DAO Explained

If 2020 was the hottest trend for DeFi and 2021 NFT outshone DeFi, the blockchain industry in 2022 will be spearheaded by Metaverse, Web 3.0 and Decentralized Autonomous Organization (DAO) .  Actually web3.0 supersede everything else we just mentioned.

Every revolution will profoundly changes people ways of living , social interaction, organization structure, work habits and more. For example, the industrial revolution turned farmers into factory workers, and the Internet enabled people to work remotely. Since the invention of the Internet by Sir Timothy John Berners-Lee, we have experienced Web1.0, the static read only web led by Yahaoo!, and Web2.0, the interactive web2.0 led by FAANG(F=Facebook, A=Amazon, A=Apple, N=Netflix, G=Google) without forgetting Alibaba, Tencent and Bytedance. Web1.0 is quite decentralized but Web2.0 is completely centralized as it is monopolized by FAANG and other huge conglomerates. With the invention of Bitcoin by Satoshi Nakamoto, the first application of blockchain, the concept of decentralized web aka web3 has begun to take shape.

Recent pheromonal that happened in the crypto space like ICO, DeFi, NFT and Metaverse are some of the first applications of web3.0. In web2.0, while you are enjoying good user experiences like able to publish your contents, stream videos on social media, create games and more, your data and are controlled and owned by FAANG and other big corporations, and worse still they collect and monetized your data. However, people are sicked of the manipulation of personal data and this sentiment is a driving force behind the emergence of web3.0, the web that allows you to read, write ad own your data. Among the Web3 ecosystems, decentralized autonomous organization stands up as the prominent game changer for the Web3 revolution.

What is DAO?

DAO is an organization managed by a community without a central authority where every decision is approved based on consensus. It is a stark different from the conventional organizations where the structure is hierarchical and decisions are made by the top management. Therefore, a DAO is much more democratic, transparent, and decentralized. On top of that, it usually has a shared vision to guide the direction of the DAO.

The concept of DAO is not new, it existed in ancient democratic systems like the Athenian Democracy and the present day cooperatives. However, these existing systems have flaws as they are managed and enforced by human beings and subject to misappropriations and abuses. In contrast, a blockchain-based DAO is powered and enforced by computer codes in the form of smart contracts . It is open for anyone to participate as long as they meet some basic requirements. Being autonomous means that smart contracts help run the majority of the processes with minimal human interference. Besides that, it builds trust among the trustless anonymous parties.

Over the past few years, DAOs have been gaining traction in the decentralized finance (DeFi) , NFT and the recent Metaverse spaces. The main objective of a DAO is usually to work on a project and manage funds. However, it can have many use cases such as proposal execution, crowdfunding, NFT-based investing , web3 education and more. Some of the established use cases of DAO are MakerDAO, Uniswap, Curve Finance, Aragon, ENS DAO and more.

How does DAO Works?

A core team from a community will initially design the DAO model, establish the governance and write the rules into smart contracts . The smart contracts are computer codes that lay out the framework by which the DAO is to operate. They are highly visible, verifiable, and publicly auditable so any member can fully understand how the DAO protocol functions.

The DAO operates based on consensus through voting by members. Any member can initiate a proposal by submitted it to the DAO protocol and all members can vote for the proposal. The proposal usually needs to achieve certain quorum of votes to get approved, for example 30% of the members voted for it.

In addition, the DAO should have a treasury to release funds needed by any projects. Ideally the funds are kept in a multisig wallet and released upon approval via consensus and signing by two third of the signers. The funds are usually issued by the DAO protocol in the form of tokens to enforce governance as each member can only join the DAO by holding governance tokens. Whenever a member submits a proposal or vote for a proposal, they need to spend a certain amount of tokens as gas fees. The funds are also needed to execute a project.

Funds raising is typically achieved through token issuance and sells tokens to the public via exercise like ICO or ICO to fill the DAO treasury. In return for their fiat money, token holders are given certain voting rights, usually proportional to their holdings. Once funding is completed, the DAO is ready for deployment. Sometimes early participants will receive airdrops from the protocol.