DAO (Decentralized Autonomous Organization) is a format of organization and management in the blockchain environment. DAOs are needed to keep blockchain projects alive. In this article, we will talk about what DAO is, how they appeared, and consider their advantages and disadvantages relative to “traditional” management models.
DAO is an independent organization that exists entirely on the blockchain. Managed by participants and does not have centralized control levers. The creation of a DAO became possible with the advent of blockchain technologies, smart contracts and cryptocurrencies. They support the life of various blockchain projects. We first heard about the DAO almost 10 years ago, when one of the founders of EOS, Dan Larimer, described this concept in his blog, and the founder of Ethereum, Vitalik Buterin, developed the idea and described it in WhitePapper as an independent organization managed using smart contracts.
Unfortunately, the first experience of creating a DAO was unsuccessful, and due to an error in the contract code, the treasury of the first DAO (The DAO) was completely devastated.
Initially, the structure and rules of the DAO are determined by the creators using smart contracts. The developers lay the foundations of the project in smart contracts and put them forward for consideration by the first members of the community. If the participants agree with them, smart contracts are launched. After that, management completely passes into the hands of the community, and the creators become only executors of ideas.
Since smart contracts cannot be changed after launch, the life of the platform proceeds strictly according to the scenarios embedded in them. Any changes, be it technical upgrades or the allocation of money from the budget, are only possible through a general vote.
Voting in the DAO takes place through special governance tokens. When a DAO member comes up with an idea, they create a proposal and put it forward for the community to consider. Participants can vote for or against a proposal using tokens. The more tokens, the more weighty the vote. If approved, the proposal becomes a task for the developers.
Management tokens are the same cryptocurrencies as, for example, any other ERC-20 standard tokens. Most of them are traded on cryptocurrency exchanges and may have other uses outside of the DAO.
The main reason to join DAO is interest in the project. However, the project will not go far on one interest. Each DAO strives to ensure that the participants are always interested in the development and maintenance of the project. This is done through different types of rewards.
Many DAOs offer increased staking rates for their native tokens, exclusive NFT token drops, liquidity provider rewards, and other rewards for active community members. Thus, the project participants have the motivation to constantly stay in its ecosystem, buy and hold as many management tokens as possible, and keep the project afloat in every possible way.
DAOs are only superficially similar to “real” structures. At the heart of their device lies a number of important differences. Traditional structures are hierarchical, DAO embody the equality of participants. Each vote is equivalent to the rest – in the foreground the actual importance of the task and the number of votes. In the real world, line managers, directors, and other managers can single-handedly make and implement their decisions. In the DAO, a universal review of each upcoming action is mandatory, as well as a vote for the final decision.
The voting model in DAO is fundamentally different from the real one. In the offline world, the most important decisions are usually voted by the board of directors and other elected groups. In DAO, this is simply not possible.
Another key difference is openness and transparency. “Ordinary” organizations are built on privacy, DAOs are 100% transparent. Like any data on the blockchain, all information about finances, statistics, smart contracts and other aspects of the DAO can be viewed by anyone at any time. In part, this is a disadvantage. For example, if smart contracts are not thoroughly audited before launch, attackers can examine them for gaps and exploits. With such data, they can quickly empty the treasury (as was the case with The DAO).
It is important to understand that the DAO is a product of our time that can guarantee both financial profit for all participants and other benefits. The main goal is to establish a new management system at the level of code and blockchain, where there is no place for corruption and other common ailments of a modern civilized society. Since the advent of this management system, many strong and successful projects have appeared in the world, such as Uniswap, Compoumd, Curve and others. And while they are the strongest representatives of their areas. We believe that the DAO will be able to change the world as we know it, thanks to the idea of decentralization and freedom.
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