DAO: Everything You Need To Know
Investing in Decentralised Autonomous Organisations (DAOs)
DAOs (Decentralized Autonomous Organizations) are structured bodies or groups to codify an organization’s decision-making mechanism and rules, thus removing the need for complex bureaucracy. They are internet-based and are collectively owned and controlled by their members. In simple terms, they are an internet entity without a central command or leadership. Decisions are governed by proposals and voting to ensure everyone in the organization has a voice.
DAOs are generally open source because they are developed on public blockchains, where the financial transaction record and rules of governance are recorded. Everything is out in the open and the rules around spending are baked into the DAO via its code.
What Is a DAO Ecosystem, And Why Is It Gaining Popularity?
Owning a token is one of the many ways to participate in a DAO, usually fully “permissionless”, depending on the token used. These governance tokens can either be traded “permissionlessly” on a decentralized exchange, or must be earned through providing liquidity or some other ‘proof-of-work’. Either way, simply holding the token grants access to voting and hence governance.
It is essential to know that rules guide a DAO, but these are specific to each community. The rules are established through smart contracts. Smart contracts are many codes that are systematically carried out when specific criteria are fulfilled. With DAOs you don’t need to trust anyone else in the group, just the DAO’s code, which is 100% transparent and verifiable by anyone. With a stake within a DAO, voting rights can be obtained by an individual or set of individuals, which means they have the power to make decisions on the organization’s operations..They could exercise their influence by forming or deliberating on new governance proposals. Votes are tallied, and outcome implemented automatically without trusted intermediary.
The popularity of DAOs has soared due to their benefits which supersedes the traditional organizations. When it comes to the issue of trust, the traditional organization demands massive trust among the brains behind it, but with the DAO, there is no big deal of trust required between two entities; instead, they trust the code.
The code can be trusted because of its detailed testing before launch, public availability, verifiability and transparency. The community must also approve every action taken by a DAO after it is launched.
How Have DAOs Evolved?
It has already been established that a DAO has a decentralized structure and is set to destabilize and take over from the centralized structures already in place. Most of the governments in the world operate a centralized system, but it has been proven time and time again that financial markets have suffered at the hands of this.
The DAO ensures that the majority control the central. By providing every participant with the opportunity to decide how functions should be, a DAO offers a democratized structure organized in a way the multinationals like Google or Apple cannot. For organisations now we use people, like CEOs, but in the future, with DAOs we may use smart contracts to pay salary, hire etc. and make the whole organisation self-sustainable.
The DAO is an interesting case study to analyse. It was formed in 2016 and was a venture capitalist fund, known for its failure. About 20,000 investors poured about 150 mio. USD into the DAO. The account was hacked and 50 mio. USD was lost due to the attack. This is why we have Ethereum and Ethereum classic, Ethereum classic is the original blockchain that still has the money hacked. A new blockchain was made and the money returned. This “making of a new blockchain” is in more technical terms described as the decision to hard-fork the Ethereum blockchain to restore virtually all funds to the original contract. This meant splitting the blockchain into two branches, each with its own cryptocurrency, where the original unforked blockchain continued as Ethereum classic.
‘Dash’ could be regarded as the first truly created DAO, even though many people believed Bitcoin was. Dash’s more sophisticated DAO was born in August of 2015 and allowed voting by its stakeholders via its governance mechanism. In the Dash DAO the first 45% of the block rewards goes to the miners, the next 45% goes to its Masternodes. And 10 % is set aside to fund whatever other jobs or expenditures the Dash network deems necessary. This 10% enables hiring of the DAOs own developers, marketers, researchers, administrators, auditors, and anyone else the network might deem worthy to hire at any point in the future and also determined what that person should do.
However, the big question is if, in the grand scheme of things, DAOs can adapt while evolving, attract capital and new talents, and compete adequately against other competitors.
Different Types of DAOs And Venture DAOs
1. Protocol DAOs
The protocol DAOs are also known as the Automated Market Maker (AMM). This category of DAOs uses smart contract protocols to offer users financial services that are already decentralized.
