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Everything You Need to Know About DAOs (Decentralized Autonomous Organizations)by@kadeemclarke
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Everything You Need to Know About DAOs (Decentralized Autonomous Organizations)

by kadeemclarke.ethOctober 18th, 2021
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A Decentralized Autonomous Organization (DAO) is a group or community built around a certain mission(s) and is coordinated through a shared set of rules that are enforced on the blockchain. DAOs are more transparent than traditional organizations since all the actions can be seen and verified on the former. There are more than 100 DAOs today that manage assets worth over $10 billion. DAO operating systems exist to make it easy for non-techies to create and launch DAOs.

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What is a DAO?

A Decentralized Autonomous Organization (DAO) is a group or community built around a certain mission(s) and is coordinated through a shared set of rules that are enforced on the blockchain. DAOs are more transparent than traditional organizations since all the actions can be seen and verified on the former.

Shareholders can view the financial statements of the DAO in real-time as they are always readily available on the blockchain, which reduces the risk of censorship and corruption. DAOs are easier to join and have better global access when compared to traditional companies. 

Essentially, the beginnings of a cult.

Traditional Company vs DAO. Source: Aragon

Types of DAOs

There are more than 100 DAOs today that manage assets worth over $10 billion. Creating a DAO is not as difficult as it seems. While a DeFi protocol with over $1 billion of assets governed on-chain by over 10,000+ token holders qualifies to be a DAO. A Telegram group with at least 1 ETH and no less than ten members also qualifies as a DAO. This also allows shitposters to get a job.

This is how the current DAO Landscape looks:

DAO Operating Systems

These are the operating systems used to create DAOs. Such projects will provide different frameworks, templates, and tools to help communities pool resources together and create their DAO. These operating systems offer smart contracts and interfaces that facilitate on-chain actions for these DAOs. DAO operating systems make it easy for non-techies to create and launch DAOs.

Grant DAOs

The first real application of DAOs was in grants. Online communities will donate funds and then use a Decentralized Autonomous Organization to vote on how that money is allocated to various contributors in the form of governance proposals. In the past, Governance of Grants DAOs was done through non-transferable shares, meaning that social capital motivated participation and not the financial returns.

Protocol DAOs

These protocols allow the transition of power from the hands of the core team to that of the community. Protocol DAOs introduced the concept of transferable ERC20 tokens that come with a secondary market value. Token holders have the authority to vote, propose and implement various changes to the network’s underlying mechanics. Members of Protocol DAOs vote on how to distribute tokens, opening up to yield farming, liquidity mining, and fair launches. 

Investment DAOs

DAOs were originally created as non-profit communities. Protocol DAOs introduced a new class of tokens with secondary market value, and groups started to gain interest to invest in them. Investment DAOs came with tighter restrictions when compared to Grant DAOs. However, they showed that individuals could come together and invest large amounts with low entry barriers. These DAOs allow members to pool resources together and invest in projects in their earliest stages.

Service DAOs

Talent is needed as more and more tokens are continuously being created and introduced. Service DAOs are simply talent aggregators that use on-chain credentials to funnel and allocate resources from one DAO to the next. These DAOs establish decentralized working groups for individuals that will act as crypto-native talent agencies. Service DAOs create funnels to contract Web3 mercenaries that work on areas such as legal, creative, development, treasury management, governance, and marketing. Work done is mostly rewarded using ERC20 tokens. These DAOs explore what the future of work will look like. 

Social DAOs

The modern world is mostly focused on financial capital. Social DAOs are changing the landscape by focusing on social capital. Social DAOs are evolving group chats where friends become co-workers working towards a common goal. Social DAOs challenge the traditional social community set up and aims to create digitally-native tribes. They also show that there is more to crypto than just making a quick buck.

Collector DAOs

Collector DAOs were created to collect and curate NFTs that are expected to increase in value. By teaming up and coordinating efforts and funds, digital collectors are able to purchase NFT's that would otherwise be too expensive or perhaps even too risky to be purchased by an individual on their own.

Media DAOs

Web 2.0 has made information globally accessible. However, shared ownership of narratives through which such information is distributed has not been possible. Whether it be media mining programs to incentivize contributions or governance over which topics make the front page, Media DAOs turn consumption into a two-way street. Media DAOs are crafted to give that power to the consumers of content. Media DAOs break down how writers, readers, and streamers interact with content. The main aim of Media DAOs is to share the open agenda of the outlet and spread awareness and news.

Examples of DAOs

Now that you understand the different types of DAOs, let’s explore specific examples. There are thousands of DAOs out there, but I will just highlight a few. 

The DAO

The DAO was one of the first DAOs to be launched. The DAO was launched in 2006 as a decentralized venture capital fund. Members of this DAO contributed ETH and received DAO tokens in return. These DAO tokens allowed members to vote on how the funds contributed would be utilized.

The project raised $150 million in ETH, but lost $60 million in a hack. The hack stained the DAOs impression, and people became skeptical about pooling funds for this new organization structure. Even though The DAO is now defunct, public members can still view all the transactions as they are on a public blockchain.

Curve DAO

Curve DAO is an automated market maker (AMM). This DAO generates fees and provides a system for revenue sharing for token holders that lock their tokens. The rewards and voting rights of the members are determined by how long the Curve token (CRV) is locked. Curve DAO is unlike traditional companies where profits are paid out pro-rata; what matters in Curve DAO is the length of time that a token holder has remained invested in the company. 

DAO Tools

DAO tools are a suite of tools that have been built to help create and coordinate DAOs, so interested members do not have to create everything from scratch.

The following are some of the most notable tools:

DAOHaus: Frontend software where individuals can create and deploy DAOs and vote on proposals. This tool also has a suite of add-ons that easily integrates DAO activity with external applications such as Discourse, Gnosis Safe, and Discord.

