DAO: Evolution In Crypto Business Management
DAOs (Decentralised Autonomous Organisations) are autonomous organisations since they use smart contracts to perform tasks usually done by humans. They provide us with a new way of running organisations, which is way more sufficient, secure, and fair. To know about DAOs in 2022 is like learning what NFTs were back in 2018. Keep reading to find out why big corporations like Facebook (Meta) might become a DAO in the future!
DAO In Simple Terms
DAOs are like traditional organisations like Amazon and Google, with some differences. One of the differences is that they are autonomous, meaning there are no bosses, CEOs, or intermediaries. They also operate transparently and mostly independently from humans. In fact, tasks usually done by humans are done with codes and Smart Contracts instead.
How Is A DAO Started?
To start a DAO, developers set up a set of interconnected smart contracts on Ethereum or other blockchains which utilise smart contracts. It means DAOs can’t be made on the Bitcoin blockchain since the Bitcoin blockchain doesn’t support smart contracts.
Smart Contracts On DAO
The smart contracts written for a DAO can be programmed to perform tasks humans do, which makes the whole organisation autonomous. They can collect payments from the customers and even order material for the organisation and other similar tasks. Smart contracts can use the collected money to maintain their services as well. In fact, smart contracts were initially created to remove human error from a system. However, it doesn’t mean humans aren’t involved with a DAO at all, but the way they interact with the organisation is different. You can learn more about smart contracts here.
Tokens And Votes On DAO
DAO stakeholders are enabled to vote on changes to the platform. It allows the DAO to grow and improve constantly. Since these organisations run autonomously, the stakeholders can vote to make decisions and change directions. Tokens are tickets that enable you to vote for changes in the platform. In other words, each token equals one vote, and whoever with the most tokens has the most votes. Shareholders can stake their tokens in the DAO to participate in the voting process. These tokens are usually released during the funding period before the DAO itself is launched. Creators can also set intervals to release tokens. A DAO allows every token holder to improve the organisation and present their ideas so that every token holder can vote on them.
How A DAO Actually Works
How a DAO works is up to the creators of the DAO and what they decide to automate. Smart contracts can do anything if you have the knowledge to program them. Instead of tasks usually run by humans in a company, smart contracts are in charge of running the errands, making the organisation self-sustainable. Also, in a DAO, once a decision is made, the code of the platform is changed, and the entire company is changed immediately.
Pros Of A DAO
DAOs are an incredibly new organisation model and can potentially change the way we interact with organisations in the not-so-far future. Here we go through some of the benefits of a DAO.
DAOs continuously grow and improve because the shareholders can offer what they deem better and vote on changes to the platform, which gives the tokens price and utility. The DAO is an autonomous organisation, meaning its smart contracts can’t detect what path they need to go or if they need to change something. In fact, shareholders tell the contracts what direction they need to take. It allows the DAO to improve, make changes, and evolve as the world evolves.
It may be the most significant benefit of a DAO since you do not need to trust any manager or leader in their decision-making skills. The program and the whole organisation will continue to work whether a major developer quits the project or even if the funding is gone.
In the case of bigger corporations, the CIA or FBI can step in — for any issue that may arise — and shut down the company at any given time or even ask for information on a targeted individual. In a DAO, however, the only way these organisations can make this happen is to have a large number of tokens and then submit a proposal to be voted on and go through a fair voting process.
The Openness Of The Source Code
DAOs are open source, meaning their codes are out there for anyone to look at and even make improvements. Open source projects are usually much more reliable because other developers can help the main developers find bugs in the code and even find ways to fix them.
Cons Of A DAO
Everyone can look into the code, which also means hackers can look into the code and find potential loopholes. If the hackers know how these codes work, they can even test the code before deploying it to ensure the attack will be successfully performed. If it works, the DAO could be attacked. Another issue that arises with this transparency is there are no business secrets. Organisations have spent considerable amounts of money and time on their research and development without significant returns. They do it because they believe, one day, it will pay off and that no other company has their advantages. However, since the code is open-source, these business secrets are hard to be kept as secrets, and anyone can find out how the DAO works.
Examples Of Daos
We’ll now go through examples of DAOs, one of which is the reason behind Ethereum’s hard fork!
The DAO is a venture capital fund (money provided by investors for startups) created back in 2016. These startups tend to have a high potential for reshaping the market and fast growth. It is well-known for its failure and how what we call Ethereum today was born from it. Around 20’000 people invested around $150 million into the project. The account of the DAO got attacked, and one-third of the money was stolen ($50 million worth of Ethereum). It led to Ethereum’s hard fork and is the reason why we have Ethereum and Ethereum Classic. In fact, Ethereum Classic is what Ethereum actually was. What we call Ethereum today is a hard fork of the Ethereum Classic. Let’s learn about the forks here.
OlympusDAO is a DAO based on OHM token, and it is a reserve currency protocol that aims to become a crypto-native stable currency. Olympus uses its treasury to back all outstanding OHM tokens, and currently, each OHM is supported by DAI. However, to further stabilise OHM’s value, Olympus plans to add other cryptocurrencies to the treasury in the future. Take some minutes to check out the complete guide to OlympusDAO.
Meta’s Plan To Explore NFT Space And DAOs
A New York Times article briefly discussed that Andrew Bosworth, who will become Meta’s CTO this year, believes the company should “develop ways to work with non-fungible tokens (NFTs). NFTs are assets verified using blockchain technology, while looking to possibly invest in areas, including blockchain-based smart contracts and decentralised autonomous organisations (DAOs), which are Internet-native co-ops governed with cryptocurrency tokens”.
For organisations today, we use people, and there’s a high chance we will use smart contracts in the future. Even Facebook’s parent company Meta will probably be a DAO one day. However, DAOs, like other aspects of cryptocurrencies, are an extremely new and revolutionary technology, so don’t forget to DYOR. Always look for different aspects of a project before investing in it. Here at Cryptologi.st, we’ve gathered everything you need to know to make confident investment decisions.