What are DAOs? Find out how DAOs are transforming traditional corporate bureaucratic models.

What are DAOs?

DAOs – Decentralized Autonomous Organizations)

In simple words, DAOO is an organization that operates automatically and in a decentralized manner using Blockchain technology.

Thereby, allowing people to make decisions together without the need for a central authority.

It is an innovative concept that is gaining prominence in the world of business and design.

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How does DAO function?

DAOs work on the basis of smart contracts, which form the foundational framework that dictates how the DAO will operate. These smart contracts are responsible for the functioning of a DAO without requiring any human intervention.

The core team of community members comes together to create the smart contract. Smart contracts characterize verifiability and visibility, and they can be audited publicly.

Which allows every potential member to gain a complete understanding of the functioning of the protocol at every step.

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Step 1 – Funding

In order for the DAO to function seamlessly there is a need for funding. It is generally gathered using the token issuance method, wherein the protocol sells tokens in exchange for funds.

People who receive tokens are given certain voting rights based on their holdings. The stakeholders of the DAO decide the rules, and these rules and transaction records are stored on a blockchain with complete transparency.

Step 2 – Deployment

With the completion of funding, the DAO can be deployed. One of the most remarkable aspects of DAO is that, once the codes are written and implemented, they can not be changed. And no member holds any special authority to make it happen.

Any changes to be made have to first gather member voting, and upon reaching the consensus, the specific changes in concern are made. If there is a need for a change to be made, it is generally suggested through proposals.

It is when the proposal gathers votes from a majority of stakeholders or when the proposal fulfills a certain set of rules in the network consensus rules that the changes are implemented.

What makes a DAO work distinct from most traditional organizations is that DAO functions in a decentralized fashion.

Additionally, DAOs, unlike traditional organizations, do not have a hierarchy and they are rather driven by economic mechanisms.

There is no formal contract that ties the members of a DAO to it. Instead, all the members share a common goal that keeps them tied to the consensus rules.

Since the rules are written in open-source software governing the organization, they are transparent.

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Benefits of DAO

Conversely, DAO is growing in popularity in different areas from sports, arts, and finance to crowdfunding.

Participation

The basic design principles of DAOs are well aligned with the goal of achieving the highest level of decentralization.

This essentially means collective participation while eliminating dependence on one or a few individuals. This helps give an equal amount of importance to every stakeholder and member to have their voice when it comes to the decisions made.

However, these are not completely decentralized as members who invest in more tokens have more voting privileges.

Despite this, the voting power is still well-distributed which prevents power transfer to one or a few individuals.

Publicity

Since DAOs are built on open-source software, the votes that are cast via blockchain are visible publicly.

Since the decision made by every voter and member is viewable, this brings a sense of accountability and responsibility to the members to act in the best ways.

Therefore, the voters would want to act in ways that benefit their reputation while keeping away from acting against the community.

Community

Generally, DAOs have great community involvement, which enables people from all over the world to connect with each other to work on goals.

All it takes is an internet connection and DAO governance tokens to be able to enter the World of Web3.

Since the decision-making process is not limited to a group of authorities or the boardroom for DAOS, every member can contribute in ways that add to the productivity of the goals.

And with this, there is more scope for innovative developments from the organization and its members.

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Pros

It allows for easy and efficient collaborations. People from all around the world can come together and act as a single entity.

These are all about ensuring a maximum degree of decentralization, which essentially means the involvement of as many individuals in planning building strategies, and operations.

One of the benefits of DAOs is that the votes reflect on the blockchain, which is publicly viewable.

Stakeholders and token holders of a DAO are driven to act in a responsible way, which means the decisions taken are well -thought involving calculating moves by voters.

These DAOs are largely driven by goals. People with similar goals come together to invest in the tokens of a DAO.

This empowers the members of the DAO as they get a chance at collaborating with like-minded people.

Cons

Making decisions in DAO can be a time-consuming process since there is no set of people or predetermined boardroom members who can take all the decisions.

In fact, the involvement of a great number of voting participants results in the decisions taking more time.

It is quite recent and is highly technologically driven. This has 2 implications. One is that it limits a large part of the population who may not be equipped with the right technology or the knowledge to make use of the technology from using it.

