What is a DAO? How do they work, and how to join?
In the world of Web3, a Decentralized Autonomous Organization (DAO) is gaining traction to facilitate collaboration between individuals and organizations. According to SnapShot Labs, there were more than 6,000 DAOs as of June 2022 compared to roughly 700 in May 2021. Moreover, according to research, as of January 2022, the entire market valuation of all DAO tokens is estimated to be around 21 billion. This means that DAOs are becoming increasingly important in the Web3 space.
If you need to become more familiar with DAOs, it can be hard to understand how they work or even how to join one. DAOs are becoming an increasingly important part of the Web3 space, which is why people need to learn what they are and how to get involved.
In this article, we will explain what DAOs are, how they work, and some tips on how to join them.
What is a DAO?
According to Investopedia, DAO is a new legal structure with no central leadership. Members are committed to acting in the best interests of the organization. DAOs are used to make choices in a bottom-up management style and have gained popularity among bitcoin enthusiasts and blockchain technology.
As such, this means that DAO is an organizational structure powered by computer code and a fully decentralized technology, such as the top of the Ethereum blockchain. DAOs are self-governing entities designed to operate without human intervention and rely on the collective input of their members to execute decisions.
As of January 2022, approximately 2.5 million votes have been cast, and 47.1 thousand choices have been taken within the DAO ecosystem. And with the core function of a DAO often focused on managing resources, funds, and projects, a variety of DAOs serve different purposes.
How a DAO operates primarily depends on the design of its governance model and smart contracts. These can range from simple vote-based models to more complex models with tokenized incentives for contributors. Additionally, protocols such as Plasma or Optimistic Rollup may be used to increase the scalability of these DAOs.
History of DAO
Vitalik Buterin first proposed the idea and named it the DAO in 2013. Buterin coined the term and wrote a whitepaper on the concept, but it was only in 2016 that this idea was explored further.
At the start of May 2016, a new and innovative concept was launched: the DAO was created and acted as a form of a smart contract on the Ethereum blockchain by a small group of Ethereum community members. Although, Slock, a German firm that played a key role in the creation of bitcoins, was the one who made the code framework open source, it was members of the Ethereum community who distributed it as “the term DAO.”
During the DAO’s founding stage, anyone was permitted to send Ether to a specific wallet address in exchange for DAO tokens on the Ethereum blockchain on a scale of 1-100. The creation phase was an unprecedented breakthrough because when DAO launched, it collected 12.7 million Ether or Eth, valued at around 150 million US dollars, and was the most prominent crowdfunding ever.
Discontinuing of Operations
However, a hacker found a way to get almost half of the collected Ether. About 3.6 million Ethereum, or about $70 million at the time, were taken in the first few hours of the attack, about a month after the launch. The attacker discontinued the operation after causing the harm he intended. This vulnerability allowed the attacker to repeatedly “ask” the DAO to return the Ether before the smart contract could adjust the value of the tokens.
The DAO was hacked and it proved to be a significant setback for those experimenting with this new concept of decentralized organizations. After the theft of the treasury reserve incident, the Ethereum community had to fork hard and create a smart contract for a new version of the blockchain to reverse the transaction and return the stolen funds to their original owners.
What are DAOs key features?
The key features of a DAO include automated decision-making, transparent operation, and immutable records.
With web3 technologies, such as smart contracts, a DAO can be programmed to make decisions autonomously, streamlining processes and reducing costs associated with manual tasks. Moreover, decision-making is usually determined by a governance token, which allows DAO members or token holders to govern the DAO and decide how work should be completed. The governance token also gives certain voting rights and can sometimes use their tokens in ways to incentivize contributors to help complete projects.
DAOs are also transparent, meaning anyone can view their operations and transactions. This assists with accountability, as all members of the DAO can be held accountable for any errors or misconduct that may occur. Finally, a DAO’s records remain immutable, meaning that all transactions are recorded on the blockchains and can never be altered or removed.
In addition, as DAOs are built on immutable blockchain ledgers, records cannot be altered or deleted, adding a layer of security for members. This also allows members of the DAO to track the progress of critical projects and sets a legal framework for dealing with disputes.
On the blockchain, all transactions within a DAO are recorded publicly for anyone to view, promoting transparency and trust among its members. Furthermore, because these transactions are stored on the immutable ledger of a blockchain network, they cannot be modified or reversed by any single entity ensuring data integrity at all times.
What is DeFi?
In the cryptocurrency space, Decentralized Finance (DeFi) protocols allow users to access decentralized financial services that function like traditional financial institutions but without central leader or censorship. DeFi protocols give users control over their funds, allowing them to make transactions, borrow and lend money, and even earn interest on their cryptocurrency holdings. DeFi protocols also provide liquidity to financial markets by providing access to various DeFi products such as loans, derivatives, and stablecoins.
DAOs are decentralized organizations that use DeFi protocols and cryptocurrency to store, manage, and govern funds. They have various features that make them unique from other financial management forms, such as automated decision-making, transparency, and security. These advantages make them attractive to many DeFi investors looking for a more secure and transparent way of managing their funds.
What are the types of DAOs?
