New here? Read up on our past Crypto issues to get the most from this weekly post.
May 5th, 2022 | ± 5 minutes
- What is a DAO & How does it work?
- Why do we need them & some examples?
- How to get started & create your own DAO
What is A DAO?
Even if you’re a relatively new cryptocurrency world dweller, you’ve probably heard a thing or two about “DAO”s (pronounced dow) already.
While it might not have the same popularity as NFTs, “DAO” has become a big buzzword and has certainly garnered a lot of attention. And it’s not hard to see why.
A DAO, or a decentralized autonomous organization, is an entity whose members and community make major decisions through voting. This means there is no central authority figure that makes the decisions. Instead, all key decisions are made by the DAO, including (but not limited to) how funds are allocated.
There can be votes to remove or add people to the team, so those working for the DAO will need to make sure they deliver what they promised. This is one of the main benefits of this structure – it ensures that everyone working for the DAO is performing well.
How Does it Work?
Step One: The Ground Rules
When a DAO begins, the rules are established by its founding members. They’re written on the blockchain through smart contracts.
Like with anything web3, smart contracts are vital to DAOs, which layout the framework for how a DAO is run. The smart contracts are public – anybody can take a look them up and understand how they allow the protocol to function.
Step Two: The Community
From there, a DAO needs to raise funds and get its community. Traditionally, most DAOs would create a token or NFTs and sell them to their soon-to-be DAO members.
For instance, if a DAO called Example has a token called $EX, it might allow anyone holding 1000 $EX or more to become an Example DAO member and to vote on important decisions. So anyone who wants to be a part of the DAO will need to buy 1000 $EX or more, which, in turn, helps the DAO raise funds.
Similarly, if DAO Example has 10,000 NFTs, it might decide to allow anyone who holds at least one of its NFTs to vote. Example DAO might set a mint price of .1 $ETH, and if it the NFTs mint out, then Example would have 10,000 * .1 $ETH, or 1,000 $ETH in the treasury. Boom.
Because DAO members are bought into the project, they are incentivized to make good voting decisions to increase the value of the DAO, and thought that – the value of their own assets, regardless of their form (tokens or NFTs). It’s simply genius.
Do we Really Need DAOs?
Yes, DAOs are certainly a different way to start an organization compared to the traditional types of companies that dominate our world.
What makes DAOs so popular now are clear benefits of having the community make key decisions for the organization:
- Rather than relying on the decisions of the executives, shareholders are involved in the decision-making process;
- Votes are tallied without an intermediate party needing to count them;
- Decentralization makes it more accessible and open to participants;
- Actions and decisions are 100% public because they are recorded on the blockchain.
While there are many different types of DAOs, one of the easiest categories of DAO to understand is a charity DAO. A charity DAO might decide to accept users as DAO members if they have donated $500, for example, and those DAO members can then decide how they allocate the donations.
But there are many other DAO types out there…
Here are some examples:
- $UNI – $6.83
- The Uniswap protocol is one of the largest decentralized crypto trading protocols on the Ethereum network.
- $WMEMO – $30,322.65
- A famed project that had many Ponzi Scheme-like qualities. It seems to have reversed its reputation, and its token price has stabilized. With its funds, it appears to be executing on its promises now, but many people certainly lost a lot of money in late 2021 and 2022. Many people bought into the project because of its charismatic leader, Daniele Sesta, and his “Frog Nation.”
- $MKR – $1396.29
- Creator of $DAI stablecoin, one of the most popular defi applications that allow decentralized lending.
If DAOs sound interesting to you and you want to get involved, you’ll either join an existing DAO or start your own. There are a countless DAOs you can join, but here are a few lists you can use to search for the ones you might be interested in joining:
Creating your own DAO
We went over some basic steps of starting a DAO but the full process is a little more complicated than that.
The details are important but they are beyond the scope of this article, which is why we’ve prepared two great resources you can check out if you’re interested: