As the saying goes, where there are people, there will be rivers and lakes (I just watched the movie Jiaotou). We will encounter large and small organizations in our lives, maybe it is a class meeting convened by a school teacher, or a club established spontaneously by students. , and after working in society, the company also has senior management or a board of directors. The organizations mentioned above may elect cadres by raising hands to vote, or they may hold meetings to make major decisions. In life, there is always a need for someone to lead the way.
What is DAO & Origin
But in the world of blockchain, decentralization is a very important concept. It returns rights to everyone, allowing everyone to have equal say. Relying on the development of smart contracts, a brand new decentralization system has been born. In a centralized organization, all members will make more democratic decisions, instead of just letting a few people decide the interests or direction of the majority. This decentralized autonomous organization is called DAO (Decentralized Autonomous Organization) ).
*DAO is pronounced the same as "道"
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DAO runs on the blockchain. For this new type of organization, its structural rules will be supported and managed through smart contracts. Moreover, DAO does not have a traditional centralized management unit, but holds " Governance Token" members to promote the operation of the organization. (I will mention what governance tokens are later)
Traditional organizations may have problems such as lack of transparency, lack of censorship, fraud, etc., but DAO, with the assistance of smart contracts, makes decision-making more transparent and allows every stakeholder related to the decision-making to participate. Maybe we can try to imagine that when you hold shares of this company and become a shareholder, even if your share is small, you will still have a relatively equal voice and decision-making power with the majority when the company discusses its future direction. This is the fairness that DAO pursues.
How DAO works
Generally speaking, a DAO is a group of people with common interests or goals who gather in a community to formulate the rules of the DAO through the group, and then compile them into smart contracts for review and verification by all members. If there are any missing or incorrect rules, If correct, you can make corrections.
Next is the financing part. The operation of an organization must be supported by money. Members who join this DAO will concentrate the funds they are willing to provide into the DAO's treasury in exchange for the aforementioned "governance tokens". This token represents Your share of voting power within an organization is usually proportional to the amount of money you have invested, the more tokens, the more votes or decisiveness of the vote.
However, there are also DAOs that adopt different weighting models to prevent “token whales” (members holding large amounts of tokens) from overly influencing decision-making.
After the rules and funds are in place, the DAO will run on the blockchain, and activities will be publicly recorded and cannot be tampered with on the chain. In the future, members can put forward ideas or suggestions on the organization's activities, such as fund allocation, organizational direction, etc., and then vote. The approved proposals will be handed over to the previously drafted smart contract for automatic execution.
What are the types of DAO?
According to different directions and interests, DAO is also divided into several forms. Here are some examples of the more common ones:
- Social type:
This is more of an interest-based organization. For example, it is composed of people who are involved in or have certain preferences in specific fields such as art, sports, music, humanities, etc. They gather together to form an online community managed through governance tokens. .
- Investment type:
This type of DAO invests in new ventures through the resources of organizational members, thereby making the investment process open, transparent and less controversial. Because there are smart contracts to assist in management, the advantage of investment-oriented DAO is that it allows ordinary investors to obtain investment opportunities that are usually reserved for the top rich, such as investing in DeFi (decentralized finance) protocols or purchasing rare NFTs.
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- Agreement type:
Protocol-based DAOs are usually used to oversee the development and production of decentralized applications (DApps). For example, a certain DeFi protocol is being upgraded by developers, but the purpose of decentralization is to decentralize power. In order to solve this situation and comply with decentralization, a protocol-based DAO allows users to use governance agents. coins to manage the protocol.
In addition, creative DAOs have recently emerged, allowing artists, writers and other creators to co-create, manage and distribute income through online organizations. In addition, there are different forms of charity, service, media and so on. The types of DAO are very diverse.
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Advantages and Disadvantages of DAO
Having said so much, everyone must understand the advantages of DAO. It not only
- Organizations can be managed in a more transparent way
- And there are smart contracts to assist management without human intervention.
- Organizational structure benefits all members rather than a few individuals
- It also allows ordinary investors to have partial ownership of large-scale investments that they cannot afford.
Although DAO improves the structure of traditional organizations, there are also some challenges that need to be overcome.
- For example, compared with traditional organizations, the decision-making speed of DAO may be relatively slow (because all members need to reach consensus)
- If a smart contract is attacked by a hacker, unpredictable losses may occur.
- Some members may own more governance tokens but do not have the corresponding expertise
- In addition, the legal regulations of DAO are still unclear in many countries, and disputes may arise if tax and other issues are involved.
How to join DAO
No matter who you are, as long as you are getting involved in the blockchain world, you can participate in the DAO by purchasing its governance tokens during the token public sale. Once you hold the tokens, you can vote to make decisions for the direction of the organization. . But if the DAO you want to join does not sell governance tokens to the public, you may need to find other channels with the DAO team or its members to establish a relationship and obtain recognition and permission to join.
The future of DAO
The development of blockchain can be traced back to the advent of Bitcoin in 2008, which is only about 16 years ago. Therefore, although the development of DAO is rapid, it is still in a very early stage. At present, the application scope of DAO is gradually expanding to the fields of traditional corporate governance and charity. Although there are still many problems to be solved, I believe that the decentralized governance model will be correspondingly improved in the future and play a very important role.
Editor's Note: The future is promising and the outlook is bullish!
〈 What is DAO and why is everyone talking about it? 5 minutes for you to understand the new organization on the blockchain > This article was first published in " NONE LAND Wave Chain ".