The AMM DAOs use governance decentralization by awarding governance tokens to participants contributing to the Liquidity Pools (LP). The ‘MakerDao’ is regarded as the first protocol DAO, launching the DAI stablecoin. A community of MKR token holders govern the Maker Protocol, the smart contracts that power DAI.
2. Social DAOs
Most DAOs are built to operate within a distinct community, but some are also created to target a particular aim. It could be to maintain and preserve the culture or projects associated with their community norms and values.
The FWB (Friends with Benefits) is an exciting and expository DAO project that falls under this category. The FWB brings together cultural thinkers and artists with similar values and ideas. This project enables them to network and connect while collaborating through well-organized members-only events. Governance of the Friends With Benefits is through the FWB social tokens. It will be of interest to anyone to know that any rise in the value of the tokens will lead to the betterment of the whole community (just like all DAOs).
Another great social DAO to mention is H.E.R DAO. H.E.R DAO is a women-centered developer DAO that includes self-identifying women, trans women and non-binary audiences. To reflect inclusiveness, H.E.R. uses the term “womxn” to represent the collective audience. The goal is to sustainably diversify the Harmony blockchain ecosystem, leading to more versatile, holistic innovations and increased revenue potential.
3. Grant DAOs
These types of DAOs are among the earliest used. In this type of DAO, the grant pool receives fund donations from the community and then votes on the funds’ allocation and distribution.
The Grant DAOs are an excellent example of the flexible nature of the decentralized communities in distributing funds compared to the more traditional institutions.
A specific example is Aave Grants DAO, which has awarded 38 teams a total of $1.2m worth of AAVE since its inception in May 2021. AGD’s mission is to build a thriving ecosystem of contributors for Aave. They provide grants to projects, ideas, and events that benefit Aave and its ecosystem and ensure a constant influx of talented builders. They are exploring ways to decentralize the grants process by moving some grant decision-making power to grantees and active community members, such as active governance contributors and community call attendees.
4. NFT DAOs
One of the most famous NFT (non-fungible token) DAOs is Flamingo DAO. As NFTs evolve and ascribe value in the hands of artists, game makers, metaverse creators or dwellers, and DeFi at large, the Flamingo DAO aims to support, purchase, archive, collect, and potentially tokenize important pieces of this ecosystem.
Flamingo DAO gives its members the ability to develop and deploy NFT-focused investment strategies. Purchasing NFTs with Ether or some other base digital assets. Once purchased, Flamingo could evolve in a number of different directions. Members will have the right and ability to factionalize its NFT holdings and any purchased NFTs can be lent, held, displayed in a digital art gallery, or used as collateral in other DeFi platforms. The direction is up to the Members.
5. Venture DAOs
This is one of the crème de la crème of the DAOs. The Venture DAOs are also known as the Investment DAOs. The Venture DAO is designed to raise multi million dollars due to the rising demand to own a portfolio.
The investment DAOs are inclusive and non-elitist, unlike the traditional organizations. Incredible things happen with the Venture DAOs. Investments ordinarily reserved for the elite in the society can become gold for the masses when, for example, hundreds of thousands of people put their money together in the MetaCartel Ventures (Venture DAO). This is a for-profit DAO created by the MetaCartel community for the purposes of making investments into early-stage Decentralized Applications (DApps). It embodies a community-oriented membership structure and offers radical flexibility in participation in a manner that is unparalleled by traditional “venture capital fund” models.
Arguably, there are many more types of DAOs, but I believe this is a good starting point to learn about different types of DAOs.
Where To Do Your Research And Find The Next Opportunity In DAOs
If you are interested in knowing or learning about the next DAO opportunity, specifically with relation to NFTs, you may want to check out the DCL blogger, Matty (@dclblogger), an expert in NFT news and trends.
Also, The Defiant, a platform where anyone can learn about DeFi basics and all the latest news and trends on NFTs via its YouTube channel.
The Forefront Newsletter is also a great avenue to learn about social tokens and DAOs. Once you sign up for their newsletter, you will receive their emails in your inbox every morning.
And my favourite Youtube channel Coin Bureau also made a great video on the topic to learn more about DAO governance.
