Popular Science: What is DAO?

A new type of organization is changing that, with a flatter governance structure and an automated set of rules enforced on the blockchain.

Decentralized Autonomous Organizations (DAOs) allow everyone to participate in discussions and encourage teamwork. And they've created some pretty cool stuff.

A DAO is a business structure where control is dispersed among team members rather than centered around a single authority figure.

A DAO can be thought of as operating like a machine where the work it is instructed to perform is determined by pre-written smart contracts.

A community can adapt the DAO and program it according to its own goals.

The code is written in the form of a smart contract that provides some kind of governance mechanism.

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Members typically use governance tokens to vote on issues such as fund allocation.

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In the case of many DAOs, the impact of members' votes can be increased by the amount of their contributions to the project.

Outcomes can be determined based on participation and voting preferences.

The DAO is the largest and earliest example of a DAO. It was created by Slock.it and built on the Ethereum network. Its code is open source and anyone can contribute to it.

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The DAO is designed as a venture fund platform for cryptocurrency projects. Complaints are filed, and anyone with DAO tokens can vote on projects for funding. However The DAO was unsuccessful.

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On June 17, 2016, a hacker managed to exploit a few lines of code that allowed the movement of 3.6 million Ether, worth $70 million. However, the funds were transferred to a "Child DAO" and could not be moved for 28 days, giving the Ethereum community time to fix it.

They performed a hard fork of the chain now known as ethereum, leaving the old fork, ethereum classic, behind. In this fork, they rewrote the blockchain so the hack never happened, which means the blockchain is no longer immutable.

The development of the DAO continued, but without much attention. Projects like Aragon, DAOstack, DAOHaus, and Colony have taken key lessons from their original DAOs and are now building and running DAOs for some of the largest DeFi protocols. The DeFi boom of 2020 has brought a new wave of interest to the DAOs that underpin many leading projects.

Cryptocurrency projects - are considered DAOs if they are governed by decentralized governance where token holders can vote on the direction of the project, such as MakerDAO.

Funding - DAOs can be used to automatically distribute development funds based on set criteria, such as MolochDAO.

Investments - MolochDAO has been forked several times to create for-profit DAOs that can distribute and transfer shares and other assets among members, such as MetaCartel Ventures.

Collectors – The craze for non-forgeable tokens (NFTs) has given rise to collector DAOs, such as FlamingoDAO.

Transparency - Votes, funding decisions and other actions are visible to anyone.

Greater Firepower - Members anywhere in the world can donate, making DAOs a lower barrier to entry than corporations.

Cheaper - the concept is already firmly entrenched in DeFi, there are many tools - that can be used like Lego bricks, so there is little need to build from scratch.

Collaboration - Giving everyone a voice, bringing together a wealth of knowledge for a proposal, and enabling experts to invest in the ecosystem they are building.

Flat Structure - With no clear authority figure or chain of command, decentralized organizations operate slower because decisions take longer to make.

Divergence - When there is a strong disagreement in the community, it may split the organization in two.

No change - in some DAOs, whoever owns the most tokens calls the shots, so governance looks very similar to traditional organizations.

Legality - Minefields abound regarding token projects that may be considered securities.

Interest in DAOs is gradually returning; hundreds of developers are working on technical innovations, improving governance mechanisms and voting solutions.

Meanwhile, in the crypto-friendly state of Wyoming, landmark legislation is seeking to clarify the legal status of DAOs.

Enthusiasts believe that DAOs will soon become more mature. Trends include anonymity, progressive decentralization, and better incentives to participate. Future DAOs may adopt prediction markets and start voting and acting as delegators in other DAOs.

Will they start changing the way companies are run and financed? Soon, you might be discussing the right way to move your business forward without your boss telling you what to do.

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