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As Web3 and Blockchain become more popular, it is important for us to know about new acronyms like DAO. Through this article, we are explaining to you the complete explanation of DAO, what is the important role of DAO in the world of crypto.

What is DAO?

A decentralized autonomous organization is just that: a group of people who get together without a central leader or firm directing any choices. They’re made via Smart contracts on a blockchain (digital one-of-one agreements). Members of DAOs frequently purchase their way in by purchasing a governance token designed expressly for the DAO, which allows them to vote on decisions affecting how the pool of money is spent and handled. These communities can include people from all around the world who connect using Discord channels.

 

How does it work?

A DAO, as previously said, is an organization where decisions are made from the ground up and the company is owned by a group of people. There are several ways to participate in a DAO, the most frequent of which is via purchasing a token. Smart contracts, which are just pieces of code that run automatically when a set of conditions is met, are used by DAOs. Smart contracts are employed on a variety of blockchains, albeit Ethereum was the first to do so.

These smart contracts establish the DAO’s regulations. Those with a stake in a DAO may then vote on or introduce new governance ideas, influencing how the firm operates.

By requiring that a proposal be accepted by a majority of stakeholders, this mechanism protects DAOs from being inundated with recommendations. The process for calculating the majority varies with every DAO and is detailed in the smart contracts.

DAOs are entirely self-contained and transparent. Their code is open to everyone since they are built on open-source blockchains. Because the blockchain records all money transactions, anybody may audit their built-in treasuries.

When did DAOs first appear?

A business named Slock established the first DAO, simply known as The DAO.

It is a German-based developer that is attempting to connect actual world transactions to the blockchain, allowing anyone to rent, sell, or share their property without the use of an intermediary.

According to an interview with Slock its creator Christoph Jentzsch 2018, the firm sought to find a mechanism to generate money in early 2016, and in April launched a DAO, which was similar to a Kickstarter or GoFundMe. The DAO’s differentiating feature is that it allows all investors/members to vote on how the firm spends the funds received.

According to The Economist, it eventually evolved into a decentralized form of a venture capital fund and owned around 14 percent of the entire quantity of Ethereum coins. According to Coindesk, this made it the biggest crowdfunding campaign in history in 2016, raising over $150 million in Ether from over 11,000 members between May and June.

 

Comparison between DAO and Traditional Organisation

DAO Traditional Organization
Is typically flat and totally democratic. Typically they are hierarchical.
A majority must approve any modifications of the members. Changes can be sought from a single party, or voting can be given, depending on the arrangement.
Without the use of a trusted intermediary, votes are counted and the decision is implemented automatically. If voting is permitted, votes are counted internally, and the results of the vote must be handled manually.
All action is transparent and open to the public. Most of the time, activity is private and not open to the general public.

There are three main components to a DAO launch.

Making a smart contract: The DAO’s smart contract must first be designed by a developer or group of developers. They can only use the governance system to change the rules imposed by these contracts after they have been launched. As a result, they must rigorously evaluate the contracts to ensure that important details aren’t ignored.

Financing: The DAO must decide how to acquire financing and how to execute governance after the smart contracts have been created. Tokens are frequently sold in order to raise cash, and token holders have voting rights.

Deployment: The DAO should be deployed on the blockchain after everything is in place. Stakeholders make decisions on the organization’s destiny from this point forward. The organization’s founders — those who created the smart contracts — no longer have the same level of control over the endeavor as other stakeholders.

The DAO’s Future

What does the DAO’s future look like? The DAO had not been restored to its previous state as of mid-2020. However, interest in decentralized autonomous groups as a whole is expanding. The Maker Foundation, the first proponent of DAO and a crypto industry legend, said in 2021 that it will give over its operations to MakerDAO (the creator of the DAI stablecoin) and disband by the end of the year.

While there are numerous unanswered questions about legality, security, and structure, some experts and investors predict that this sort of organization could eventually gain traction, maybe even replacing traditional organizations.

Conclusion

Over the previous several years, decentralized autonomous organizations have gained popularity and are now completely integrated into many blockchain initiatives. DAOs are used in the decentralized finance (Defi) arena to allow applications to become completely decentralized.

 

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