An organization is a group of people associated with a specific purpose. An organization can be a business organization, a charity, or a venture fund. A typical organization is led and governed by a person or a small number of people.
What is a DAO?
A DAO or Decentralized Autonomous Organization is an organization with no central authority and is governed by the community.
A DAO is trustless, which means you need not trust anyone in the group to participate in it. The code in which DAO is written is open-source and is verifiable by anyone.
In a traditional organization, decisions are mostly taken by the CEO of the company or the board members as they are bound to deliver to their shareholders.
DAOs are managed by their members and every person in a DAO can take part in the decision-making of the DAO. Anyone in the DAO can make a proposal and voting take place on whether it should be passed.
How does a DAO work?
A DAO is run on smart contracts. A smart contract is a piece of code written on the blockchain, which executes only when certain conditions are met. Ethereum is one of the most popular blockchains for smart contracts.
All the rules required for the function of DAO are written in smart contracts. Once deployed on the blockchain, smart contracts are immutable i.e, they cannot be changed.
A DAO usually has a token, owning which grants you membership in a DAO. The more tokens you hold in your wallet, the more voting power you have. A DAO's tokens are also called governance tokens. They can be purchased on a centralized or decentralized exchange.
The first DAO
The first DAO was created in 2016 and it is named The DAO. The DAO was designed to be a venture capital fund for crypto projects. Folks interested in The DAO have to send their Ether(ETH) to receive The DAO tokens.
The DAO has raised 12.7 million ETH, which was worth $150 million. It was a huge amount at that time.
A few days after the launch, the developers discovered a bug in the DAO's code. A proposal was put forth to fix the bug. However, an attacker has exploited the code and is able to get away with $60 million in ETH.
The reputation of the Ethereum network was at stake since it was in its early years. A hard fork was initiated which had split the Ethereum blockchain into two chains. This hard fork reallocated the stolen funds to the smart contract and investors were able to withdraw them.
The hard fork is the reason why we have Ethereum Classic(ETC). ETC chain is the original Ethereum blockchain. People who haven't agreed on the hard fork stuck to Ethereum Classic.
DAOs examples
DAOs are currently used in most of the DeFi governance protocols like AAVE, UNI, CRV, DYDX, etc. These are protocol-based DAOs and work for the improvement and decision-making of the respective protocols.
Here are some DAOs which completely justify the meaning of a DAO.
Constitution DAO
Constitution DAO was formed in November 2021. Its purpose was to purchase the original copy of the US constitution in the auction held by Sotheby's. The DAO managed to raise $47 million in Ethereum. However, they were outbid in the auction by a billionaire investor, Ken Griffin.
Assange DAO
Assange DAO was formed to help free Julian Assange, the founder of Wikileaks. The DAO has raised 17,422 ETH which is over $55 million at the time of writing this article. The amount raised will be used to fund legal fees and campaigning to raise awareness about Julian's extradition case.
DAOs can be created easily by anyone but the purpose they serve is important for the long run. DAOs can also change the way organizations or decision-making processes work. DAOs are only a few years old and it takes many more years to achieve completely decentralized organizations.
Post a Comment