An Introduction to DAOs (Decentralized Autonomous Organizations) in 2021
A group called ConstitutionDAO crowdfunded over $46 million in $ETH. Why? To buy a copy of the US Constitution at a Sotheby’s auction.
Two weeks earlier, they did not exist.
Decentralized autonomous organizations (aka a DAO) have taken over headlines recently. They’re a part of Web 3.0 and tied to crypto, but what are they exactly?
Put simply, they could be the future of online organizations. Confused? Don’t worry — you’ll know everything you need to get started in this 101 guide.
What Is Cryptocurrency?
Cryptocurrency is digital money. You can use it to sell goods, buy them, keep accounts, and even invest. Banks and governments issue traditional currencies — crypto is different. Crypto transactions are recorded on the blockchain, a network of computers around the world. Instead of a bank, users are the ones who have governance of the currency.
Every time crypto changes hands, it updates a distributed database on every blockchain node at the same time. These records are secured using cryptography. That means you don’t need to wait for an intermediary like a bank or creditor to approve your transaction.
What Are Decentralized Autonomous Organizations?
The decentralized autonomous organization (DAOs) is a group that no one person controls. The people in the org work and make decisions together. They differ from most traditional orgs, which are managed by a small group of people.
Every decision made by a DAO is stored on a blockchain (usually Ethereum). Every time someone sells their crypto, those transactions are recorded and stored as part of a block on the blockchain.
How Do DAOs Work?
Within a DAO, decisions get made by computer programs called smart contracts. The smart contract, first introduced on Ethereum, self-executes if certain conditions are met.
DAOs are built using open-source code, so everyone can see what is going on at all times. What separates someone working inside a DAO from someone outside? Their wallet address.
To become a DAO member, you typically need to own the DAO’s token. It’s often an NFT or coin that gives you special privileges within the DAO. Benefits can include:
- Entry into an exclusive Discord.
- Access to real-world events.
- Voting rights on DAO decisions.
Applications of DAOs
Charity
A frequent critique of charities comes from their lack of transparency. Many donors don’t know what happens to their money after they donate. A DAO can solve these problems. Since the blockchain is a public record, DAOs ensure complete transparency. That includes the movement of funds and governance.
Fundraising
Often, companies need funds to support their goals. Instead of going to private investors like VCs, these groups can create DAOs. With a DAO, you can issue ownership tokens. As a result, the target demographic for the company (often the users) can invest early. This gives them a financial stake in the project’s success.
Crowdfunding
Crowdfunding DAOs help strangers unite financially for common goals. This could include large-scale projects like research or supporting protesters. (Maybe even buying the US Constitution).
Investment
If a DAO grows popular, its token may become an attractive commodity for investors. DAOs are unique in that they align incentives like few other structures. Members are also investors. That means you have a financial incentive to contribute to the DAO. If you do, your token value rises.
Membership
A DAO may simply exist for an Internet-native community. It’s a lot like Soho House, The Battery, and other members-only social clubs. Members can organize, chat with each other, meet up, and build projects together.
Examples of DAOs
ConstitutionDAO
ConstitutionDAO made headlines for an effort to buy a copy of the US Constitution. In a week or so, strangers worldwide pooled funds to bid on the item at an auction. If the DAO won the auction, anyone who contributed would be a part-owner. ConstitutionDAO lost the auction, but it was an exciting study into web 3.0.
MakerDAO
MakerDAO is a borrowing/lending platform that manages two cryptocurrencies, $DAI and $MKR. Users can borrow $DAI (which is a stablecoin) by using $ETH as collateral. $MKR token holders get governance rights over the whole system, and you can buy them on most major DEXs.
VitaDAO
VitaDAO is a community-based crowdfunding platform for longevity research. People can buy $VITA tokens to fund longevity projects of their choosing. Researchers can submit their projects for evaluation and earn funds to propel their work.
Crucially, VitaDAO members can own the IP produced from these research projects.
Friends With Benefits
Friends With Benefits describes itself as a cultural membership. It’s composed of crypto and web3 enthusiasts, artists, and developers. They host a Discord, conduct meetups, and even hold live auctions. Members must hold the $FWB token to participate.
Take Part In The World of Crypto Today
The future of the web is decentralized, and DAOs are just the first part. Web 3.0 is expanding and crypto will replace regular currency. It’s crucial to keep up with the opportunities in the space.
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Frequently Asked Questions
What are DAOs used for?
DAOs are a new kind of organization that is controlled by no one person. People in the organization make decisions together. They’re different from most other organizations, which have a smaller group of people in charge. Since they’re usually built on Ethereum, they can use smart contracts for crowdfunding, membership, and charity.
How do DAOs make decisions?
DAOs make decisions automatically by using smart contracts, typically on the Ethereum blockchain. A smart contract is a self-executing computer program that runs on the blockchain. Usually, decision-makers in a DAO need to hold governance tokens. The size of their stake helps weigh their influence in the DAO.
Are DAOs safe?
DAOs are safer than many other kinds of organizations because they use smart contracts. Smart contracts help the organization make decisions automatically. Better yet, someone outside the organization can’t control them. Most DAOs use ERC20 tokens on the Ethereum blockchain. As such, there’s a vast network of support and developers to add to security.
