Understanding “DAO” in Just 3 Minutes – The ₿log

The idea of ​​an autonomous and completely decentralized organization appeared in the 90s, long before the idea of ​​cryptocurrencies and blockchain. But it is with the advent of the crypto-ecosystem and technologies from the blockchain that these DAOs will experience a new boom.

But what are we really talking about behind this DAO term? How it works? Pros and cons ?

What is DAO?

“Decentralized Autonomous Organization” for “Decentralized Autonomous Organizations” are integral elements of Web 3.0. In particular, DAO can be compared to discussion groups such as Telegram or Discord. A feature is the self-regulation of the group by its own members.

Another feature is that this group is a kind of “common boiler”, a common bank account. The accumulated tokens can be used to invest in NFTs, an artist or an event organization.

It should be understood that these groups may operate as small companies where each member is a partner. In a large and well-structured group, one person will be in charge of social media management, the other will handle the cash flow… They will be rewarded with the issuance of tokens.

How do these organizations work?

As soon as a user makes a purchase of tokens, he becomes a full member of the DAO. This gives him the right to control, interact, make decisions and manage the organization of this community. Of course, as with a company, the more tokens a member has, the stronger their ability to interfere or interfere with the decision-making process.

All of this is governed by the use of smart contracts to enforce predefined rules. To increase the security of the DAO, it is not uncommon to hire service providers to perform actions on behalf of and on behalf of the DAO, or even to validate certain services. This may be somewhat similar to the trustee form.

Some CAD examples

You can find DAOs on a wide variety of topics. Thus, Whiskey Pioneers is the DAO for whiskey lovers. Herstory features the work of cryptographers.

Among the innovative and well-known DAOs is MakerDAO. This organization, established in 2015, has its own token called Maker (MKR). The goal declared by this DAO is to ensure the viability and proper functioning of the DAI cryptocurrency. Indeed, the right to vote in the governance of DAI is granted to any MKR holder.

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What are the pros and cons of DAO?

DAOs take full advantage of certain advantages of the blockchain, namely transparency and decentralization. They also have the advantage of their autonomy, which allows them to make quick decisions without a heavy administrative or social structure.

Moreover, whatever the degree of involvement in a group or project, everyone has a voice that matters and can be heard without any discrimination. The goal here is to move forward together for the benefit of the group, the community.

Among the shortcomings, DAOs suffer from a very limited or even non-existent regulatory framework. Affected participants will not be able to go to court. In the short term, this may hinder the adoption of the DAO. For example, a group called “AnubisDAO” brought together many members, some of whom contributed hundreds of thousands of dollars. From day to day, all the collected amounts disappeared, being transferred outside the group.

Finally, it should not be forgotten that decision-making power is generally proportional to the tokens acquired within the group. Therefore, this can lead to a strong imbalance in the DAO organization.

Conclusion: New Communities 3.0

For some, a DAO is just a place of exchange between cryptocurrency speculators, sometimes with unreliable projects and, more generally, with high-risk investments (the value of a token can suddenly collapse). For others, it’s a revolutionary medium for Web 3.0 sharing.

Indeed, the potential is quite real. These self-governing communities have a revolutionary governance model that can eventually adapt to the decision-making process of a company, NGO, association, or even a football club.

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