Decentralized autonomous organization
A decentralized autonomous organization (DAO) is an entity without central leadership. Decisions are made by a community organized around a specific set of rules imposed on a blockchain.
DAOs are online native organizations that are collectively owned and managed by their members. They have built-in ‘vaults that are only accessible with the approval of their members, and decisions are made from proposals voted on by members at a specific time.
A DAO organization operates without hierarchy. There are freelance networks where they raise their money to pay for software subscriptions, charities where members approve donations, and venture capital. Before we move forward it is good to separate DAO from DAO where it was one of the first organizations created in 2016 that ultimately failed and led to a dramatic split of the Ethereum.
How does a DAO work?
As we mentioned above, a DAO is an organization where decisions are made by all members and there are various ways of participating in a DAO, usually done through the ownership of a token.
DAOs work using smart contracts, which are basic pieces of code that run automatically whenever a set of criteria is met. These smart contracts define the rules of the DAO and those who lock them (by staking) They acquire the right to vote by sometimes influencing the way the organization operates by deciding or creating new proposals.
A proposal passes only when it is approved by the majority of those who have their tokens locked (stakeholders). How the majority is determined varies from DAO to DAO and is determined in smart contracts.
DAOs are fully autonomous and transparent as they are built on open source blockchains. Everyone can see their code but also check their funds as all financial transactions are recorded.
A DAO is interoperable
The DAO is a new way of doing business, leveraging blockchain technology in the name of transparency and absolute democracy. While a traditional company has many managers and a ‘go to the top’ structure (if you’re lucky), a DAO completely abolishes all of that in the name of fairness and equal opportunities for all.
To give the greatest picture, a DAO is like any other organization, but it is autonomous to some extent and operates without a hierarchical structure.
A DAO is decentralized and autonomous
Typically, the framework that a DAO establishes is its own set of rules that govern its entire ecosystem. Saved rules in smart contracts, they are usually available for anyone to explore. Smart contracts are fully transparent, as anyone who wants to can explore the smart contracts of a DAO.
In addition, the smart contracts of each DAO have been predetermined. Once they are executed, they cannot be changed in any way.
One of the best ways to understand what a DAO does, is by “moving” the whole house on our smartphones. Every app on our phones, from YouTube to Uber, is a distributed platform controlled by a company, even though it’s also fully automated using computer code.
DAOs can revolutionize the social and mainstream apps we use every day, doing the same exactly as above, but without a central entity (like a company) being responsible for the platforms.
A DAO is democratic
Like traditional corporations, DAOs can have stakeholders who can vote and influence decisions within the community. When you are a shareholder of the DAO, you essentially own shares (or units) in the company and use them to vote alongside all other members.
Whenever a DAO needs an “effective decision” to be made , it relies on a vote count to reach a fair conclusion.
DAO: A growing connected ecosystem
As you can probably tell by now, DAOs could set a new standard in innovation by disrupting the way organizations operate to date.
You can gain a lot by adopting DAO technology and welcoming an evolving connected landscape for everyone. We could benefit from decentralized voting that does not require senior management. In addition, community involvement means that we all have a say in how a platform works.
However, this comes at a cost, as smart contracts in each DAO, or mode of operation, are available to anyone to investigate and possibly manipulate them. It might also be worth thinking about the fact that this technology is relatively new and that DAOs have a long way to go before they become mainstream.
It could also be some time before the DAOs are stabilized as democratic entities and find the balance between justice and an ideal functioning process.