO can decentralize authority across many users. Decisions affect the organization by central authorities that are frequently vastly outnumbered by their peers.
Users within a commodity get connected and have voting power on all issues. Although these individuals do not have significant voting power, a DAO encourages the token holders to vote and use their tokens in ways they believe are best for the entity.
Voting occurs via blockchain within a DAO, and these votes are publicly viewable. Users act in ways they believe as their votes and decisions will be made public. In contrast to discouraging actions that harm the community, this encourages behavior that enhances the reputations of voters.
A DAO concept encourages global people to work together to build a single vision. Token holders can communicate with other owners from anywhere in the world using only an internet connection.
The average person will most likely not work for a corporation in the upcoming year. People earn money in unusual ways, like learning skills, creating art, or curating information.
This future of DAO enables crypto protocols to emerge as new ways of coordinating, quantifying, implementing, and rewarding contributions. This growth is already opening up passive income opportunities, resulting in an increasing transfer of value capture from companies to individuals participating in crypto networks.