Saturday, March 12, 2022 4:03 PM
Decentralized autonomous organizations, the next big step?
Online communities, communities with a common interest on the Internet, can range from social networks, grassroots organizations to customer communities. We as a society are communal by nature, so it makes sense to share ideas and interests with others online.
Whether we build relationships with people directly or indirectly, communities are being built. However, how we do it is different. 2021 marks the fact that we have been able to see the power of such a community.
Think of the Gamestop hype in the stock market, but certainly also the Shiba Inu in the cryptocurrency market. From this it can be concluded that communities with a common interest can influence the price, a lot of influence.
The question arises whether we can also see the power of communities in a different way. What if one could unite all the common forces to do something for oneself?
Decentralized autonomous organization
This is where the ‘decentralized autonomous organization’ (DAO) phenomenon comes into play. DAO stands for Decentralized Autonomous Organism and is a company that works independently, without staff.
The entire operation is written in programming code and by means of smart contracts (an article will be devoted to it) the company knows exactly what to do.
As a decentralized autonomous organization, there are no leaders, employees, or operations outside of the published rules codified in smart contracts, so everything is public and verifiable.
These rules govern the operation of the company, which is owned and managed collectively by its members, with a treasury that no one can access without the consensus of the group. Decisions are made by voting on proposals.
As with stocks, you have a say in the company if you own stock in that company. This is no different with a decentralized autonomous organization, but in the case of a DAO, a governance token must be used. The more tokens, the more voting power.
The most famous DAO that exists right now!
Many DAOs already exist. Let’s take a look at the most important/well-known ones for convenience. Hereby, I will introduce you to a new resource called DeepDAO. DeepDAO is to DAOs what CoinMarketCap is to tokens: a place to check rankings, financial and governance analytics on any DAO.
According to DeepDAO, today there are more than 186 DAOs with access to $15 billion in their coffers. One of the most famous DAOs in the crypto world is Uniswap. In short, Uniswap is a place where merchants exchange their Ethereum tokens on Uniswap without having to trust anyone for their money.
Meanwhile, anyone can lend their crypto to special reserves called liquidity pools. In exchange for providing these groups with money, they earn fees. As you can see in the picture, Uniswap’s weekly volume is at an all time high!
So, it is a decentralized exchange, it lacks understanding to cover so quickly, so I will dedicate another article to it.
From NFT to DAO
In recent years, many new developments have been seen in the field of blockchain. Consider for example an NFT, in my previous article I discussed whether an NFT is the future. In addition, we have been able to introduce a new type of financing, namely decentralized (DEFI).
Now everyone in your family talks about the METAVERSE, the virtual world. These are all developments that are fairly recent. However, DAOs have been around for a long time. These new developments caused other things to creep in: namely, the death of the initial DAO drive.
While you’re probably at least familiar with the terms Bitcoin, Ethereum, DEFI, Metaverse, and NFT (if you’ve read the sharer), you probably don’t know what a DAO is.
But DAOs are making a comeback with a diverse set of use cases. Now that you have a better idea of what DAOs are, it is important to learn more about their background and characteristics to appreciate the full picture. In my opinion, DAOs could be the next big thing after NFT. In any case, it has already been reported.
How come the DAOs are covered in snow?
To understand the present, we must also understand the past. The fact that the DAOs are covered in snow is pretty clear and easy to explain. As I said, we have also seen other developments in recent years, which were perhaps a little easier to grasp.
DAOs are one level above NFTs: DAOs can own NFTs and create NFTs, as well as do many other non-NFT things, and have more potential than NFTs. In short: an NFT is a piece of digital media; a DAO can be an entire media company.
Because they are more complex, they are not as easy to capture in a headline as they are with NFTs. But for that we are here and read my article 🙂
A DAO seems to be far from your bed program, but nothing could be further from the truth! A recent news report shows that BlockbusterDAO is on the verge of an acquisition of the listed company Blockbusters.
They do this through the launch of NFTs. The group is proposing to raise $5 million or more via non-fungible BlockbusterDAO tokens for 0.13 ETH to fund the deal.
All these decisions are made by accepting or rejecting proposals made by the people themselves. So you can see theory being put into practice here, because a proposal has been accepted to issue NFTs with the proceeds going to the treasury and then used for a Blockbusters takeover.
So this is the textbook example of a result of theory in practice. It can be concluded from this that this phenomenon is gaining ground, even in the ‘real’ world.
Advantages and disadvantages of a DAO
Finally, I will once again list the advantages and disadvantages of decentralized autonomous organizations. The advantages:
- Efficiency: A DAO will immediately distribute funds appropriately and proportionately to the action. New projects immediately find funding this way.
- Accessible to everyone: Anyone can participate and become a member of a DAO. All you need is an Internet connection and a share in the DAO.
- Voting Rights – A DAO will reward investors with governance tokens. This is similar to the dividends that shareholders receive for their participation in a company.
- Vulnerabilities: Because DAOs are based on smart contracts, human negligence or mistakes can cause problems. A highly funded protocol can fall into the crosshairs of cybercriminals. After all, a DAO is a collection of code. When this code can be cracked, undesirable things can happen.
- Partisan governance: a vote will take place when a majority is reached. People with a lot of influence may vote for you.
- Lack of clarity in terms of legislation: As a law student, naturally, I also observe the legal framework. The DAO is a form of government that can be accessed through the Internet. This may cause laws and regulations in certain countries to be violated. DAOs are in a gray area with respect to legal frameworks on securities laws and corporate rights.
- Difficult code to change: Because any code changes can only be added after consensus, some changes will be slow. This inability to quickly and seamlessly modify code makes the DAO vulnerable.
Easier to understand is that DAOs are a new way to finance projects, govern communities, and share value. Instead of a top-down hierarchical structure, they use Web3 technology and rapidly evolving governance and incentive systems to distribute decision-making power and financial rewards.
They usually do this by issuing tokens based on participation, contribution, and investment. Token holders will have the opportunity to submit proposals, vote and communicate. If blockchains, NFTs, smart contracts, DeFi protocols, and DApps are tools, DAOs are the groups that use them to create new things.
If they are the what, DAOs are the how. They are the Web3 version of a company or community. And as people experiment with new building blocks and structures, DAOs will have emerging properties that we cannot predict today. That’s why I think we can still beat this ‘hype’.
DAOs will revolutionize the way future businesses will operate, with startups existing as a blockchain-powered DAO and members around the world, rather than a corporate headquarters.
These startups have responsible and proactive members of the DAO at the helm, while having a low barrier to entry when the startup needs additional resources or, for example, needs a new team member on board.
DAOs will be an efficient way to create a cooperative on a global scale and will provide a more efficient and secure way to run a business.
This article was written by Vince van Hoesel