It can also mean an increased burden to educate stakeholders to cast votes if they are not as educated or knowledgeable about DAOs.

Sometimes, the decentralized nature of the DAOs can play as a disadvantage as casting a vote becomes a more time-taking process.

Upon using DAOs that are not well-protected or don’t follow proper security protocols and take steps towards maintaining security, there are chances of severe exploits, which can even result in the theft of treasury reserves.

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What Is the Purpose of Decentralized Autonomous Organizations (DAOs)?

One of the major features of digital currencies is that they are decentralized. This means they are not controlled by a single institution like a government or central bank.

But instead are divided among a variety of computers, networks, and nodes. In many cases, virtual currencies make use of this decentralized status to attain levels of privacy and security.

That is typically unavailable to standard currencies and their transactions.

Inspired by the decentralization of cryptocurrencies, a group of developers came up with the idea for a decentralized autonomous organization, or DAO, in 2016. 

The concept of a DAO is to promote oversight and management of an entity similar to a corporation.

However, the key to a DAO is the lack of central authority; the collective group of leaders and participants act as the governing body

How to Launch?

Here is a step-by-step process of launching a DAO and for this instance, using the Ethereum network.

Deciding the DAO Structure

Before starting a DAO, it is crucial to understand your needs to start one and determine if DAO is the solution you are looking for.

The foremost factor worth evaluating before you launch a DAO is if your business will benefit in a true sense from it.

Deciding the Type of DAO to Build

There is a whole range of types of DAOs, and preferring one certain type over another completely depends on your specific needs and goals.

Token Allocation

These tokens are useful for creating rewards and incentives, and they encourage voting on the direction of the DAO.

Since tokens are the primary reason for users to feel involved and invested in your company’s success, you should define ways in which you would want to use tokens so that it adds to your goals and result in success.

Determining DAO Token Supply Allocation, and Rewards

When determining token supply, it is extremely important to find the sweet spot so that your tokens achieve maximum trade to their potential.

For instance, Organization based allocation and supply is dependent on your specific goals and community.

One thing to remember is that your tokens have higher chances of trade if they are a safe bet, meaning a reasonable number.

Building it.

You can either build your own system or leverage start-up templates and tools for various functions such as setting up the legal framework up, minting tools, creating a name for it, and deciding on teams and founding members.

Establishing the Treasury

It is essential to manage funds used for strategic investments and operational expenses, which is why you should establish the treasury as the next step after token supply and allocation.

Building a Community

Finally, once it has been deployed and launched, you should build a successful community, as it is the community that decides the success of your dao.

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Can DAOs work in the Real World?

Theoretically, the concept of DAO ticks several boxes that make it look like an ideal decentralization solution.

It has definitely transformed how the world of cryptos works, but it is significantly short of proving its usefulness for real-world corporations.

For example, in case of disruption of operations at a manufacturing unit, a smart contract may not be able to determine the ideal time to resume order placements.

However, a human manager might be able to consider small and bigger challenges and come up with the right decision more efficiently.

Moreover, while AI can be trusted with solving trust issues with transactions, it requires a human being to be able to create and retain trust in organizations and communities.

Therefore, it is safe to say that despite impressive characteristics and applications, DAOs are far from working in the real world.

These need to go through significant changes and we need bigger strides in the world of technology to be able to adopt it at scale.

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Why were DAOs created?

Chiefly, DAOs were created to solve the principal-agent dilemma.

The dilemma is that in a system where an individual, the “agent “, can make decisions on behalf of others, the ‘principal’, there risk that the agent won’t make decisions that are in the best interest of the principal.

The way DAOs try to solve this is by first making the organization decentralized,. If no one person can control the organization, then there is less risk that somebody could control it the way they want.

In theory, the concept of DAO is quite a revolutionary and disruptive technology. They have the ability to be global vehicles that enable a true digital revolution, unlocking the potential of Web3.

They are owned and run by members who normally hold tokens that provide decision-making rights and/or economic rights in the organization.

Though DAOs face growth barriers due to complexity and centralization issues. A lot of the major companies that will know today, will become DAOs in the near future.

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DAOs as Self Funded Startups

Hedge funds and Startups are two entities critical to the successful establishment of a DAO, as they allow for the collaboration between capital and creation.

