1 minute to understand DAO
DAO (Decentralized autonomous organization), translated as "Decentralized Autonomous Organization", is an organizational structure developed based on blockchain technology. It means that there is no centralized leader, the organizational rules are written into the code, executed by smart contracts, and jointly governed by the members of the organization. When deciding the development direction of the organization, it is decided by voting, which is different from traditional corporate organizations.
At first the concept was called a "decentralized autonomous company" (DAC). It was not until the co-founder of Ethereum Vitalik Buterin (V God) publicly talked about DAO in 2013 that it was changed to DAO as a collective name.
The concept of DAO is actually not difficult to understand. It can be thought of as a machine operating, and its governance mechanism is implemented through smart contracts. When encountering future development of the organization or disagreement, members vote to decide the next step of development. , the organization is no longer run by a small number of authority figures. Of course, the development of DAO is still in its infancy, and it also has its advantages and disadvantages.
Advantages of DAO Organizations
- There is high transparency and anyone can view the voting results
- Barriers to entry are low
- Easy to recruit global talent
- Making rules through smart contracts to make decisions more rational
- Decisions are voted on by community members, not by a few authorities
Disadvantages of DAO Organizations
- Lack of effective coordination mechanisms, which may divide the organization in two when there are serious differences of opinion
- Most of the current DAOs are a combination of on-chain + off-chain, not yet truly decentralized
- Lack of legal/regulatory clarity
- lack of infrastructure
- Smart Contracts, Fragmentation and Sustainability Risk
DAO development type
In 2018, the rise of Ethereum smart contracts led to an explosion of many new cryptoassets and protocols. Back then, developers created protocols (like Uniswap, Compound, and Aave) that allowed people to trade and borrow assets. However, these protocols were designed to be decentralized, and how to manage the growth and evolution of the protocols became a difficult problem to face at the time.
Protocol DAOs emerged not by handing every decision to the development team, but as a way to give users collective governance over the future direction of development. Typically, the protocol issues governance tokens based on users’ usage and contributions, giving users corresponding voting rights.
Any user can propose a protocol improvement, and token holders can vote on whether developers should move forward with the proposal. More tokens = more voting power.
For example, Uniswap’s token holders are currently voting on which Layer 2 the protocol should be deployed on. Additionally, token holders can suggest and vote on anything from marketing initiatives to how Uniswap’s $2 billion treasury will be managed.
The protocol DAOs with the largest assets under management are Uniswap, Lido, Radicle, Compound, Olympus, and Aave.
YGG, the world's largest chain game association, is an investment DAO organization, and you can participate in its voting and governance by pledging YGG tokens. YGG's mission is to create the largest virtual world economic model, optimizing community-owned assets for maximum utility and sharing profits with token holders. In addition, YGG has established a subDAO to host game-specific assets and activities. This will enable community subDAO token holders to enjoy the potential advantages of the assets and benefits generated by their production games.
3. Collector DAO
The NFTs that have exploded in popularity recently cannot be ignored. As a result, FlamingoDAO, PleasrDAO and Jenny Metaverse DAO appeared, all of which are DAOs dedicated to collecting NFTs. This type of collectible DAO can also help some artists who are just starting out or not well-known to gain revenue and attention.
In the crypto world, most of the attention is paid to financial capital, but Social DAO pays more attention to social capital. Social DAO has gradually evolved from group chat, and everyone has changed from friends to colleagues after chatting. The crypto world is no longer just a conduit for quick money, it's also the best place to meet like-minded friends online.
A service DAO looks like an online talent agency that brings people from all over the world together to build products and services. Clients can offer bonuses for specific tasks, and once the tasks are completed, a portion of the fee is paid into the DAO’s treasury before individual contributors are rewarded. Contributors also typically receive the DAO's governance tokens. Most of the early service DAOs, like DxDAO and Raid Guild, focused on bringing together talent to build a complete ecosystem. Their clients include crypto projects or protocols that require software development, graphic design and marketing.
Serving DAOs can reshape the way people work, allowing talent around the world to work on their own hours and gain DAO governance. While early service DAOs were crypto-industry-focused, we can envision a future where Uber is replaced by UberDAO, which pairs drivers with riders while giving drivers governance over the DAO (although DAOs were not yet integrated before they were integrated in traditional industries). takes a long time).
The Media DAO aims to reshape the way content creators, consumers and media interact. Instead of relying on ad-based revenue models, these DAOs use token incentives to reward creators and consumers.
The idea of decentralized media can be traced back to the “Let’s Talk Bitcoin” podcast in 2013, but let’s use the popular project BanklessDAO in 2021 as an example.
Bankless is an Ethereum-focused medium that regularly produces podcasts and newsletters. Recently, Bankless team airdropped BANK tokens to readers. Additionally, readers can contribute in Bankless, such as earning more BANK by authoring articles, research, graphic design, article translation, marketing services, and voting on key decisions.
At a time when many believe the current media model based on ad revenue is broken, Media DAOs offer a compelling alternative to realign the interests of readers, creators, and publishers.
A grant/charity DAO, similar to an investment DAO, where members will pool funds and deploy them to various goals. The only difference is that funding/charitable DAOs are invested with no expectation of financial return.
Gitcoin is a precursor to this model, funding some critical open source infrastructure projects that might otherwise struggle to get development funding. Likewise, large protocols like Uniswap, Compound, and Aave have specific DAO functions that allow community members to vote on how to allocate funds to pay developers in order to promote the longevity of the protocol.
Charity DAOs are also emerging today, aiming to reimagine how charitable giving is done. For example, the Dream DAO issues NFTs to raise funds, and then lets NFT holders vote on how to distribute those funds to goals (such as funding civic leaders).
While there are many DAO hurdles, DAOs represent a shift in organizational structure. If Web3 is to become an Internet collectively owned by users, then the DAO will become an organizational structure that embodies governance rights.
In mid-2021, we witness the rise of new DAO experiments and models. At the same time, the all-in-one tool for building DAO functionality and the overall outlook for DAOs remains the largest in the crypto industry.