What is a DAO in the Crypto world?
Can you envision a way to collaborate with individuals worldwide without knowing who they are, defining your own rules, and making your judgments all while using Blockchain technology? DAOs, on the other hand, are making this a reality. DAOs provide the opportunity for more people to participate directly in projects they care about while also receiving pay. Passion turns into a job, which turns into a source of income. All this information must have created a desire to learn more about DAOs and how they work? So, what are you waiting for? Let’s have a look at it.
What is DAO?
DAO stands for the decentralized autonomous organization, which means that instead of doing everything on your own, you can now use a piece of code that will work in the same way and reduce human effort. It is a blockchain-based application that provides users with a built-in mechanism for shared code management.
Traditional companies with boards, committees, and executives are dependent on each other for example, companies like Apple, Netflix, Walmart will have board meetings to decide something. Then that information will be delivered to the CEOs and from CEOs to the Employees working in these companies. But DAOs do not work like that here; there are no CEOS, and things are governed by a set of rules defined in code and enforced by a network of computers running a shared software rather than by a small number of people.
How DAOs work?
DAOs are designed to resemble a company structure in which rules and regulations are created with open-source code and enforced with smart contracts. Smart contracts, which are mainly bits of code that execute automatically when a set of criteria is met, are used by DAOs. Smart contracts are now used on various blockchains, while Ethereum was the first to do so. If you want to participate in it, you will need to buy cryptocurrency. Then you will have the right to decide and influence how the organization operates by choosing on or creating new governance proposals.
DAOs typically enter a fundraising phase after the initial set of rules has been developed and encoded into smart contracts, which anyone interested in participating can do.
DAO and Crypto
DAOs can continuously improve and grow just like people because their shareholders can give their opinion and vote to make changes for its betterment. In cryptocurrency, every DAO will launch 1 million tokens. Every token holder will have one vote, so the number of votes directly depends on the number of tokens a person holds.
Benefits of using DAOs
There are many benefits of holding a DAO token or becoming a part of it; some of them are as follows:
Trustless: DAOs biggest benefit is that they are trustless. You don’t need to trust any CEO or Manager or leader with your decision-making skills. The code will not keep working even if the major developer stops working or the funding goes away.
Cannot be shut down In the case of Major Corporation, any government service or CIA or FBI can come and tell you to shut it down or will ask for someone’s information, but it’s different when it comes to DAOs. If you need information from a DAO, the only fair way is to have more tokens and then submit a proposal, win a vote, and get that thing done.
Open Source DAOs are also open source, which means that anyone can access the code and try to use it, learn from it, and improve it. Being open-source allows other developers to help find bugs in the code, which will eventually help the main Developers.
The Limitations of DAOs
It’s oftentimes difficult to find the real value proposition to the sorts of blockchain-based applications that are built more around buzzwords rather than real-world use cases. DAOs are yet another area of the cryptocurrency ecosystem where the term has become more than a buzzword than anything else. In many cases, something can be called a DAO or DeFi without actually having much to in terms of real decentralization.
As mentioned previously, the tokenomics behind a DAO’s token are extremely important, as simply referring to a particular project as a DAO does not mean that the token will necessarily increase in value as the application behind the DAO increases in popularity. Additionally, a DAO that has one or a handful of entities controlling the vast majority of the supply does not offer much in terms of decentralization. If one or a handful of token holders control the vast majority of the voting shares, then the level of decentralization achieved by the organization is more about theater than anything else.
Another potential issue with DAOs is they tend to add additional costs to the applications that are related to them. If someone were to fork the project related to the DAO and remove the fees or other aspects of the application that are supposed to provide value to the DAO’s token holders, then the value of the projects DAO token could collapse overnight. This is effectively what happened when the 0x Protocol was forked to remove to need to use a proprietary token associated with the platform.
It’s always important to remain skeptical of anything new in the Bitcoin and cryptocurrency space, as there have been plenty of bad ideas and outright scams implemented over the years. That said, it would make sense to continue to track the evolution of the DAO concept to see what level of value it can add to the entire ecosystem.
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