Native tokens and NFTs enable DAOs to gather a sizable amount of shared funds, aggregating to billions of dollars, that can be used by their respective communities.

DAOs set up smart contracts to receive royalties when an NFT is bought or sold regardless of the price. Which led to well-funded organizations with sustained revenue.

However, many Dao’s are not organized to collaborate between capital and creation. So, they can not maximize windfall, and they barely survive a bear market.

Therefore, every DAO needs a finance-minded division and a community-minded division, manned by people with the essential skills and relevant strategies, to run effectively.

This way, treasury management will be more successful among the majority of DAOs. Thereby, creating endless possibilities for the community.

Hence, the smartest method to operate a DAO is to unify the concepts of hedge funds and startups and ensure a successful partnership between creation and funding capital.

Future of DAOs- A community where finance professionals will maintain and grow the treasuries while other teams will focus on their niche without having to worry about treasury.

Examples of DAOs

In the current landscape, knowledge, and discussion about DAOs are essential to explore transformation possibilities and adapt strategies that can positively impact how we conduct business and design products.

What it involves?

It involves autonomous organizations operating in a decentralized manner through smart contracts on the blockchain.

Understanding the theme offers the opportunity to redesign operational models, promoting greater efficiency, transparency, and collective participation.

Design is directly impacted as DAOs Design is also directly impacted, as DAOs foster the creation of more adaptable and user-centered products and services. Additionally, addressing the ever-evolving needs of the market.

1. Aragon – It is a decentralized platform for creating and managing autonomous organizations. Collaborative decision-making in open projects, communities, and companies.
2. DAOstack – Platform for creating and governing DAOs. Weighted voting, collaboration, and decentralized projects.
3. Maker – DAO operating the Maker protocol,. Creation of the stablecoin DAI. MKR token holders have governance power.
4. HAUC – Platform for creating and managing DAOs. Focus on communities and creative projects. Participation in governance, collaboration, and collective decision-making.

DAOs – 5 Interesting Projects

Albeit a late entrant, DAOs are catching up really fast as one of the most legit use cases of the Blockchain industry.

Here are the Top 5 projects that have already jumped onto the DAO Bandwagon!

1.BitDAO

BitDAO is one of the world’s largest decentralized autonomous organizations focused on DeFi. And it is managed by holders of BIT tokens. BitDAO’s vision is open finance and a decentralized tokenized economy.

2. Aragon

It is open-source software that allows you to create DAOs on the Ethereum blockchain. Aragon can be used to create clubs, companies, non-profits, and other organizations.

Which can collaboratively manage finances and decision-making through its decentralized apparatus.

3. Olympus

Chiefly, Olympus is an algorithmic currency protocol building a community-owned decentralized financial infrastructure to become a stable and transparent crypto-native currency.

It is run as a DAO, meaning its governed by its community in a fully decentralized manner through smart contracts.

4. FF

Forefront is a media company that is a launchpad empowering Web3 explorers to create at the frontier of tokenized communities.

It is an insight aggregator across the social token landscape.

Basically, it is built as a tool to aid in the curation of resources, data, and insights. Especially, on how to navigate the ever-changing social token landscape.

5. Seed Club

Seed Club is a DAO that builds and invests in communities. It helps creators, communities, and brands launch and grow social tokens and earn a percentage of their tokens in exchange.

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DAOs in the Art World from the U.S. Constitution to NFT.

Ultimately, DAOs can be a platform that fosters limitless creativity and intellectual property.

And anyone can participate in the creative process either by funding it or by creating the art themselves (both digitally and physically).

It presents new challenges and opportunities for different stakeholders in the arts.

DAOs – How will this new format impact organization?

Decentralized Autonomous Organizations, or DAOs, are gaining increasing attention and importance in the world of blockchain and decentralized finance.

At their core, DAOs are digital entities that operate autonomously and democratically, making them a powerful tool for creating, decentralized communities and facilitating decentralized decision-making.

Basically, the DAOs have the potential to revolutionize many industries by offering a more democratic transparent, and secure alternative to traditional centralized organizations.

For example, DAOs can be used for crowdfunding, decentralized decision-making, and creating and managing decentralized applications.

