What is Decentralized Autonomous Organization (DAO)? Understand it with Examples

Decentralized Autonomous Organization

In these days, we are listening to DAO too often, I am sure you must be curious to know about it. In this article, you will understand in a better way. Now, Let’s begin.

DAO, which stands for “Decentralized Autonomous Organization,” is a community-led organization. Its authority is distributed. It is completely autonomous and transparent. Unlike other organizations, DAO is totally managed by its individual members, who work together to make crucial decisions regarding the project’s future, such as technical upgrades and treasury allocations.

I think you have got a basic idea of what a Decentralized autonomous organization actually is. Now, its time to take a quick overview of DAO:

DAO: An Overview

Over the last few months, the buzz surrounding cryptocurrencies and Web3, in general, has been significant. While most people are already familiar with NFTs, there is a new word, DAO, that is gaining traction.

DAO is, in fact, a smart contract that has been agreed upon by people who have similar interests. These individuals then settle on a shared goal (the organization’s mission) and gather finances (native tokens) to achieve it.

Obviously, you’re thinking about how a DAO differs from a standard business contract. For starters, participants in a DAO participate in collective decision-making. Also, any suggested modifications within the DAO community must be authorized by the people who have put money into the project.

Each DAO project’s rules and objectives are determined on an individual basis. Every project, however, will eventually be required to be published as a smart contract.

So, Why do we need DAOs? How does Decentralized Autonomous Organization work? You can find the answers to these questions below. Hence, read the complete article. 

DAO Facts & Statistics

Lets look at some fascinating statistics of Decentralized Autonomous Organization:

  • As of January 2022, the entire market valuation of all DAO tokens was $21 billion.
  • The top 5 DAO tokens have a combined market capitalization of $13.2 billion.
  • Uniswap, with a market cap of $6.75 billion was the largest DAO token by market cap.
  • In the Decentralized Autonomous Organization ecosystem, nearly 47k decisions have been made and 2.5 million votes have been cast.
  • You can Check Investopedia for more info.

How does Decentralized Autonomous Organization (DAO) work?

Before we take a look at examples of DAO projects, let’s understand how they work.

  • The implementation of rules through community voting via smart contracts is one of the most important characteristics of DAO operation.
  • Smart contracts are used by DAOs to create the basic rules for their operations, which cannot be modified without the approval of the core community.
  • So, with today’s popular DAO initiatives, how do members utilize their voting rights? This is where the requirement for DAO tokens arises.
  • Members must purchase the DAO’s native tokens, which are essentially coins linked to the initiative.
  • According to their token holdings, all token holders have voting rights in the community.
  • The DAO tokens allow for ownership of the DAO’s equities as well as directing its future growth.

Now, after analyzing what you read there must be several questions arising in your mind. Hence, let’s look at why we need DAO?

Why do we need DAOs?

DAOs offer significant advantages over traditional organizations since they are internet-native. The lack of trust required between two parties is a significant advantage of DAOs. While a typical organization demands a great deal of faith in the people who run it — particularly on behalf of investors — DAOs just require trust in the code.

It’s easier to trust that code because it’s open-source and can be thoroughly tested before being released. After a DAO is started, every action it performs must be approved by the community and is totally public and verifiable.

There is no hierarchy in such an organization. Despite this, it can still complete tasks and grow while being governed by its native token. Because there is no hierarchy, any stakeholder can propose an original concept that will be considered and improved by the entire group. Internal conflicts are frequently resolved quickly using the voting method, which follows the smart contract’s pre-written regulations.

DAOs let investors combine assets and invest in early-stage enterprises and decentralized initiatives while sharing the risk and potential gains.

Advantages of Decentralized Autonomous Organizations (DAO’s)

You are much aware that people are talking about DAO’s much these days. the reason is only its good advantages. Now, let’s look at a few advantages.

  • DAO makes it possible to “hear” everyone’s thoughts. The full automation of blockchain technologies allows members of the organization to vote with proven honesty while also carrying out their decisions.
  • Blockchain technology helps to make the system transparent.
  • DAOs also have the added benefit of making it simple for communities all around the world to interact and collaborate on a prosperous vision. Anyone with an internet connection and governance tokens can contribute to the development of Web3.
  • DAO has a decentralized governance structure. Through system automation, you can get rid of the managerial staff with its help. Project organizers will be able to save money on salaries as a result.
  • Due to the absence of the human aspect, there is a low percentage of errors.

Disadvantages of DAOs

  • In a decentralized autonomous organization, decision-making takes time (DAO). This occurs due to the absence of a centralized regulating body. Token holders take their time making choices on issues, which slows down activity in a DAO.
  • A decentralized autonomous organization (DAO) allows all token holders to make decisions independently. Token holders have the ability to withdraw their uninvested contributions at any time.
  • A large withdrawal of donations, on the other hand, is a setback for a decentralized autonomous organization.
  • It’s difficult to fix bugs in a DAO’s code. It’s tough to change the code after posting. As a result, in order to remedy a bug, you must rewrite the code. Even if the code is open to everybody, fixing it is difficult.

 What Are Smart Contracts?

