The much talked about Polygon MATIC cryptocurrency platform is directed and discussed to provide a thorough guide to this relatively new kid on the block
A DAO, or, to give it its full name, a decentralized autonomous organization, is sometimes called a decentralized autonomous corporation or DAC for short. In essence, a DAO is a name given to a transparent organization with rules set by encoding, controlled by its members, and operating outside of central governance. Furthermore, a membership-owned DAO conducts and records financial transactions, with its program rules maintained on a blockchain.
Nobody can access a DAO's in-built treasuries without its members' approval. In addition, members vote on all decisions, ensuring all members' opinions are heard openly and transparently.
We first started to hear of DAOs way back in the 1990s. The name surfaced to describe multi-owned systems on the Internet of Things. Additionally, people hoped they would counter the globalization of social movements. Initially called Decentralized Autonomous Corporations (DACs), the concept appeared at about the same time as Bitcoin.
The original decentralized autonomous organization was a venture capital fund founded in April 2016. The fund ran as a digital application on the Ethereum blockchain. Members joined by sending an amount of Ether via the DAO smart contract. In return, they received an equitable amount of tokens. These tokens permitted investors to vote and trade on the secondary market, similar to stock.
The purpose of a DAO is to promote oversight and management of an entity that is similar in its status to a corporation. Additionally, a DAO has no central authority; the collective group of owners and participants act as the governing body. This joint ownership guarantees the autonomy and security of the whole group.
The smart contract is central to how it all works. Smart contracts control the rules of the organization and look after the funds. As soon as it goes live on the blockchain, it becomes immutable. The only way to alter anything is by consensus through a vote.
The smart contract also prevents any single entity from misusing the funds. DAOs do not need a central governing person to make decisions. The group makes all the decisions collectively and authorizes payments through a vote.
To build a DAO, you must first create the smart contract. Then pay funds of at least 0.3ETH into that wallet. Finally, click on Create an Organization, give it a name, and deploy.
DAOs are entirely decentralized. There is no central governing entity; its members own and run the organization. The use of smart contracts to set up these open source organizations ensures safety and transparency and is key to their popularity. In addition, the DAO protocol sells non-fungible tokens to raise the necessary funds for the treasury.
A considerable advantage of decentralized autonomous organizations is the lack of trust between investors and owners. These people only need to trust the code. Once the smart contract is written and working, then safety is assured. The code is publicly available and is vigorously tested before launch. Once launched, every action is transparent, immutable, and verifiable.
Despite having no hierarchical structure behind it, the DAO will carry out tasks and develop under the control of its stakeholders via the native token. Any member with an innovative idea can put that forward. If it receives a favorable vote, it will be taken up. Voting can resolve all internal disputes. The terms of the smart contract will cover issues of any disagreement anyway.
The idea of DAOs is to encourage a community of people worldwide to come together to build their vision. All that token holders need is an internet connection. Participating members will feel more empowered by having a direct say in all actions.
Whereas traditional organizations are usually hierarchical, a DAO is fully democratized, with all members having a say in how it functions. The behest of a single person or board can typically change a conventional organization. However, nobody can alter DAOs, in any way, without the consent of members who get to vote.
Even in a company where voting is allowed, the votes are handled manually and tallied internally. However, with a DAO, votes are counted, and the outcome is implemented automatically without any external interference or the need for a trusted intermediary.
The services offered are handled automatically and in a decentralized way. An excellent example of this would be the distribution of charitable funds. Traditionally services are directed by individuals with centralized automation. This can, of course, be subjected to mishandling. A considerable advantage of decentralized autonomous organizations is that all activity is transparent and public. The privacy that surrounds many traditional businesses can be damaging.
As decentralized finance and NFT communities rapidly grow, the necessity to govern decentralized protocols becomes more critical. In the short term, one of the more significant challenges will be grappling with the complexities of governance. Decision-making must be managed collectively to ensure that funds and operations are optimized. DAO governance models help sustain this, which, in turn, aids decentralization.
To begin with, the community's core members employ smart contracts to establish the chosen rules on a blockchain. The rules become available to public scrutiny, auditable and verifiable. Once written into the blockchain, it sets to work bestowing governance and receiving funds.
The DAO will issue and put tokens up for sale to raise the necessary funds to finance the treasury. Anyone who buys tokens gains voting rights comparable to their investment. The funding completes, and the DAO deploys. At this point, the code is activated and becomes immutable, except by a consensus among its voting members.
Charities
Speaking at the London Ethereum Meetup, Christoph Jentzsch and Marvin Maistry explored the possibility of running decentralized autonomous organizations and their applications in the Charity sector. Jentzsch stated, "The potential is enormous. If you think about the US last year, there was about $200 billion in charity giving. This is a huge amount of money and a lot of this, unfortunately, is not meeting its goal."
Klima DAO was founded by developers, environmentalists, and entrepreneurs who desired to influence the carbon markets. KlimaDAO created an open-source, open network using Web3 to make significant and quantifiable positive differences in the climate. The network is growing and strives to employ better distribution of climate finances to fund approved, high-impact initiatives to improve all our lives. It is a non-profit organization that operates in the Polygon ecosystem. Furthermore, this business uses DefI to provide balanced carbon production.
Popcorn, formed in by Anthony D. Martin and Michael Kisselgof, is an organization whose blockchain uses automated yield-generating tactics to enable users to earn profits on their crypto assets. Furthermore, this non-profit business donates 20%-50% of its revenue to social impact groups. There is currently a supply of just under 100 million POP tokens. However, this figure will reduce due to the configuration of Popcorn's smart contract design.
