Decentralized Autonomous Organizations, or DAOs, represent democratic organizational structures for blockchain-based projects, ensuring that there is no central leadership. Decisions within a DAO are made by the community, who usually hold tokens that represent their vote share, and conform to a predetermined set of rules.
What Are the Advantages of DAO Governance?
The advantages of a DAO are similar to the other benefits which have led decentralized cryptocurrencies to explode in value. There is full transparency. The rules, the voting, and the proposals to be voted on are all fully viewable and audited. There is no leader who canvasses the votes and then implements “the will”.
It takes a bottom-up approach to governance, built on immutable rules, in contrast to most political systems in force today. Unlike governments, or other hierarchical entities only nominally beholden to their populace, customers or users, a DAO is intrinsically guided by the will of the people who are its constituents, as its operations are pre-determined by a codified covenant of rules.
How Do DAOs Work?
DAOs work through publicly-viewable smart contracts that govern their operations and cannot be changed, unless subjected to a community vote. If specific proposals are voted through, the smart contracts execute them automatically. There is no woolly “interpretation” going on when it comes to implementing proposals, and the execution of those proposals are also visible to all community members.
So, if the community votes to disburse funds from their shared treasury to a particular project, then – as soon as the motion is passed – the smart contract activates and the funds are sent out to the letter of proposal. There is no Bermuda triangle of administration or paperwork, and no chance for corruption to seep into the process.
How Do DAOs Use Their Funding?
The treasuries, or pot, of crypto-savings that a DAO has built up are also fully viewable, and the transactions they complete are only enacted by the community through voting. These treasuries are often built up through issuance of the token that governs the DAO.
It makes for a flat, democratic approach to how funds are used and how the protocol is governed. Although naturally those with larger vote shares are more fully represented when it comes to decisions, they are also the ones who put the most value into the DAO to begin with – and this is crucial – anyone buying into a DAO can see the distribution of “voting shares” and enter into it willingly on that basis.
The Future Is DAO
DAOs are now the most popular way to run a protocol as they inspire trust and fair participation from their members, whilst also incentivizing them toward shared growth. Maker DAO is an example of a successful DAO, that governs the stablecoin DAI. DAOs take the decentralized goal of cryptocurrency and apply them to governance of the tokens and protocols that make the cryptosphere spin on its axis, leading to community consensus on important decisions, and constructing a better, blockchain-enabled world.