Several types of DAOs offer varying levels of autonomy and governance, depending on the purpose they are being used for.
The most common type of DAO, Investment DAOs, functions like a traditional venture capital fund without central control or censorship. Much like a conventional investment, investment DAOs pool funds from different investors to fund a wide range of assets, including stocks and Crypto projects. However, investment DAO doesn’t have central control, and investors can vote on how to use their daos in general, only on investment decisions where they have a stake.
One of the types of DAOs available today is protocol DAOs. These DAOs are primarily concerned with decentralized protocol governance, as the name suggests. Using innovative contract protocols, for instance, provide Defi services like borrowing/lending applications or decentralized exchanges. Protocol DAOs can be a crucial tool for administering decentralized apps. One example of a popular protocol DAO is MakerDAO, which allows users to create and manage decentralized applications (DApps).
Currently, philanthropy DAOs are one of the less popular DAO types. They concentrate on assisting social responsibility projects with the united objective of positively impacting web3 and the world. These DAOs are generally funded by outside sources and are operated based on votes from DAO members. The votes decide which philanthropic projects to invest in and how to allocate funds to those projects.
Grant DAOs are either a philanthropic extension of a larger initiative or a different company in the DeFi sector. They are created to facilitate charitable donations and strategically distribute capital assets throughout the web3 ecosystem. For instance, the community-run Aave Grants DAO aims to encourage a more extensive network of community developers by funding ideas and initiatives that power the development of the Aave Protocol. Aave Grants distributes a certain amount of money each quarter.
The fundamental goal of Collector DAOs is for participants to pool resources so that the group can invest on the DAO treasury assets in high-end NFT artwork and other collectibles. Each participant has a share that is equal to their contribution. With the growth of NFTs, well-known collector DAOs like FlamingoDAO emerged, gathering extremely costly NFTs from digital artists like Pak. Moreover, Collector DAOs are immune from censorship or control. This makes them attractive to many investors and collectors.
By uniting like-minded people like creative people, social DAOs focus on the self-organizing community part of DAOs. Social DAOs often include voting procedures and a specific set of rules. This includes holding a certain amount of tokens, having an NFT, or being personally invited to work with like-minded folks. For instance, MolochDAO is a decentralized autonomous organization that funds Ethereum-related projects. Token holders of a DAO involved in this type, have members who share a common goal.
Media DAOs reimagine traditional media platforms by producing content driven by the community. Imagine social networking, but with people actively working to earn a share of the decentralized organization’s earnings rather than corporate entities controlling the profits. BanklessDAO’s objective, for example, is to promote the adoption of a simple money system devoid of banks.
Benefits of A DAO
DAOs, as new as they may seem, offer some significant advantages.
Since DAOs are automated and operated by a series of smart contracts, there is no need for manual oversight or central authority. This makes them more efficient and resilient as they don’t rely on traditional control methods.
One of the key benefits of running a DAO is that it operates on immutable rules and regulations contained in the code. No one can arbitrarily change the rules, making them more secure and transparent.
DAOs can reduce costs significantly as they are trustless, eliminating the need for expensive third parties. This means that money is not lost to costly intermediaries. more funds can be put toward the project’s mission.
Since DAOs are open-source and transparent, anyone can join in and participate, making them ideal for mass collaboration. Bringing multiple perspectives to the project helps promote engagement in a project.
As decisions in a DAO are publicly available, transparency improves, too. This helps ensure accountability and fosters trust among participants. As transactions are recorded on the blockchain, they cannot be altered or tampered with.
By distributing ownership among the members of a DAO, no single person has control over the organization and holds its finances. Everyone’s voice is heard and respected equally.
What makes DAOs different is that DAOs operate in such a way that are more efficient, as they can automate most processes and reduce the time necessary to make a decision. This helps to speed up projects, enabling faster development and deployment times.
DAOs can also quickly improve existing systems by making iterations that allow for faster solutions. This allows for quick prototyping and experimentation, further improving efficiency.
DAOs are virtual organizations, which means that compared to traditional business models, DAOs provide more autonomy and flexibility for participants. A significant benefit of DAOs is that they can be remotely accessed from anywhere in the world. This makes them ideal for remote work opportunities – allowing users to find Web3 jobs or even launch their careers in Web3 from anywhere in the world.
Overall, DAOs offer a unique way for groups of people to collaborate on projects and initiatives with the help of blockchain technology. They provide an efficient, trusted, transparent, collaborative environment that is hard to achieve in traditional organizations. As a result, they can be used as powerful tools to create innovative solutions resistant to censorship or control.
How does DAOs work?
The DAO governance model is based on a DAO that operates according to rules and regulations encoded into smart contracts. The DAO is controlled by its members, who are incentivized to act as a single entity. The members vote on proposals submitted to the DAO’s blockchain-powered platform, deciding whether or not they should be implemented. All votes and recommendations are recorded on the blockchain providing a complete audit trail.
The DAO’s participants can also earn rewards for their contributions to the organization, such as project completion bonuses. These can be paid in the form of tokens. This incentivizes members to stay engaged and active in the DAO’s operations.
