What Are Decentralized Autonomous Organizations (DAOs)?

A look into functioning of DAOs, and their advantages and disadvantages

Similar to the decentralized nature of these assets, DAOs are decentralized organizations where control is spread out amongst participants. There is no hierarchy. There are no company headquarters — and they are governed by crypto holders. The rules that govern the DAO are enforced by smart contracts on a blockchain.

Earliest example of a DAO

The earliest example of a DAO is “The DAO” — which was built on Ethereum and had an open source code base. It had raised 12.7 million ETH (worth around $150M at the time)

How do DAOs Work ?

A DAO can be adapted and programmed according to a community’s goals.

  1. 📖 Establishing the rules — The DAO rules are set in place through smart contracts by the core community members. This establishes the base framework from which the DAO will operate
  2. 💵 Funding — Once rules are established, the DAO needs to figure out how to raise funding and how to bestow governance. This is usually done through a token sale of governance tokens. The proceeds are used to fill the DAO treasury.
  3. 🗳 Voting rights — Token holders receive voting rights, typically in proportion to their holdings. After funding, the DAO is ready for deployment.
  4. 💻 Deploying into production — Once the DAO code is pushed into production, it is no longer possible for any one entity to modify the code. Any change has to be arrived at through consensus, through voting by token holders.

What are some advantages and disadvantages of DAOs?

✅ DAOs have lower barrier to entry than traditional companies — people from across the world can contribute

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