This article describes everything you need to know of Decentralized Autonomous Organization. We will read about Decentralized Autonomous Organization- starting with understanding a traditional organization, how is DAO different to a traditional organization, how to join a DAO and some FAQs related to DAO.
Table of Contents
What is an Organization?
Humans from the very ancient times have worked in groups like teams, gangs, family, etc. One such form of a formalized and regulated group of humans having a common goal and following some set principles or protocols is -an organization. For instance, consider the company for which you might be working for. You and your colleagues are working with a common goal of may be selling the company’s products and booking profits. You all follow a set principles and guidelines which are mostly dictated by the company owner and also the Government of the country where the company is located. This is an example of an organization.
How normally Organizations work vs the new age concept of Decentralized Autonomous Organization(DAO)
Normally in organizations they follow a hierarchical structure, where members work by following the protocols laid down by the top people in the hierarchy and also by the regulations set by the Government of the country in which the organization operates. The people in the top make the decisions. People in the bottom have seldom their opinions heard or accounted for.
Now consider an organization where the protocols are defined by a computer code (Smart Contract) rather than been set by the management and/or the Government of the country. This is where the concept of DAO seeps in. In a DAO the protocols are defined by pre-approved and pre-verified computer codes called Smart Contracts. These codes reside in a blockchain such as Ethereum, Cardano, Polkadot, Cosmos and EOS. Hence there is no ownership of such and organization and the protocols which reside on a blockchain are decentralized, open to be seen to everyone but immutable without consensus. Let us explore DAOs further.
Decentralized Autonomous Organization (DAO)
Hence by now we know that DAO is a term that refers to an internet community or an internet-based organization in which the rules or protocols on which the organization runs are defined by computer codes called Smart Contracts which reside in a blockchain.
There is no hierarchy in the system, and anyone can join a DAO using internet. The rules or protocols in the form of Smart Contracts reside in a blockchain such as Ethereum, Cardano, EOS, Polkadot and Cosmos. Since the code resides in a blockchain they can be seen by anyone though immutable without consensus. This means the code can be verified but for any change or modifications all the members of the DAO need to come to agreement or consensus.
Examples: Some DAOs are groups of developers or investors, others are pressure groups, companies, charities, local initiatives, etc.* In fact, almost any existing organizational form can be reimagined as a DAO. So far, so familiar.
DAOs vs Traditional Organizations
Traditional Organizations: Generally hierarchical. There is a Central or Prime Authority. When it ceases the organization ends.
DAO: Fully decentralized, democratic. This means there is no Central or Prime Authority. Hence there is no single point of failure. For example, in traditional organizations if the management or owners are no more functioning, the organization ceases. Contrary to this, DAO will run till the last member. It will run till the platform that supports it like Ethereum will run (which is practically incessant).
- Protocols, rules and regulations:
Traditional Organizations: Depending on the structure the protocols are defined by the management and also are regulated by the Government of the country in which the organization is operating.
DAO: Protocols and regulations are defined and locked in the Smart Contract which resides in the blockchain platform on which DAO is built upon. These are pre-defined, verified by all members and immutable. Changes to the code can only be made via proposals or voting and members reaching to a consensus.
- Changes or decisions to be implemented:
Traditional Organizations: Generally, the changes are suggested from the owners and people in the top hierarchy. In rare cases where voting happens, votes are tallied internally, and outcomes are implemented manually.
DAO: Changes are made based on voting and proposals. Any member can submit a proposal for a change/idea which can follow a voting to implement of reject the idea.
How to join a DAO?
Joining a DAO is easy. There are no formal interviews or background checks to join a DAO. Practically speaking you need to connect to the purpose of a DAO to connect, contribute and prosper.
Step 1: You can find a list of DAOs at DeepDAO and DAOLIST. Visit these portals to find a DAO or community of your interest. You can find out the purpose of these DAOs and select one of your interest or relevance. For example, there are DAOs for developers who develop DeFI applications, there is a Friends with Benefits (FWB) DAO which is a social community and there are more.
Once you have joined a DAO you can join the conversations which usually happen over platforms like Telegram, or some specific apps dedicated to that DAO. You can propose new ideas over here and solicit feedbacks and questions.
Step 2: You can earn a voting right. To get to the next level where you have the right to vote for new ideas, you need to buy the DAO token. Most DAOs issue their own tokens which you can buy to unlock your voting rights on DAO.
Most of the DAOs are hosted on the Ethereum blockchain. Hence, if your selected DAO is hosted in the Ethereum blockchain, you first need to buy Ether. Then you can exchange Ether to the DAO token on Decentralized Exchanges like Uniswap or 1inch.
FAQs about DAOs
How are DAOs related to Ethereum?
Ethereum was the first blockchain platform which enabled the development of a DAO in 2016. Most of the DAOs you find today are build on Ethereum. Though other blockchain platforms like Polkadot, Cardano, Cosmos and EOS are enabling DAO formation.
Does DAO refer to an online community or a software?
DAO is used interchangeably for an online community as well as a software. As a matter of fact, the DAO software or the Smart Contract which runs on a blockchain platform enables the formation of the DAO online community.
Can only developers join a DAO?
No. Not only developers can join a DAO. Most of the DAOs have an extended ecosystem and require contributors from different spaces like marketing, content, business development, etc.
What is a DAO token? How many tokens do I need to become a DAO member?
Most DAOs issue their own native cryptocurrencies called their native tokens. You need to buy these tokens to join DAO.
Generally, you need a fraction of the token to join the DAO. The level of participation you have in DAO like voting rights, proposing new ideas, etc. is proportional to the amount of DAO token you own.
Can DAOs hold other cryptocurrencies in addition to its native token?
Yes, any cryptocurrency compatible to the blockchain on which the DAO is hosted. For example, in Ethereum a DAO can hold any ERC-20 token but not Bitcoin or any fiat currency like USD or INR.
What are the benefits of a DAO?
a) Inclusive – anyone across the world can join and participate.
b) Democratic – all decisions may be decided by the community.
c) Transparent – every transaction to and from a DAO is public.
d) Permissionless – DAOs are unregulated and cannot be sanctioned by governments.
What are the downsides of a DAO?
A) Can be complicated – A DAO is a new technology so its terminology and user experience can be confusing.
B) Sometimes expensive – Ethereum fees to set up and operate a DAO can be high (but cheaper solutions are being developed).