In addition, many DAOs have automated processes for handling disputes, ensuring a fair and transparent resolution process. This helps to increase trust among members and maintain the stability of the DAO over time.
Overall, DAOs are efficient for groups of people to collaborate on projects using blockchain technology. They provide an environment where individuals can work together without trusting each other while remaining transparent and accountable. They can also quickly iterate on existing systems to find innovative solutions resistant to censorship or control.
By leveraging the power of blockchain technology, DAOs can unlock unprecedented levels of collaboration, transparency, and efficiency. These are essential for ushering in the new Web3 economy.
How is a DAO structured?
A DAO also comprises a series of smart contracts managed by its members, who are incentivized to act in the organization’s best interests. Usually, the organization is divided into several tiers or components based on different roles and responsibilities.
The first tier consists of the core functions, such as voting and proposal submission. These features are powered by smart contracts and are used to decide on various decisions made by the DAO.
The second tier comprises members with different roles, such as developers, moderators, or admins. These participants are responsible for managing and maintaining the organization’s operations.
The third tier consists of external stakeholders, such as investors or advisors. These individuals may not be directly involved in the day-to-day operations, but they can influence certain decisions and provide external feedback or expertise. They have voting power and ownership, as they invested in the DAO they are interested in or they own native token.
How to join a DAO
Joining a DAO is not as difficult as it might seem. There are several steps involved in joining one, and each DAO will have its unique procedures. But generally, these are the steps you can follow:
Step 1: Establish Your Goals
Before joining any DAO, it’s essential to understand what you hope to achieve and gain from being part of the organization. When selecting a DAO to join, it is necessary to consider your skills and passions. With so many different groups offering varied missions, you can find an organization that aligns perfectly with what drives you!
Step 2: Decide the type of DAO you’d like to join.
Research and compare different DAOs to find one that fits your interests, goals, and values. Look for an invitation or sign-up link on the DAO’s website or social media profiles. Complete all the necessary paperwork and payment requirements before joining the DAO. You’ll be added as a member of the DAO, once you’ve completed the registration process,
Step 3: Look for community-building events.
Find out what type of community-building and social activities the DAO is organizing. See if they fit into your schedule. Participate in as many of these events as possible. This will help you know other members and learn more about the organization’s mission, goals, and processes.
Step 4: Get involved with projects or committees.
You can join committees or take on project roles as part of your involvement with the organization. This is an excellent way to develop your skills and build relationships. You can also gain experience that will help you advance your career.
Step 5: Participate in your chosen DAO’s governance and decision-making processes.
Familiarize Yourself with the DAO’s Structure and ensure that your chosen organization’s set of criteria are met. Every DAO has its structure—the number of tiers, roles, rewards, and voting rules of the organization varies from one organization to another. The more actively you participate in a DAO, the better your chances of impacting the organization’s overall direction and performance. Read how to cast votes, submit proposals, and interact with other members.
Step 6: Contribute to discussions and initiatives.
Make sure your voice is heard and contribute to the ongoing conversations. This will help move the organization forward and foster collaboration between members. Share your knowledge, insights, and ideas with other members to benefit everyone.
Step 7: Be careful with financial decisions.
The DAO’s success depends on making sound decisions, especially regarding finances. Always review any proposed contracts or agreements carefully before signing off on them. It is also a good idea to coordinate with the organization’s legal team if there are any concerns or questions about the legality of transactions.
Step 8: Receive rewards for your contributions.
Depending on the DAO’s incentive structure, you may receive tokens as a reward for your active participation. These could include tokens, digital assets, or other forms of compensation. Keep up with any reward system changes so you can maximize your earnings.
By following these steps, you can quickly join a DAO and benefit from its advantages. You could even become a key contributor to its success with the right attitude and effort.
The risks of joining a DAO
One of the main risks associated with joining a DAO is the potential for malicious actors to attack the organization. There is a possibility that malicious hackers could gain access to sensitive information if a DAO is not adequately secured. This could lead to financial loss and reputational damage for the organization.
It takes time to ensure compliance since most DAOs are decentralized and operate on public blockchain networks. This can be especially problematic if members of the DAO come from different countries. Members of the DAO could be exposed to various regulatory risks, without proper legal safeguards in place.
Most DAOs are operated through automated smart contracts, so there is a chance that errors could lead to unanticipated losses. As such, it is essential that members carefully consider any changes proposed by the organization before agreeing to them.
Due to their decentralized nature, some DAOs may be more susceptible to manipulation by those who have more voting power. If a few individuals can control a majority stake in the DAO’s decisions, this could lead to unfair or undemocratic results.
Conclusion: Summary & Outlook on DAO
DAOs offer a revolutionary new way to facilitate trustless and permissionless collaboration. They can revolutionize how people and organizations work together. This can open up many possibilities for individuals and groups to interact without requiring intermediaries.
As we continue to move into the era of Web3, DAOs will become even more prevalent. Diving into a DAO is no easy task, but with enough research, it is achievable. The successful implementation of this governance model may be instrumental in unlocking greater access, efficiency, trust in people, autonomy, and self-ownership.
Take your career to the next level; join a DAO and participate in the revolutionary new world of Web3. Aworker can help you find the perfect job for you.