Decentralized Autonomous Organization
This is a form of organization that automatically executes predetermined early scenarios, as well as monitors compliance with user agreements and the allocation of certain resources, according to the rules that have been agreed upon earlier.
The system works thanks to smart contracts and is based on blockchain technology. Thus, all information is stored in a chain of blocks.
Objectives and Structure
The main purpose of this system is to provide full DECENTRALIZED operability of the organization, i.e. the system itself, through smart contracts, will follow and execute the requirements and programs that have been laid down in the smart contract.
Decisions for the organization are made by voting of the project participants, each participant has the right to vote, and each participant has the right to put forward any issue for a vote. The voting process is completely transparent and there is no way to falsify the results of the vote. At the end of the voting, the organization automatically begins to apply the decision of the vote in practice.
Distribution of votes
The number of votes may vary depending on how the system works, for example, if the DAO issues control tokens, then accordingly there will be the same number of votes as the tokens themselves, in such cases, one participant can redeem most of the tokens and his vote will be decisive.
Proceeding from the ideas, on which the principle of FAO operation is based, namely, decentralization of decision-making and equality of all participants, it should be understood that, on the one hand, it is not profitable for the participants themselves to sell / give away their tokens, as in most cases token holders receive a benefit for them, whether it is monetary gain or something else, on the other hand, if the organization / company managed by DAO becomes large and has large capital, then those very management tokens rise in value and the holder may also sell them, but only for the sake of unity.
Also, the organization can operate on the principle of a digital key, that is, only those who have the given key can vote. The key can be a physical medium with the code, e.g. a flash drive, or an NFT token.
Example: Many modern politicians, in the election campaign, promise a lot of things, but in fact their words are at variance with the desires of voters and their own earlier words, now they are much more important the finances to which they have access and leverage. This is not possible in the DAO.
Types of DAOs
There are two types of structure that are used to build a DAO: Prescriptive and Descriptive.
Prescriptive implies that the existing development team has already created the structure of the DAO and the rules within, while newcomers adjust to the existing rules.
Descriptive, on the other hand, implies that the community itself creates all important aspects of the project together.
An DAO can run a wide variety of work scenarios, again, all work is based on a smart contract, so it's up to your imagination and needs.
What are the DAOs:
- Investors DAOs - are funds that engage in co-investment with the help of a DAO. (Example: MetaCartel, SyndicateDAO)
- Protocol DAO - can not decide and manage all processes in the protocol, most often involved in the distribution of rewards from farming and affect the size or principle of the commissions. Usually are part of some protocol. (Example: Uniswap, AAVE)
- Project DAO is like a classic finance company. By having their token, you can receive rewards and make decisions on the protocol. Usually these projects create separate products that generate revenue. (Example: PieDAO, Indexcoop)
- Curator DAO - like Investors DAO but with main focus on NFT and Crypto Art. (Example: Flamingo, MetaFactory)
- Community DAO - community gathers around a specific idea and develops it. (Example: PleasrDAO, MetaGammaDelta)
- Creator DAO - alliances around some artist, in return can get some exclusive bonuses. (Example: Coinartist)
- Guilds DAO - community of freelancers from different spheres. (Example: RaidGuild, DeepWork)
Relationships
The biggest advantage of DAO is the trust of users, or more precisely, that you do not need to trust anyone, because the system is completely transparent and all actions prescribed in the contract are performed by computer code. In the structure of DAO there are no senior managers or CEOs, no one who could somehow change the decisions of the entire community. Also, in this structure there can be no various kinds of "financial secrets"; on the one hand, there can be no operations related to money laundering and the like, and on the other hand, you can't conduct secret development of any innovative products or anything like that. In general, EVERYTHING is transparent.
Also, no external forces and organizations, be it various kinds of financial state agencies or investigative and legal structures, can influence the structure of DAO, with only one exception, if they become part of the community and possess the lion's share of control tokens and then they can close or somehow influence DAO. And because DAO runs on blockchain, you can't turn off the server, because there are thousands of nodes around the world that support blockchain.
About the transparency of the structure, the code that is used for DAO is in the open sources, so everybody, who has knowledge, can take part in the improvement of the work and the security of the code. But also the other side of this situation is worth considering, if the code is open and anyone can see it, it means that any intruder can study the code and find the vulnerabilities and get the money of the whole DAO.
The DAO
The DAO can be considered the most famous project of the DAO. The project was a crowdfunding platform based on the system of smart contracts and Ethereum technology. In 2016, it raised over $150,000,000, although the goal was to raise $20,000,000 (in Ethereum terms).
The project code was posted on GitHub, the network users pointed out critical errors in the project code, but, apparently, the project authors neglected this information, for which they soon paid - in the summer of 2016, an intruder, using a network vulnerability, was able to gain access to the contract and withdraw over $50,000,000 from the project. After the incident, the project shut down.
It was after this incident that a part of the community - Ethereum Classic (ETC) - split off from Ethereum (ETH), essentially still the original blockchain. The ETC community found it unfair to give back funds that didn't exist, because they had been stolen, and the other part of the ETH community decided to return the lost funds to the depositors. This splitting of one blockchain (project) into two is called HARDFORC.
Bottom line
From all of the above, we can conclude - there is a huge potential behind the DAO technology, and in some way, based on the principles and work of DAO, larger companies and projects than we have now, can exist and develop.
We already see that DAO is gathering large communities of like-minded people around it, and we also know that communities are ready to make large investments. It's a new technology that will only surprise and create new rules of the game on the world market.
Naturally, this technology has flaws so far, as mentioned above, but just the very openness of this structure will help to instantly solve problems both within the organization and outside its sphere of influence.
Perhaps just the same DAO and will be a new round in the development of human society, not only in terms of finance, but also in the direction of democracy and management principles, as a society, and any organization.
Decentralization. Openness. Equality. Perhaps these words are the meaning of DAO.
