Ashutosh: “Siri, what’s a DAO?”
Siri: “Sorry I didn’t quite get that.”
Welcome back to The Blockchain Cafe. My name is Ashutosh and here at The Blockchain Cafe, we love bringing new information about all things crypto from the market moves to updates and relevant news topics that you should have on your radar.
We’re going to jump straight in and talk about the topic of Decentralized Autonomous Organizations (DAO) basics out of the way encrypt to the term doubt it floats around a lot many of us are not in agreement but do you actually know what a DAO is?
DAO stands for the Decentralized Autonomous Organization.
Okay, that part makes sense but why are they needed and how could they ever compete with a traditional business structure? You’re all familiar with one if not the first DAO, Do any ideas about what it could be?
Actually, bitcoin is generally considered to be the first fully working DAO because it’s a fully running operational protocol without the need for one person or a collective to keep it running. It’s been over 10 years and bitcoin continues to function autonomously.
To understand DAOs first you need to understand the technology that’s behind them. DAOs rely on smart contracts which are collections of code that run on the blockchain and blockchain technology.
If you think of a company that you work for now in a traditional structure. There’s typically a hierarchy that looks something like a pyramid there’s a board of directors, executives, or upper management and these are the key decision-makers and those at the bottom of the pyramid really don’t have much power to make changes or to propose new ideas.
If you compare that with a DAO the rules and governance of each rule are coded in smart contracts on the blockchain and those rules cannot be changed unless voted on by the DAO members so instead
of having a select few of the majority of members can also vote on decisions together so what happens when you start or when you join a DAO?
DAO rules are built by a core team of community members through the use of smart contracts and these smart contracts lay out the framework from which the DAO is to operate. These are visible verifiable and perfectly auditable so anyone can fully understand how the DAO works and when joining out you agree to the code that’s in place.
It isn’t easy to change the code and it typically requires votes between all the members to obtain voting power or membership in a DAO. You typically need to buy a given governance token which is cryptocurrencies or digital assets tied to a certain project think of these as tokens or voting chips that really enable you to vote on key decisions that could take place inside the DAO and how could this improve the current business model?
Most of today’s centralized big tech platforms are making all these decisions behind closed doors
so you can think that they’re in some type of board room and they’re saying hey this is how we think it should be.
For these people, here are two options that they get VERSUS the decentralized model it’s not a board room. It’s more like a town hall and so you have people that are there. If somebody has a good idea it doesn’t really matter who they are. It doesn’t matter what their background is or what their qualification is. if they’re willing to raise their hand and say, hey have we thought about this then they can participate in the process and help to shape the nature of the service.
How it works and what that provides, is kind of the ability for people to have some type of influence and to have multiple different ways that you can do something rather than one that kind of gets sent down to you. It’s an opportunity for people to say hey what about this it’s a better way to do it and if it is and other people within the community say hey that’s a great idea then that idea rises to the top.
So it seems like it’s a modern and streamlined approach to operating a business what’s the catch
the problem is that those using DAOs.
Do risk running into legal issues and all of the laws around businesses and their corporate structures really are not made to fit into the Decentralized Organizations because until. Recently DAOs, they just didn’t exist given the size of some DAOs, or the fact there isn’t one clear CEO or founder makes it really difficult to hold accountability if things do go wrong.
There’s been a really big debate on just how to protect those that use DAOs and also regulations surrounding DAOs. They’re still unfolding each style is structured a little differently but many DAOs fall into one of around seven categories and I’m gonna run through them all for you.
Now starting off there are DAO operating systems now this is the starting block for a DAO ecosystem. They offer the resources for people to start their own DAO next up. We have grant DAOs and these were the first real use case for DAOs. This act is a form of venture capital funds communities can donate funds and also use DAOs to vote on how the capital is allocated to various contributors in the form of governance proposals.
One of the most common is protocol DAOs and protocol DAOs really give the voting power back to the community these tokens are used to vote on and also implement changes. We have investment DAOs and investment DAOs allow members to pull capital and also invest in projects in the early
stages. Although these do come with some more legal restrictions than your typical VC fund next up.
We have social DAOs and these are really the natural evolution of group chats where friends can become co-workers and really interact on a decentralized platform. There are service DAOs that are used to create decentralized working groups for individuals and also talent agencies as more and more blockchain companies come into the market. This helps bridge the gap between the talents and
the communities collector.
DAOs really came into play this year as the NFTs took off. These styles of work with NFTs or artists and platforms to make sure which NFTs have long-term value next up and one of my personal favorites we have media. DAOs media dolls incentivize content creators and consumers and both give them a reward ecosystem they also share an open agenda of decentralized.
There is a big list but all DAOs do have one common interest and that is to ensure the important notions are discussed proposed and implemented with all of the community’s best wishes just because there is some uncertainty around regulation. It doesn’t mean the industry isn’t moving ahead at lightning speed.
DeepDAO, a DAO metric site reports there are currently 12.8 billion dollars locked in DAOs and 1.7 million adult members. The biggest DAO is currently a Uniswap which is a decentralized finance platform. you might have heard of it before it has over 275000 members and a USD value according to DeepDAO is currently 2.9 billion.
The Uniswap token is currently the 20th biggest in the market cap if you go on Coin Market Cap or Coingecko and such styles there are hundreds of tokens linked to this autonomous business model. So people in crypto we’re clearly investing in DAOs but are we seeing some real-world progress. In July of 2021 Shapeshift exchange made the announcement it was moving decentralized control of the organization would now be shared among holders of Shapeshift digital token which means employees investors and even customers and the former found out rewards would only hold five percent of the company’s digital fox token.
As soon as the news came out about the price of Shapeshift’s fox token jumped from 29 cents all the way to 89 cents and now currently stands at just under one US dollar per token. In the exact same month, Wyoming became the first US state to legally recognize DAOs and also grant them the same right as a limited liability company, and just a few months later BLOCKS made history as the first Wyoming DAO LLC with plans to run out services in the state but also throughout the world showing that DAOs were expanding.
So if you’re looking to invest in a company or even work for a company, DAOs could be a better solution for you. Billionaire investor Mark Cuban has also said that he sees huge value endows. He said the future of corporations could be really different as DAO take on legacy businesses.
Now I want to ask you what you guys think? Would you invest in a DAOs or even work for DAO?
let me know in the comments and as always if you do have any more questions you can always ask in the comments box below.