What are DAOs?
As the name suggests, DAO, or Decentralized autonomous organizations, are a group of people or like-minded flocks who come together without a central leader or company dictating or authorizing them. Everything is open, and the decisions are baked into the DAO via its code, and they are built on a blockchain using smart contracts. The most highlighting importance of DAO is that the decisions are governed by proposals and voting so that everyone in the organization can have a voice. With DAOs, you do not need to trust anyone else from the group, only the DAOs, as DAO codes are 100% verifiable and transparent. The importance of DAOs lies in their three core features.
- Decentralization: Not governed by one centralized entity.
- Autonomous: The DAO automatically executes operations on its own without any intervention.
- Organization: The DAO is governed by its own predetermined rules.
Why do we need DAOs?
To run an organization, proper and abundant funding is required, and it involves trust. It is hard to trust people; however, in decentralized autonomous organizations, it all depends on the DAO codes, which are 100% verifiable and trustworthy. This opens up new opportunities for global collaboration and coordination.
DAOs are fully democratized where voting is required to implement any changes, and the outcomes are implemented without a central authority. In comparison, traditional organizations are usually hierarchical with a centrally controlled automation prone to manipulation. Traditional activities are private, whereas DAO offers transparent and full public outcomes.
Examples of DAO are given below:
- Charity — you can accept membership and donations from anyone in the world, and the group as a whole decides on the spending.
- Freelancer network — A network of contractors can be created who can pool their funds for office spaces and software subscriptions.
- Ventures and grants — Creating a venture fund that pools investment capital, and the repaid money could later be redistributed amongst DAO members.
Benefits of DAO
DAOs are used for funding, investment, charity, buying, creating NFTs, etc. Below are some of the major benefits of DAOs
Decentralized, Automated, And Transparent
The decentralized and transparent nature of DAO helps provide complete ownership to the organization members, and the decisions are executed automatically because of the smart contracts. They eliminate all third-party transaction costs and thus increase the profit margins.
Every member of the organization has the decision-making power, and the power is proportional to the tokens they hold though it does not give them any more power or privileges.DAOs thus are community-driven, making it a rewarding and truly democratized space.
Potential Investment Returns
Owning a governance token in a DAO is a bit like holding equity in an early stage, and once it becomes successful, it will be extremely valuable. This helps create a long-term investment, and this reward mechanism will help distinguish between these tokens and other tokens launched by non-DAO projects.
DAOs will shape how businesses will run in the future, and organizations are willing to join their physical products and services with their audience’s virtual reality.DAOs are also going to increase the purchasing power of the people as people can come together for crowdfunding as everything is public and there are fewer issues of trust and security. DAOs will create organizations with the vision of the complete organization goal rather than just self-interest. The importance of DAO will be in creating a world of ideal decentralization. In the coming years, more and more organizations will be willing to adopt DAOs to automate many of their core business activities.