What is a DAO?

Beginner Aug 26, 2021 · 6 min read

What is a DAO?
Key Takeaways:
— DAOs are just like traditional organizations, except they don’t operate with central authorities in charge; they are fully decentralized and unbiased.
— Thanks to blockchain, DAOs can easily be created to replace the way we do business, and let every one of its members have the right to vote on its operations.
— DAOs typically run using their own native tokens, which members need to vote and make the network even more robust.
— There is no end to the type of use-cases that DAOs can represent. If there is currently an organization that does something in a centralized manner, DAOs can do the same thing without the typical hierarchical structure.

Wondering what might tomorrow’s organizations look like? Learn what a DAO is!

Democracy, voting, community. These are the basic principles that our forefathers in ancient Greece based their politics on. Democracy was one of the first concepts of self-ruling government in the world, and its main goal was to establish “a voice for the people”.

When you keep that in mind, it’s easier to grasp the concept of DAO or decentralized autonomous organization. 

What is a DAO?

A DAO is transparent

A DAO is a new way of doing business, leveraging blockchain tech in the name of transparency and total democracy. While a traditional company has several managers and a “work your way to the top (if you’re lucky) structure, a DAO entirely does away with all that in the name of fairness and equal opportunity for everyone.

To paint the big picture, a DAO is like any other organization, but it is autonomous to some extent and runs without a hierarchical structure.

A DAO is decentralized and autonomous

The typical DAO framework establishes its own set of rules that govern its entire ecosystem. Stored within smart contracts, these rules are typically available for anyone to explore. They are fully transparent, as anyone who is eager to can explore a DAO’s smart contracts.

Moreover, every DAO’s smart contracts are set in stone. As soon as they are executed, they can’t be changed in any way.

One of the best ways to grasp what a DAO does, is by bringing it all home to our smartphones. Every app on our phones, from Youtube to Uber, is a distributed platform that is controlled by a corporation, even though it’s also fully automated using computer code.

DAOs can revolutionize the social and mainstream apps that we use every day, by doing the same exact thing as above, but without a central authority (like a corporation) being in charge of the platforms. 

A DAO is democratic

Like traditional companies, DAOs can have stakeholders who can vote on and influence decisions within the community. When you are a DAO stakeholder, you essentially own tokens (or stakes) in the company and use these tokens that you have saved up to vote alongside all the other members.

Any time a DAO needs an “executive decision” made, it relies on a vote count to come to a fair conclusion.

DAO - what is it and how does it work? | Tokeneo
Image Credit: Tokeneo

The history of DAOs

The very first example of a DAO is none other than Bitcoin itself. Think of how Bitcoin works. While Satoshi Nakamoto designed the protocol, he (or she) is not responsible for any of the daily operations whatsoever. 

Since Bitcoin works using a consensus protocol, and there is no central authority making any decisions on its operation, it’s up to the network members (again, nodes) to ensure that the entire blockchain works smoothly and without bias. 

The end game for a DAO is that we want a protocol that can essentially make money and then cycle the funds into its own network, growing in value and attracting more and more users to its native token and community.

How can I use a DAO?

We already know that DAOs were created to promote a fair, transparent, democratic governance system by design. But that still doesn’t explain how DAOs can be used in our own lives. Surprisingly, DAOs are so customizable that they can be used for just about anything we want to bypass hierarchy with.

Take, for example, social media platforms. It’s becoming increasingly challenging to navigate all the boundaries that the major social apps confine us with. Sometimes, information can be withheld from the public, or specific subjects can’t be openly discussed because a central authority (in this case, the organizations that run these apps) decides to outright block or ban specific topics from being openly talked about within communities.

By creating a social-media type DAO, the above scenario is wiped out since it’s up to all the members to vote on what is or isn’t allowed. 

Currently, there are several functional DAOs operating all around us:

  • Friends with Benefits – Initially formed as a private Discord group, FWB has since developed into a thriving crypto culture community that evolved into a DAO, to maintain a community treasury. 

Because FWB operates its entire platform using its native token, $FWB, it embodies all the principles of a DAO. Members all share a stake within the platform by investing in its token, allowing the community to govern itself while sharing great content. 

  • PleasrDAO – PleasrDAO distributes the ownership of the DAO in the form of tokens. That gives every member a fraction of its assets. Each member participates in the DAO’s governance through a group chat.

They also collected Edward Snowden’s historic genesis NFT on Foundation because, as they’ve said, it’s important for these NFTs to “belong to the people.” 

  • Aave – Aave has been busy pioneering the concept of p2p (peer-to-peer) lending. Also a DAO, Aave is a DeFi protocol that lets anyone either lend or borrow crypto, without having to jump through the hurdles of traditional lending bureaucracy.

The AAVE token is the backbone of the Aave Protocol governance. When you hold AAVE, you get to participate in voting, along with all the other members, to decide on the outcome of Aave Improvement Proposals (AIPs).

DAOs: an evolving connected landscape

As you can probably tell by now, DAOs could set a new standard in innovation while disrupting the way organizations currently operate. 

There’s a lot to gain by adopting DAO technology and welcoming an evolving connected landscape for everyone. We could benefit from decentralized voting that doesn’t require upper management. Additionally, community participation means we all have a say in how a platform is run.

That does come at a cost, though, since each DAO’s smart contracts, or modus operandi, are available for anyone to investigate and possibly manipulate. It might also be worthwhile to think about the fact that this technology is relatively new, and DAOs have a long way to go before they can become mainstream.

It could also be a while before DAOs become stabilized as democratic entities, and find the balance between fairness and an ideal operative process. 

Some final thoughts

The global crypto market cap keeps growing, and when you think about it, the entire market is founded on the very principles of DAOs. 

Imagine your phone’s current apps being replaced by apps that don’t track your every movement, that don’t sell your personal data, and most importantly aren’t controlled by conglomerates and corporations.

Traditional platforms can either choose to adapt for today’s evolving landscape, or they can simply get left behind by not implementing innovative blockchain solutions like DAOs.

Watch here the School of Block episode to learn more about DAOs!

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