Smart contracts are business automation systems that run on a decentralized network like a blockchain.

Smart contracts are one of the most appealing aspects connected with blockchain technology because they eliminate administrative overhead. While blockchain works as a database, validating that transactions have occurred, smart contracts are computers that execute pre-determined conditions. Think of a smart contract as a computer that does “if/then,” or conditional, programming.

How To Build My Own DAO?

You’ve come to the right place if you enjoy how DAOs work and want to construct one for any reason or purpose. We won’t be coding smart contracts from the ground up here. Some platforms have sprung up to make the development of DAOs easier. Aragon, DAOstack, Open Zeppelin, and more platforms are examples. These platforms serve as a conduit between you and the blockchain, facilitating the deployment of all smart contracts.
In this post, we’ll look at how to build a DAO with Aragon. Aragon is one of my favorite platforms because it gives you more possibilities. I also highly suggest it because of its simple and user-friendly UI.

  1. The first step is to go to Aragon and click on the ‘Create your DAO’ button.

    By clicking the ‘link account’ option, ensure that your wallet is connected. Choose Metamask, obtain approval, and then click the ‘establish an organization’ button.
    As previously said, we want to build our own organization from the ground up, and that is exactly what we will accomplish!

  2. Pick a design template

    You can choose from templates including Company, Membership, Reputation, Open Enterprise, Dandelion, and Fundraising. Keep in mind that each of these templates has its own set of objectives.
    The COMPANY template, for example, allows you to utilise a transferable token to represent an ownership share in your company. Stake-weighted voting is used to make decisions.
    The MEMBERSHIP template allows you to express membership using a non-transferable token. One-member-one-vote governance is used to make decisions.
    The REPUTATION template allows you to represent reputation with non-transferable tokens. Reputation-weighted voting is used to make decisions.
    The OPEN ENTERPRISE template includes a set of programmes for businesses, including as project management, budgeting, and more.
    The DANDELION template enables collaboration with an organisation by making it simple for participants to split off when they disagree.
    The FUNDRAISING template enables you to launch an open and transparent crowd-funding campaign.
    We’re going to set up a firm for the purposes of this article. So that’s the template we’re going to use.

  3. We then proceed to claim a name.

    his is where you give your group a name. Whatever you want to call it. It’s entirely up to you! Because Aragon uses the Ethereum Name Service (ENS), the name you choose will be linked to your organization’s Ethereum address and will not be able to be changed once it has been launched.

  4. Customize the template

    This is where you give your group a name. Whatever you want to call it. It’s entirely up to you! Because Aragon uses the Ethereum Name Service (ENS), the name you choose will be linked to your organization’s Ethereum address and will not be able to be changed once it has been launched.
    Customize the template
    This is where you specify your voting preferences. Here you can set the percentage of votes required to pass a proposal as well as the duration of the vote.
    The support percentage is the number of tokens required to approve a yes vote. For example, if the support percentage is set to 50%, it signifies that a proposal must receive more than 50% of the total votes to pass.
    The percentage of yes votes required to approve the proposal from the remaining pool of tokens is known as the minimum approval percentage.
    The voting period is the amount of time that participants have to vote.
    The support and minimum approval thresholds are quite rigorous, with votes only passing if the percentages are higher than the stated level. Nothing less is acceptable!
    You may also change the settings for your tokens here. Here you can choose a token name, a symbol for your token, and the holders for your token. You can add members to specify the initial distribution of the token by pasting their addresses into the ‘token holders’ area if you’re founding the organization with a few others. After that, assign them tokens.

  5. Go over the information again

    This is where you go through your settings and configurations one more time before launching your organisation. You can go back in time and correct whatever mistakes you’ve committed.

  6. Establish a company

    Then we begin the process of establishing our company. Approval for our Metamask wallet will appear. Then we press the confirm button.

Decentralized Autonomous Organization Examples

Now, it’s time to look at some examples of DAO.

  • A charity can accept membership and donations from people all over the world, and the group can select how one is spending money.
  • Julian Assange and the digital artist Pak formed the AssangeDAO on December 10th, 2021. The DAO is built on the ‘Censored’ dynamic NFT project.
  • A freelancer network – you may form a group of contractors who pool their funds to pay for office space and software.
  • VitaDAO specializes in assisting biotech scientists in obtaining funding for longevity research. VitaDAO, on the other hand, establishes an IP-NFT for each initiative it invests in, unlike typical grants or government-backed investments. Intellectual Property – Non-Fungible Token is the abbreviation for Intellectual Property – Non-Fungible Token.
  • Grants and ventures – you may set up a venture fund that pools investment cash and votes on which enterprises to support. Money that has been repaid could be redistributed among DAO members in the future.
Alex Rode

Alex Rode

I am founder of Just Create App. I have extensive experience in writing about apps, softwares, IT companies. Done Master of Science in Computer Science from Yale University, I am a passionate tech enthusiast and dedicated writer. I delve into a diverse range of topics, from AI and software to app development, and keep a keen eye on tech firms and emerging trends. My expertise enables me to break down complex topics and present them in an engaging, accessible manner, making me a trusted source for insightful analysis in the realm of technology.

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