Collective Ownership
Lead developer of DASH Evan Duffield Recognised, early on, the need for DAOs to have a monetary incentive. He realized that rewards should not be 100% from mining. Because of this, Dash's highly sophisticated DAO was born in August 2015. There are three parts to the block reward allocation. Forty-five percent goes to the Dash Miners and its Masternodes. The remaining ten percent is set aside to fund future projects and expenses. Dash uses that ten percent to hire its own marketers, developers, researchers, auditors, administrators, etc.
Grants and venture funds
The use of DAOs to raise venture capital is an exciting development. Traditionally, suppose you need to raise money. In that case, you go to a venture capitalist and give away shares in return for the funds. An Investment DAO is a modern way to raise funds without the need for the hierarchy of sourcing funds. In the traditional business world, the smaller, newer companies simply continue the growth of larger, older, established companies.
The rise in popularity of crowdfunding altered people's mindsets. However, even with crowdfunding, there is no ongoing relationship between those raising the money and the actual project. For example, venture DAOs raise hundreds of millions of dollars because people enjoy portfolio ownership of meaningful projects.
In the USA, Krause House is a decentralized autonomous organization governed by fans of basketball and purists. Their goal is to own their own Basketball team in the NBA. Its mission is to become "a community of hoop fanatics just crazy enough to buy an NBA team ." They intend to bring the first fan-governed basketball team to the NBA. In Wyoming, CityDAO has purchased land. When a group of people pools their resources, a decentralized autonomous organization enables them to become involved in projects that, until now, were the preserve of very wealthy individuals.
One of the early uses of DAOs was in grants. In these cases, they donate money into the grant pool, then vote collectively on the allocation of funds. Typically, these can promote innovative new decentralized finance projects. Aave Protocol is a fine example of how a decentralized autonomous organization can use the grant infrastructure to enrich and develop a community of DeFi initiatives. With Aave, users can either lend to or borrow from the pool.
Autonomous Structures
As the name suggests, DAOs are decentralized and have no hierarchical governance. As a result, they operate with more freedom than traditional; organizations.
Neutrality
In modern traditional businesses, conflicts are an everyday occurrence. Managers often act against the best interest of other people in the organization. Using a decentralized autonomous organization removes intermediaries and managers from the equation. They have no authority; it is all about the smart contract.
Accountability
One of the most significant attributes of DAOs is their transparency. Every member of the organization has to be accountable. For example, the members must ensure that the smart contract's original design covers all aspects of the structure of any new proposals. Everything is pre-costed. All activity of the decentralized autonomous organization is permanently documented on the blockchain, enabling flexibility in tracing back to the origins of transactions.
Equality
All stakeholders have the same opportunities to contribute to the project. The number of tokens an investor buys determines their voting power. Also, stakeholders can submit proposals or ideas to make improvements.
Transaction Time
Everyone has to vote, meaning that sometimes ideas can take a while to implement. In addition, voting mechanisms do tie up considerable time. So, for example, if a member thinks they have spotted a potential security breach, it can't be quickly rectified as members have to vote on the issue.
Voting Power
Although DAOs aim to remove hierarchical systems, they cannot do it completely. Members with the highest share of governance tokens get a more significant say in decision-making. Seamless accessibility to ownership remains the intent. However, groups of investors can and do accumulate major shareholdings.
Regulation
The dreaded 'R' word. DAOs can become something of a regulatory nightmare. There are no defined rules and regulations regarding taxation and management. A decentralized autonomous organization doesn't have anyone accountable for all decisions of the organization. Therefore, it is hard to implement rules and regulations.
Code Errors
Everything is dependent on the code. Smart codes offer transparent environments, which, of course, are one of the great appeals. However, all coding is vulnerable and, if not written perfectly, can render the DAO vulnerable to setbacks in its future growth.
MakerDAO
MakerDAO describes itself as "The World's first unbiased currency." Quite a lofty claim, but one that seems to hold water. MakerDAO was launched in 2017 using the Ethereum Blockchain. It is a lending platform that powers decentralized stablecoins called DAI. This stablecoin is pegged to the USD.
Bankless DAO
Founded by David Hoffman and Ryan Sean Adams in 2021, Bankless DAO claims to be much more than a social DAO but also a shipping, building, and innovating DAO. Their mission statement proclaims, "To onboard 1 billion people to crypto. The nodes in our growing ecosystem collaborate to create user-friendly onramps for people to discover, use, learn, and enjoy the benefits of Web3. Everyone falls down the rabbit hole a different way—we provide all the ways."
The sheer variety in the different types out there makes them an exciting prospect for the future. These blockchain-encoded smart contracts govern how groups of people can organize themselves to make critical business decisions.
The appeal for many is that DAOs provide a means for strangers to come together, to pursue collective goals securely, automatically following pre-agreed processes. Managers or administrators are not required, nor is the need for hierarchical structures that most organizations employ.
Entrepreneur Yury Serdich, who launched PUNK master, says, "DAOs are going to be ideal for all sorts of organizations. They can work really well for non-commercial groups, and for any community where people are making choices about what to do next."
We can be sure that DAOs are here to stay.
As always, please do not take this article as investment advice. We would always encourage readers to do as much research as possible. The internet is full of helpful resources, and due diligence is a must. For updates, weekly news bulletins, guides, and more, make sure to follow us on Twitter. As always, keep it sensible and happy trading!
The much talked about Polygon MATIC cryptocurrency platform is directed and discussed to provide a thorough guide to this relatively new kid on the block
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