Tally: Governance dashboard used to track the on-chain voting history that occurs across different protocols.

Parcel: Treasury management tool that helps to track and send payments easily.

Collab.land: Bots that provide token-gated access and tips to community chat groups.

Discourse: Forum that is used to discuss governance issues.

Gnosis Safe: Multisig wallets that are used to manage online communities’ treasuries.

Snapshot: Tool that manages proposals for voting by the various token holders, making it possible to see all the relevant details of the proposal and the status of votes cast.

DeepDAO: Tool to keep track of the entire DAO ecosystem. Some of the important metrics available are the number of proposals, number of members, and voter participation on a platform.

Boardroom: Governance tool for token holder management. It is the tool that empowers key decision-making. 

Llama: Suite of products and services for DAO treasuries. This tool is also engaged with community and governance. 

Unlock protocol: Allows users to create locks and place them anywhere they would like to lock content. Users can then purchase memberships as NFT keys, and this will grant them access to tickets or content or anything else that has been monetized. 

Coinvise: Tool that helps create a community with ‘superpowers’. It provides powerful tools that help different creators build and operate their tokenized communities. 

Mintgate: Sandbox solution that allows various creators to test out their NFTs with their fans and community before minting. 

OpenLaw: Tool that makes it possible to create legal agreements and contracts that agree with Ethereum. 

DAO Protocols

Aragon: An open-source blockchain protocol that allows users to manage and build DAOs. Aragon uses Ethereum smart contracts when creating, managing, and sharing the proceeds of the organization. The project allows voting, payroll, accounting, and assignment management.

Moloch DAO: Decentralized Autonomous Organization protocol that awards grants aimed at advancing the Ethereum ecosystem. Members of the Moloch DAO are allowed to withdraw funds in “ragequit” if they don’t agree with the overall decisions of the system. Its smart contracts have been forked several times to create other DAOs.

Colony: Smart contract framework that offers the organizational structure for ownership and financial management. The users can customize various DAOs using the available smart contract modules.

DAOStack: Modular and open-source software that allows for the governance of DAOs. Stakeholders can come together to create and manage a DAO that is shared by all the contributors.

Orca Protocol: Protocol designed around working groups or “pods”. Pods are usually treated as sub-DAOs that have their own membership and governance. An individual pod can become a member of the wider DAO.

Syndicate: Decentralized social network and investing protocol that is transforming how the world creates value. The protocol democratizes investing, empowering communities to raise and invest capital. 

Smashing Quorums with the DAO

1. Token weight voting, on-chain execution: Decisions are made based on the votes casted on the DAO. Users can easily collaborate without the need to know each other. Decisions will then be executed on-chain as long as the predetermined guidelines are met. 

2. Token weight voting, multisig execution: Also known as a multisignature system, where actions on the DAO will require two or more signatures to be executed. The smart contract of the DAO determines the minimum number of signatures that are needed to execute a certain action. 

3. One-person-one-vote: Governance structure that takes one vote from every member of the DAO. The financial or social influence of a person to the system is not considered when voting on decisions within the DAO. 

4. Participation only: Members are only allowed to participate in various functions, such as voting. However, core actions such as execution are left to the core team. 

Printing Cash for DAOs 

Creators of DAOs can make money through the following approaches:

1. Membership subscription. The creators of DAOs can develop a subscription model where members will pay to be part of the community. 

2. Play-to-earn. It is one of the latest concepts in the gaming world. Gamers will be required to pay certain fees to unlock various features or speed up the game. 

3. Protocol fees. We have already seen examples of DAO protocols. If your DAO is a protocol, you can charge individuals who want to use it fees. 

4. Donations. A DAO can ask for donations from members of the public who would love to support their vision. 

5. Investment. A DAO can invest in a money-making stream that will support its operations. 

6. Client payment. Clients that are not knowledgeable in creating DAOs can contract you to create one for them. 

7. Research crowdfund. Crowdfunding is one of the best ways to fund a project. DAOs can crowdfund and raise money to work on the core mission. 

Future

The use of Decentralized Autonomous Organizations is still in its infancy stage. The following are some of the areas where we are likely to see more applications:

Experiment with governance systems more rapidly. A good example is DAOs that use futarchy for decision-making where members will bet in prediction markets. Members will then use the outcomes of those markets to determine the course of action to take.

Meta-governance. DAOs will serve a number of varying protocols, and they will be rewarded in governance tokens. We are also likely to see DAOs voting and becoming delegators in other protocols.

Collective NFT art collections. Each member can vote on different attributes of pieces of art. The final piece will have different features based on individual contributions.

Anonymous memberships. We are likely to see individuals building up their reputations in a DAO without necessarily revealing their identities. Such an approach allows members to be on a level playing field, and the DAO can reward individual contributors rather than catering to high-profile members who have a large following.

Potential Issues

Even though DAOs promise to revolutionize groups, they cannot solve every problem that organizations face. The following are some of the issues DAOs face:

  • There may be a lack of legal protection outside the DAO’s rules. Code used in a DAO can be a replacement for aspects of legal contracts and save huge amounts of operational overheads. However, there may be no legal protection outside the rules highlighted in the DAO. Issues may arise if the DAOs control is centralized or vaguely defined.
  • There may be difficulties coordinating and moving quickly. Decision-making in a DAO may depend on how responsive the members are. This is unlike centralized organizations where CEOs can make quick decisions and help push the company forward. However, DAOs can employ the ‘progressive decentralization’ where a centralized group makes decisions during the early stages, and then the DAO decentralizes over time.
  • Voter apathy. There may be a situation where not all members want to vote. In some cases, the voters might not be capable of making quality decisions. This may lead to a situation where members delegate their voting powers, and it will be no different from existing organizational structures.

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