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Looking to transform your community into a DAO? Let’s explore how to do it.

DAO stands for “decentralized autonomous organization’ a group with a shared goal that is able to collectively make decisions without a centralized leadership structure.

Understanding how DAOs work and modeling your structure after other DAOs can help you shift your existing community into Web3.

Aligning your DAO identity

The first step is setting your DAO purpose. Work closely with your founding team to build a community where people want to be and prioritize engagement over growth.

DAO creation and management tool Aragon suggests that creating a distinct brand identity will help your purpose.

You should consider gas fees, security, and scalability of the network when making a decision.

Select the Right Blockchain

These have no central leadership, and voting on proposals often occurs on-chain.

DAOs often gravitate towards using Ethereum and Polygon as their preferred blockchain options.

Define Your Governance

Outline how your DAO will make decisions and who can participate. There are different ways to weigh members’ votes, so choose the system that makes sense for your community.

a. Token-weighted voting – the more tokens a member holds, the more weight their vote.

b. Wallet-based voting – One vote per wallet, minimizing the ability to simplify purchase voting power.

Mint DAO governance tokens

Some projects choose to issue non-fungible tokens, to allocate membership. Others choose to create a native governance token to simplify the process.

a.Decide on a name for your tokens

b. Determine how many tokens you want to mint.

c.Consider the maximum supply of tokens.

Choose Your Tools

There are a variety of tools available for different processes.

Discord is a tool commonly used for discussion and community management, while a Gnosis safe is sometimes used as a multi-sig wallet for moving group funds.

The blockchain-based structure is designed to provide projects, businesses, and communities with a more democratic management process, fostering better coordination among creators, developers, and investors.

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How does DAO Make Money?

First, the initial step to raising capital in a system is through trading fiat in exchange for the native token.

People who invest in the tokens are incentivized by giving them the power to vote and ownership that is proportionate to their investment.

When it achieves success, it can then increase the value of the tokens. This helps tackle the issues related to generating capital.

Another way of making money is through investing in assets when a majority of members approve such measures.

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How will DAOs shape the Future of Education?

First, DAOs are fertile grounds for growth and development. They provide a rounded education for participants and can ensure that contributors get to improve their skills in their chosen fields.

Contributors in a DAO have several opportunities to achieve their personal goals.,acquire new skills, and be an integral part of the future of on-chain organizations.

Essentially, DAOs are breaking the barriers of traditional education. Instead of being limited to walled rooms, education in DAOs is provided in rooms without barriers.

Moreover, DAOs encourage collaborations and partnerships on a global scale. Such partnerships are not readily available in the traditional educational system, thereby limiting students’ potential.

Furthermore, unlike the traditional educational system, one is both a teacher and a learner in a DAO.

There is no monopoly of knowledge creation and dissemination in a DAO. No one knows it all, and DAOs leverage this to improve learning potential.

So, DAOs help to create unlimited learning opportunities, while ensuring that the means to apply what has been learned are available.

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How does DAO work in a Blockchain?

They use smart contracts to work in a blockchain. These smart contracts are made of chunks of code that help execute operations automatically when a set of criteria are met.

When Ethereum was the first blockchain to use smart contracts, it is deployed on various other blockchains these days.

How much Does it cost to start a DAO?

The cost of forming a DAO as an LLC is $100 in fees, and a fee of $60 is incurred each year when the annual report is released.

However, since Ethereum prices keep fluctuating, the cost of setting up DAO and generating tokens keeps varying.

Is it true that DAOs are more sustainable and decentralized compared to other crypto projects?

The DAOs are actually a more sustainable model than cryptos. Because the idea of a DAO is to create and pass on. you are creating a decentralized identity.

What makes RDAO different?

Decentralized Autonomous Organizations use blockchain technology to enable transparent governance, decentralized decision-making, and efficient execution without the need for a centralized authority.

The RDAO is doing just that, by slowly releasing $RUG and v$RDAO tokens over time to ensure decentralization. With a governance council elected through public voting.

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Conclusion

While DAOs can be immensely beneficial and have the scope for future growth, there is a need for people to first have a comprehensive understanding of blockchains and how they work.

Furthermore, setting up and launching a DAO also demands familiarity with the working of blockchain and how to leverage blockchain technology.

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