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What Is A DAO? And How Do They Work?

12 mins read
what is a dao

Spend enough time in the NFT world, and you’ll hear a lot about DAOs. From attempts to acquire the US Constitution with a DAO to NFT projects looking to entice investments with DAO-led bonuses, this sector’s influence and strength are only now being recognized.

A DAO is a “Decentralized Autonomous Organization.” They exist as smart contracts on various blockchains and allow groups of individuals to co-operate and pool capital. DAOs are used to autonomously manage and secure blockchains, acquire assets such as NFTs as well as borrow and lend cryptocurrencies.

While familiarity with DAOs and their use comes with time and you can give yourself a head start by better understanding how they work and how the crypto-space is currently using them. In this article, we will not only ask what is a DAO but also why they exist, and where they are going.

What is a DAO or Decentralized Autonomous Organization?

DAOs, as decentralized autonomous organizations, allow groups, people, and professionals to securely pool their resources and collaborate to achieve certain objectives. A DAO is a decentralized organization that is run by a set of rules encoded on the Ethereum blockchain. The first DAO was created in 2016, and since then, many other DAOs have been created.

The idea isn’t new. People have long drawn strength from numbers, and working together is the basis of all communities and society. What DAOs provide, on the other hand, is a mechanism for organizing cooperation without the need for a central authority, which is typically an weak link in terms of security.

The bottom-up structure of DACs means that the group of people and organizations runs the organization. They generally participate in a DAO by holding and staking governance tokens, or assets such as NFTs.

DAOs are a secure means to co-operate, trade, and interact with people from all over the world. They’re native to the internet and run by DAO members. They’re commonly used to vote on blockchain initiatives, manage treasury funds, and reward contributors.

DAOs are still new, and it remains to be seen how successful they will be in the long term. However, they have the potential to revolutionize the way that organizations are run.

How Do DAO’s Work?

DAOs are lines of executable code that are run on the blockchain, usually Ethereum, and are known for keeping a company’s operations transparent. This material is auditable, which means DAOs are transparent. A single person could derail an organization’s plans outside of a DAO, DAO’s prevents such events from happening by only allowing authorized code executable.

All DAO projects rely these codes that are called smart contracts, which are sets of computer code that regulate a project’s interactions and activities. Smart contracts are designed to ensure that transactions agreements are met, and fairness is maintained, by checking to see whether prerequisites have been met before executing the contract.

After these rules have been recorded on the blockchain, the next step is to raise funds: how will the DAO obtain money and how should it govern itself?

This is generally done through the issuance of tokens, in which the protocol sells tokens to raise cash and replenish the DAO treasury.

Smart contracts are thus the backbone of the DAO, which are voted on and molded proportionately by the members’ stakes in it. Because DAOs are decentralized, they must be implemented only after a majority of stakeholders agree to do so. The minimum threshold for each DAO project is different.

In return for their cash, token-holders are entitled to a certain amount of voting rights that is usually proportional to the quantity they possess.

Finally, a DAO is run by its individual members, who together make key decisions about the project’s future, such as technical upgrades and treasury expenditures.

How to be a part of the DAO’s Why are they Important?

Once you’ve discovered a project that piques your interest, there are a few distinct methods to get involved. I believe it’s worth mentioning that not all DAOs have the same objective, which is why determining the fundamental purpose of each DAO is the first step.

It’s critical to understand the types of voting rights given to token holders and the nature of calls being made by DAOs focused on technical governance.

Token holders are able to cast votes in some cases, such as Uniswap, which allows them to influence the amount of fees that the protocol receives. In other protocols, such as Compound, token holders may vote on how fees from the network should be distributed.

DAOs remove the need for trust and oversight by central authorities to enforce agreements, since they rely on immutable, verifiable smart contract code. Instead of a hierarchical structure, arrangements have a flat top-down organization with any stakeholder able to vote and propose modifications.

DAO-powered organizations can help individuals get involved with projects and acquire a portion of assets that they would never have been able to do so alone. Joint ownership is possible, as well as future benefits, by pooling resources.

One of the most important benefits is that a DAO has transparency. The details of each proposals are readily available, voting history is continuously recorded, and even individual token holder voting records can be seen.

DAOs frequently invite the community to contribute creative ideas through grant-funded initiatives, and anybody with an entrepreneurial spirit may submit proposals to assist guide the future growth of a protocol.

Top 10 DAO Projects You Should Look out For

Image from: https://www.rtinsights.com/

With DAOs, we are only just scratching the surface. We’re just getting used to dealing with the concept of organizing large groups of people to attain certain goals without the need for trust.

Despite this, DAOs are not yet widely used. They are not (nearly) exclusively utilized for crypto operations, but their applications are expanding.

1. DAOhaus

DAOhaus is a code-free platform for creating and administering DAOs. It’s run and maintained by the community. Look no further if you’re interested in establishing your own DAO or diving into the exciting world of decentralized organizations.

2. PleasrDAO

PleasrDAO (https://pleasr.org/) is a group of DeFi leaders, NFT collectors, and artists that aims to establish a collecting empire by experimenting with the notion of shared ownership. PleasrDAO is experimenting with the concept of fractionalizing NFTs, memes and many other digital assets.

The PleasrDAO collective isn’t new to making headlines. In July 2021, the DAO bought the final known copy of the Wu-Tang Clan’s “Once Upon a Time in Shaolin” for $4 million behind closed doors. Collectively, members of the DAOs were able to acquire the real-world item that has since been minted as NFT.

3. BeetsDAO

BeetsDAO are a community of collaborators and collectors that have been pooling resources and making group investments to help the NFT music industry grow.

The DAO currently has 99 members, up from just 58 when it was founded. While the DAO is quite exclusive, it also encourages participation from the general public by periodically offering seats in its “collaborator network” for members who get artist access, airdrops, and more.

4. MakerDAO:

You can participate and contribute in governance by voting on changes to the Maker protocol that created the world’s first unbiased stable coin, DAI.

5. RaidGuild

The MetaCartel network created the service-based DAO, which is now deeply entrenched in the Web3 world. If you have programming, marketing, or design skills that you’d want to offer to the guild, they’re looking for top quality talent to keep killing product monsters.

6. APE DAO

The APE DAO started by fractionalizing 49 of the Bored Ape Yacht Club’s NFTs and a female CryptoPunk. The DAO divided the NFTs into one million APED tokens, allowing investors who would otherwise be not be able to participate in the ownership of these assets. Created by the popular NFT collector, Kylo.eth.

7. Proof Of Humanity

This registry of people employs social validation or verification and Kleros’ courts to distribute Universal Basic Income (UBI) coins on-chain to verified members. This democratic DAO is where you should begin if you wish to join the justice revolution.

8. DecentralandDAO

For those already immersed in the metaverse, Decentraland is one of the most well-known virtual realms available. Despite the fact that millions of dollars worth of LAND has now been sold on its 90,000 limited plots, it is still governed by its DAO.

The Decentraland DAO, like a homeowners’ association and governing board, represents owners based on the amount of LAND and MANA (the native token) they possess and grants shared ownership of the world.

9. BanklessDAO:

Do you want to spread the word about Web3 and educate the public through articles? This DAO is focused on media. You may discover additional information here.

10. MolochDAO

This OG DAO provides funds to help build the Ethereum ecosystem. You may be asked to provide information in this form if you want to join as a governing member and contribute to this group.