Keen as we are to ensure there’s clarity around what we discuss, as part of our blog series, we’ll briefly explore some of the territories and phrases used in this ever-evolving industry. We’re also keen to highlight areas we’re most passionate about, hence this article. So here comes our first Blockchain: 101 piece: what are DAOs?
Defining DAOs
Decentralized Autonomous Organizations (DAOs) are self-assembling groups with specific interests and purposes with the unique proposition of having no one person in charge, where everyone within the organization plays a part in its governance and direction.
How a Decentralized Autonomous Organization works
DAOs are run by consensus, with all decisions managed and made by voting. DAOs can have any purpose, from social connection, collective investment in an asset or asset class, fundraising for a cause, sports, and fan clubs; you name it. The point is to have a fair, balanced, and non-hierarchical structure to direct an organization with decentralized values at its heart.
A DAO version of this model will support these activities while allowing on-chain full transparency of the voting and discussion, plus all payments managed and made by the strata. Here, any strata member could efficiently propose priorities.
DAOs are social networks where users’ consensus controls the community’s mechanics. DAOs are smart contracts that define user interaction and disbursement rules for all DAO assets (among other things). A DAO can also effectively raise and manage money for a social cause or club. The total transparency offered by smart contracts allows all donors to see and understand the DAO’s activity clearly, ensuring the appropriate use of finances and that all members have a say in using those funds.
Similarly, if the DAO holds any excess or unused sums of money, it is a simple process to “undo” the donation and return the donor’s funds.
Decentralized Autonomous Organizations and blockchain
DAOs using blockchain technology at their core have a considerable advantage over any other platform supporting group initiatives. In a blockchain environment, user privacy can be controlled on a granular level, with built-in frictionless money. This functionality allows organizations or individuals to create ventures or fundraising within their membership groups.
The potential of DAOs is massive. Daos will provide meaningful interactions with members alike, including decentralized financial systems. Members can vote on decisions relating to platform evolution, privacy, security, and data ownership — for all of which the DAO will recognize your reputation.
Blockchain decentralization governance
Three of our favorite words. A recent article in Wired Magazine raised an interesting question as to whether the web3 decentralization debate might be focused on the wrong question. That is, fixating on the degree — rather than the type — of decentralization might well be leading us astray.
This quote hammers home the point and relevance of why DAOs are the future of community, membership, and more:
“We believe decentralization’s value is in genuinely empowering people to act decisively within their social contexts while providing mechanisms of necessary coordination across contexts. This is in contrast to the current technical landscape, where decision-making agency over information, computation, moderation, and so on is increasingly in the hands of authorities “distant” from the relevant groups. For example, platform content moderation processes try to be cross-community and cross-cultural and largely fail at both. In this situation, decisions are removed from the context of application and made by people with little direct interest in the matters, who can then not take advantage of rich distributed information.”
Types of DAOs
Development DAOs. Blockchain coin holders participate in full governance of the blockchain strategy and structure. Polkadot and Kusama are excellent examples where all DOT or KSM holders can vote on the decisions for the chain. The DAO structure also supports the dispersal of the Polkadot Treasury fund, supporting network marketing and development projects, and putting further control into the hands of all members.
Investment DAOs. Groups raise money to buy an asset. The Constitution DAO is an excellent example of this, as their goal was to try and purchase an original physical copy of the US Constitution. They raised $47m, and despite being outbid at auction, this demonstrated the future power of the DAO for shared ownership.
Social DAOs. People become members of a group with a shared interest by purchasing coins or NFTs that grant access to social activities or other NFT dispersals, thus creating a virtual social club. Krause House is a collective trying to raise enough funds to purchase an NBA team. They host events from basketball workouts to e-sports events for members to raise funds. GarageXYZ is a motorsports club with long-term plans to become the world’s first DAO F1 team. Raising funds by minting exclusive car photography NFTs, the club intends to sponsor upcoming drivers, purchase classic cars, and offer members exclusive access to race events.
These are just a few small examples. When you think about the potential and reach for blockchain-powered DAOs, the sky really is the limit. DAOs are democratization in action — democracy as it should be.
