Decentralized Autonomous Organization — What, Why, Where ?
A DAO, or a Decentralized Autonomous Organization, is a company set up to run by code on the blockchain. The people who own tokens associated with the DAO are responsible for voting on changes and proposing new ideas to keep the DAO up and running and improving.
All the hype about DAO is directly related to the ownership. Decentralized is the key term. DAO is not controlled by a single organization like government, Meta, Amazon; rather the control is divided among a variety of small computers and nodes which are run by algorithms (referred to as Smart Contracts)
Most of the times, smart contracts are compared to vending machines. Try to think about a vending machine that not only takes money from you and gives you a snack in return but also automatically re-orders all the goods it needs for it’s smooth working. This machine orders food by itself, calls cleaning services and pays its rent without any actions from the outside. It has no managers and all processes were pre-written into the code. This is what a Dao is based on; completely run by code/algorithms.
Fact : In June 2016, due to programming errors and attack vectors, hackers attacked the DAO, accessing 3.6 million ETH. Interesting article on this hack.
Because of the hack, people were skeptical about DAO, however there’s a change in that since explosion in decentralized finance (DeFi) protocols. It has led to a rise in the popularity of DAOs again from 2020.
Why do we need Dao ?
Misaligned incentives — Lesser pay for you, they keep revenue for themselves.
Barriers to Access — Hard to get in. Tons of process. Hard to showcase your skills independently.
Bureaucracy — Slow decision making. Slow Approvals. Leadership takes care of decisions.
No ownership — Team/Company gets recognition. Sow learning. Less attention to individual or a group contribution. Everything is about the company as a whole.
Dao helps in these aspects ?
Aligned Incentives — Contribution is recognized.
Flexibility — The community decides. The community is not dependent on anything and is not liable to a set of board directors.
Ownership — You retain and are the owner of your Smart Contract/DAO . You get the rewards directly.
Autonomy — Leadership is not involved. All the contributors are equally involved in making decisions.
Issue with DAO ?
Decentralization isn’t easy. The decentralized aspect is the hardest to meet. Completely relinquishing control of an application makes it harder for developers to quickly react if there’s a problem, since they can’t unilaterally make changes to it without going through community consensus. This is hard for applications which are still at very early stages of development, so teams will often maintain some degree of control over their protocols.
No legal protection outside Dao’s rules. Code used in a DAO can be a replacement for aspects of legal contracts and save huge amounts of operational overheads. However there is no legal protection outside of what’s written in code.
Voters Choice. Voters many a times may not be capable enough to make smart and fast decisions. This may impact the DAO negatively. To counter this, some of the members in the DAO can have more power; however once we introduce this, again we are going back to same ideology of power for corporate.
Aragon — Community governed decentralized organization whose goal is to act as a digital jurisdiction. Helps grow Dao organizations.
Colony — A framework which helps create a DAO without expecting much knowledge from the owner about it .
Syndicate — A decentralized investing protocol and social network that’s transforming DAO.
Corporates have been here for a long time. This new idea or model are going to unsettle them. Hope the article was helpful. Happy learning. Cheers!