An Intro to DAO’s
Content:
General Information-
What is a DAO?
Why Do We Need DAO’s?
Risks of a DAO
Types of DAOs
Closing Thoughts
General Information-
What is a DAO?
A DAO is an acronym for “Decentralized Autonomous Organization” which also represents a community. The purpose of a DAO is to be a community governed by DAO members with no central authority hence decentralization. Ultimately, DAO members create proposals, and then the community votes on those proposals. DAOs are also usually formatted in a manner so the public and members may see all the code and audit which creates trust within the DAO. DAOs sometimes require members to hold NFTs or tokens to prevent spam which also creates a common interest within the community to become mission driven.
Figure A
2. Why Do We Need DAOs?
You might think to yourself why are DAOs even needed? I will list reasons why I believe DAOs are needed and may add structure/help consolidate communities. (1) DAOs allow like-minded people to connect which creates a community. (2) DAOs also allow members to make critical decisions about the future of the DAO which gives members governance rights. (3) DAOs have a structure that makes members anonymous creating a level playing field. Why is point (3) important? Being anonymous removes bias from a decision, and this is the magic of being community-led. People who decide to join DAOs are most likely to think for themselves and also want the DAO to succeed. While these reasons may seem small, in the “Types of DAO” section below, I will share how these small changes may influence different types of DAOs and the progress of a DAO.
3. Risks of a DAO
Like everything in life, there is good with bad and vice versa. Nothing is perfect and there will also be a downside that must be assessed. What are some risks that a DAO may possess? (1) Sometimes the governance aspect of a DAO may be slow. (voting process is slow) (2) Exploits are possible as the code is public and the DAO is open to theft of treasury reserves if not secure. (3) New members of a DAO may lack education and may need to learn as each member varies in knowledge. This risk must be assessed as in the past there was a famous 60 million dollar hack in 2016 of Ethereum Classic that may be found here.
4. Types of DAOs
Many different types of DAOs exist, and each has its own unique mission. DAO structures range from investment, protocol, philanthropy, media, and so many more types of DAOs. Each of those DAOs has a different goal which is where the details come into play. A philanthropic DAO may be easier to manage/participate as the complexity level won't be as much as a protocol DAO. Protocol DAOs are much more complex as they may require an understanding of code that not everyone possesses. Investment & Venture DAOs are also complex as it requires one to understand research and/or technical analysis to identify investment opportunities. The last one I want to highlight is Media DAOs as they are simpler and share an easy governance process. Each DAO ranges from complexity but the point is to connect like-minded individuals to share ideas and work together to push forward the mission.
Figure B
Closing Thoughts
DAOs help re-envision what it means to structure a group of people. Whether the purpose is to make money, grow a protocol, or act as philanthropy it brings together a decentralized community. The DAO doesn’t make it obligatory to participate, but it brings together people who are like-minded creating a community of shared interests. DAOs are magical, and I encourage readers to participate in DAOs in their own line of interest. The best part of being in the DAO is that you can remain anonymous, and be around people who want to engage and participate in governance. While DAOs do have their flaws, I believe as time progresses solutions will be introduced. Most forget how early we are in this space and I am excited to watch more DAOs unfold.