The original idea behind DAO was for a company to be automatic and decentralize by the crypto space.
Recently, several DAOs have manage to steal the attention of conventional investors after the term has been widely use by the crypto and blockchain communities. This is what underlies the spread of predictions that this kind of organization will become the next trend. What is a DAO? is it too good an idea to happen? so how does it work?
What is a DAO?
Decentralized Autonomous Organization or commonly abbreviated as DAO is the decision-making regarding the activities of an institution based on open-source code using blockchain technology.
DAO is create with the aim that crptocurrency transactions can run without the intervention of third parties, so that is what distinguishes DAOs from traditional organizations that generally have a centralized leadership.
The Idea of DAO
Conventional organizations are generally manage by boards, committees, and executives. However, in contrast to the DAO, which does not require a managerial arrangement so that an organization can continue to run, that is the basis for the idea of creating a DAO.
This Desentralized Autonomous Organization uses a set of rules that are create through digital code and then executed by a network of computers running certain software.
Autonomous and decentralized
DAOs can run on a smart contract system within the blockchain and are not affiliate with any country and can contribute to the security and optimization of a network without relying on manual intermediaries.
This then makes it decentralized to carry out its main activity, namely channeling investors’ funding, similar to a venture capital company.
First DAO Release
The concept of this organization was introduce by the founders of BitShares, Steemit, and EOS (Block.one) with Larmier in 2015 which is later refine by Vitalik Buterin (Ethereum) in 2016.
Developers, led by Mike Hearn, believe that DAO can be a solution to problems such as manipulation and human error. DAO was released in April 2016 as well as being the largest crypto asset crowdfunding with initial capital generate reaching US$150 million.
If someone wants to become a DAO member, then they can invest in the organization by buying the DAO cryptocurrency in question. Thus, members can get the right (votes) at the time of voting for proposals or updates. The power of voting rights is adjust according to the number of crypto DAO holdings by each member.
How DAOs Work
From the explanation above, you may have a little understanding of what a DAO looks like and how this organization works. It can be said that DAO operations implement a crowdfunding mechanism.
Now from the explanation of the working mechanism of the DAO above, it can be seen that this organization requires several aspects so that its operations can run well. Several aspects need to be prepare for a DAO, including
- The existing set of rules needs to be program in such a way that it can become a smart contract. As is well known that this smart contract is a program that can run itself on the Ethereum system.
- Fixed rule sets require a user or human role to verify all activities. In addition, humans are required to execute some tasks that cannot be handled by the ruleset.
- If the set of rules has been declared ready and has been determined, then the DAO enters the funding stage. At this stage, the DAO must meet 2 crucial criteria, namely, tokens that are used as loans, and guarantees of the voting rights of its members in voting on all financing that will be carried out by the organization.
- After that, DAO was declare ready to operate as an autonomous and independent organization. All financial rules and transactions are record in the blockchain to ensure transparency in the DAO, making manipulation and corruption difficult.
- When the DAO officially operates, all decisions regarding the use of funds are taken by mutual agreement. DAO shareholders have the right to submit proposals on the organization’s future design. Furthermore, the most approve proposals will be use for the future of the DAO.
DAO Forms and Examples
It should be note that DAO itself is not only an organization engage in the investment sector but also an organization that manages open-source blockchain-base on projects. Aspects that make up a DAO, including its type, structure, rules and management will be greatly influence by the characteristics of the members and the goals of the DAO itself.
Here are some examples of DAOs:
- PleasrDAO that collects various NFTs and invests in various other assets
- HerStory DAO that collects and funds projects by black women and non-binary artists
- Komorebi Collective DAO which finances crypto inventors both women and non-binary gender
- The Friends with Benefits DAO which is an exclusive social community
- The MetaCartel Venture DAO, a company investing in decentralized application development
As something that is predicted to become a trend, DAO is indeed able to promise something unique and perhaps applicable, especially now that the world is becoming more modern.
Here are some of the advantages that DAO can promise from its uniqueness:
- DAO is unique because it is an organizational system that does not apply hierarchies in order to work. Anyone in this organization is more likely to share their ideas for the future of the DAO.
- DAO implements an open and fair voting system. In addition, this organization also implements a set of rules that have been agree upon by its members since they joined. This can then reduce the chances of conflict within the DAO itself.
- To become a member and be able to contribute to the DAO, one must make a deposit with a certain amount. This makes decision-making will go through a more in-depth evaluation stage and remain responsible.
- DAO, which implements a blockchain network system, has better transparency than conventional organizations. Each member is involved in decision-making, from the allocation of funds to tracking the funds spent.
Although it seems promising, in fact, DAO also has risks that need to be consider if you want to become a member. Things to watch out for include:
- However, DAOs remain vulnerable to hacking. This is because as a program, the DAO system is also prone to programming errors. Creating loopholes that can be exploit by individuals to carry out attacks.
- Not only surveillance, but hacking also often leads to theft. Even an immediate attack occurred after the first release of DAO when the hacker group found a loophole and took around 3.6 million Ethereum coins. However, stolen funds can be recover through a hard fork.
- One thing that is no less troubling is the absence of an investment guarantor. Naturally, because of the characteristics of crypto assets, there is no official institution. That is recognize as an investment guarantor and there is no special regulation that regulates financial services in the blockchain.
- Well, various conditions as mentioned above. Then bring the DAO token to the delisting list by a number of exchanges for security reasons.