All you need to know about DAOs

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May 5th, 2022 | ± 5 minutes

CONTENTS:

  • What is a DAO & How does it work?
  • Why do we need them & some examples?
  • How to get started & create your own DAO

Let’s go!

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.

All eyes on DAOs.

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.

Most are currently on the Ethereum network. Check out why that is HERE.

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.

The currently trending ApeCoin is a good DAO Token example.

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.

caption for image

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:

Uniswap

  • $UNI – $6.83
  • Twitter
  • The Uniswap protocol is one of the largest decentralized crypto trading protocols on the Ethereum network.

You’ve definitely seen their magenta unicorn logo at least a couple of times.

Wonderland

Very magical.

Maker

  • $MKR – $1396.29
  • Twitter
  • Creator of $DAI stablecoin, one of the most popular defi applications that allow decentralized lending.
$DAI is #5 stablecoin on Coinmarketcap.

Getting Started

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:

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Author

Colin Ma

Colin Ma

Colin Ma is an Alts contributor. He has bought, managed and sold multiple digital businesses across various sizes, including high 5 and 6 figure deals, and is active in crypto communities. In the past he has worked with investing.io, Domain Magnate, and founded Makujin Media, a digital marketing and asset holding company. His strengths lie in analyzing various market opportunities and growing businesses with several different models, including ad-based websites, affiliate marketing blogs, and successful e-commerce brands across a variety of niches. In his spare time, Colin can be found breakdancing around Southern California and cooking up a storm in the kitchen.

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