Definition
DAO, short for Decentralized Autonomous Organization, is an organization represented by rules encoded as a computer program. It is controlled and supervised by the originator, shareholders or token holders and is not influenced by a central authority. A DAO keeps itself running through smart contracts and encodes transactions and rules on the blockchain, achieving openness, fairness, uninterruptibility and autonomous operation.
In contrast to traditional organizations, the actions and financial flows that occur in a DAO are visible to all, greatly reducing the risk of corruption and censorship. Compared to the situation that most shareholders have no access to the current financial status of a company, DAOs have a balance sheet on a public blockchain where every transaction is recorded and transparent.
DAOs are internet-based organizations, collectively owned and organized by their members. DAOs give us a way of collaborating with other people all over the world without ever meeting them. Members can establish their own rules and vote on key decisions using blockchain, and without bureaucracy or hierarchy. As DAOs are built onto public blockchains, they are open source. Anyone can inspect their treasuries as all financial transactions are stored on the blockchain.
From a high level, DAOs can be thought of as social coordination mechanisms to solve a common goal. Paired with an on-chain treasury management system responsible for dictating how decisions, funding and upgrades are made, DAOs provide a technical framework to pool funding in a secure fashion.
Development
In 2013, Daniel Larimer first proposed the concept of DAC (Decentralized Autonomous Corporation), which is considered an early prototype of DAO. The following year, Vitalik Buterin explained DAO in detail, which made the definition of DAO become clear for the first time.
Vitalik described DAO as follows:
âInstead of a hierarchical structure managed by a set of humans interacting in person and controlling property via the legal system, a decentralized organization involves a set of humans interacting with each other according to a protocol specified in code, and enforced on the blockchain.â
After that, the idea of DAO accelerated its spread. By modern standards, the first DAO is Dash DAO, whose emergence dates back to August 2015. Dash DAO allowed stakeholders to vote through its governance mechanism. This marked the official march of DAO from a general concept to a concrete implementation. Meanwhile, the year 2015 also saw the official launch of Ethereum mainnet and the emergence of smart contracts that incorporate DAO.
After years of development, as of now (May 24, 2022), there are 1078 DAOs managing more than $10.4 billion in assets and nearly 2 million members. These range from DAOs that help manage some of the largest crypto protocols to smaller DAOs organized around causes such as investments, social communities, media and philanthropy. 91 of these DAOs have a market cap of more than $1 million, representing 8.4 percent of the market cap of DAOs, and 16 DAOs have a market cap of over $100 million, representing 1.5 percent of the total market cap. Some of the top ranked DAOs include Uniswap DAO, Gnosis DAO, BitDAO, UXDProtocol DAO and OlympusDAO, most of which are built upon Ethereum.
Advantages
The advent of Web3 is driving a transformational change in human activity and value, and collaboration among distributed communities and stakeholders is becoming increasingly important. DAO bridges the gap between participants with the same mission or goal around the globe, and the real meaning behind DAO is that capital and talent from all over the world can collaborate at scale in an instant.
Fast and borderless convenience
DAOs are more efficient and convenient than traditional organizations in facilitating globalization. Instead of operating in one or a few jurisdictions, DAOs seek to expand globally, bringing together thousands of members, regardless of their geographic location, background, or beliefs. DAOs offer a solution that allows everyone to work on equal terms by adhering to the same set of standard rules, and provide a system of parity for the formation and operation of organizations.
Democratic and highly participatory voting
Traditional organizations tend to make important decisions through meetings of a few people, which can result in selected results not necessarily representing the majority opinion of the organization. DAOs can change this by allowing anyone in the organization to vote on issues they care about. Besides, DAOs do not use a system that ignores or disregards opinions from members of the organization, but rather ensures that all votes are counted and displayed to everyone.
Autonomy and non-tamperable rules
A DAO is often seen as a decentralized enterprise or company. While it is certainly more commercially and practically relevant to understand DAOs at the company level, we need to be clear that DAOs are not a specific organizational entity. Unlike the traditional âtop-downâ management model, DAOs are more âflat managedâ and âautonomousâ in nature. The policies and rules of a traditional organization determine how the organization will operate, but they are often changed by setting exceptions to this rule. In a DAO, the rules are coded to ensure that they apply to everyone, and the set of rules established within a DAO cannot be tampered with unless the voter base agrees to do so.
Classification
In recent years, DAOs with different functions have gradually started to emerge: infrastructure, incubator, protocol, investment, service, collection, social, and media, etc. They have also entered the current exploration period, exploring the utility and value of DAOs within different purposes, application scenarios, and ecosystems.
There are many different types of DAOs, all of which serve as a governance mechanism to ensure that important notions are discussed, proposed and implemented in accordance with the communitiesâ best wishes. Below, a few key types of DAOs are listed, along with some specific and notable examples.
Protocol DAOs
Protocol DAOs transition power from a core team into the hands of the community, spawning a new way for projects to issue fungible tokens into the market. These DAOs are used as an ownership and governance mechanism for lending platforms, yield optimizers and more, to maintain and evolve the underlying platform in a fair and decentralized manner.
Some of the most major protocol DAOs include those behind DeFi platforms such as:
Uniswap DAO â Being the largest decentralized exchange on Ethereum, Uniswap launched its governance system and token in September 2020. UNI holders vote or delegate votes which control the protocolâs direction, fees, treasury and so on.
Maker DAO â One of the original DAOs of the DeFi ecosystem. As the governance mechanism for the famous stablecoin (DAI), Maker utilizes a DAO framework to vote on things like adjusting the DSR interest rate, the stability fee, or even triggering an emergency shutdown.
Investment DAOs
With Protocol DAOs bringing new tokens into the world, it only seemed logical that groups band together to invest in them. Investment DAOs are similar to traditional investment funds that operate with pooled capital. However, rather than a single centralized party calling the shots, investment DAO token holders can vote on what the pool of funds is invested in.
Examples of investments DAOs include:
MetaCartel Ventures â A âsub-DAOâ under the broader MetaCartel DAO. It is one of the first for-profit DAOs and invests in nascent DApps. It is also one of the first experiments where non-accredited individuals can have a real say in early-stage investments, which were previously restricted to accredited investors, venture capitalists and angel investors.
The LAO â Structured as a member-directed venture capital fund in the US, the LAO is an interesting take on DAOs. It is registered as a Delaware limited-liability company and compliant with US laws, but carries out its functions via a DApp and smart contracts.
Social DAOs
While social media turned everybody into a media company, Social DAOs turn every group chat into a digital business. Members gain entry into a certain social DAO by paying a membership fee in the form of purchasing a certain number of the DAOâs tokens. These social DAOs can take the form of any social circle, which often shares a common interest, such as:
Friends with Benefits DAO â An exclusive social club, which one can only join by owning a certain number of the FWB token. Consisting primarily of web3 artists, operators and enthusiasts, Friends With Benefits DAO members gain exclusive access to token-gated events, mastermind discussions and more.
Bored Ape Yacht Club DAO â To gain entry into the club, you must own a BAYC NFT. Each of these NFTs is linked to a unique âbored apeâ profile picture. Although the actual DAO and governance portion of the project is still in the pipeline, several celebrities have recently purchased BAYC NFTs, making it in the public eye.
Others
Due to the limitation of space, there are many other types of DAO that cannot be introduced one by one. For example, Grants DAOs to fund and foster new ventures or projects, Collector DAOs seeking to purchase and curate valuable collections including NFTs, Media DAOs aiming to reshape the way content producers and consumers interact with media, Service DAOs exploring the future of work and reshaping the way people work, etc.
Limitations
Despite the booming growth that has been achieved, DAO still faces huge challenges and has a long way to go. The major shortcomings of DAO are not negligible and need to be addressed urgently.
Lack of legal and regulatory clarity
Given that DAOs do not exist anywhere and do not operate like corporations, they cannot fully fit into the existing regulatory framework. DAOs must address a variety of thorny regulatory and legal issues.
Lack of effective coordination mechanism
The reason centralized organizations donât involve every member in every decision is that â itâs a very inefficient way. Many of todayâs DAOs exist under somewhat crude governance structures, which can lead to chaotic decision-making processes and unsatisfactory results.
Lack of developed infrastructure
Traditional organizations benefit from a highly developed operational infrastructure for their clear structure and efficient decision-making processes. The current phase of DAO is to build from scratch an infrastructure similar to that of traditional organizations for governance, compensation, money management, communication, etc.
Immaturity and security risks
The immutability of smart contracts is both an advantage and a disadvantage for DAO due to the immaturity of the technology itself and the existence of security risks. Once the contract rules are encoded, the system will be up and running, making it difficult to change them. In addition, any known security issues can be exploited because the code is visible to everyone and difficult to repair.
Conclusion
The emergence of DAOs in the Web3 world has innovatively solved many of the problems in corporate governance, demonstrating advancement compared to traditional centralized organizations. These advantages were previously unimaginable: the elimination of hierarchy and power consciousness, the achieving of community maintenance, shared decision making and full benefit sharing, all the progress can be marked as a big breakthrough.
With the emergence and upgrading of different types of DAOs in recent years, we firmly believe that the application of DAO in the future will develop from the bottom up, and continue to adapt and improve, until it is strong enough to make a huge difference to the whole society.
Disclaimer: This research is for information purposes only. It does not constitute investment advice or a recommendation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision.
đŠ @chestersigned
đ 30 May 2022
Link:
https://mirror.xyz/bitwhalecapital.eth/JziaIjDP9ca3tTPLrE-RmtpxFWT1kL9EesaRU2X_uhQ
https://defirate.com/daos/
https://medium.com/iosg-ventures/overview-of-decentralized-autonomous-organization-dao-f9ac47051d07
https://coopahtroopa.mirror.xyz/_EDyn4cs9tDoOxNGZLfKL7JjLo5rGkkEfRa_a-6VEWw
