A decentralised autonomous organisation (DAO) is essentially a very large vending machine living on the blockchain. It only does what it is programmed to do, with no possibility for human intervention. DAOs allow anyone with an idea to coordinate, pool funds, and even create tokens that represent their share within the organisation
Monica Singer CA(SA) Blockchain Evangelist for Consensys
The rules of the DAO are established by a core team of community members through the use of smart contracts. These smart contracts lay out the foundational framework by which the DAO is to operate. They are highly visible, verifiable and publicly auditable so any potential member can fully understand how the protocol is to function at every step.
Organisations run by smart contracts (preferably reviewed by security auditors) rather than humans are less susceptible to corruption, centralisation and other human foibles. You can’t corrupt a vending machine unless you hack it, change its code, or break it. Members of a DAO can vote on governance proposals and choose to add to the DAO’s functionalities.
Let’s take investment DAOs as an example. In traditional finance, there is very little transparency as to where and how your money is being invested. In contrast, investment DAOs like Syndicate allow members to create special interest DAOs, vote on projects worthy of investment, have more agency in their investment decisions, and eliminate the frustration of not knowing how their funds are being used.
In Q2 of 2021, we witnessed a burgeoning DAO ecosystem thanks to new coordination mechanisms that deal with financial decisions as a group. From fundraising to deploying capital, the growth was impressive in its diversity of use cases for DAOs. This explosion of ingenuity continues to this day.
Protocols such as Compound and Uniswap for borrowing, lending, and swapping tokens on Ethereum are the largest DAOs both in terms of assets on their balance sheet (Uniswap with $8 418 252 541 and Compound with $1 156 960 610) and number of members.
However, there are thousands of other types of DAOs. Media organisations like Bankless and public-funding entities like Gitcoin all utilise DAOs to coordinate, govern and manage their financials. DAO membership has also quintupled since late June 2021. There are now more than 978 000 DAO members across crypto!
As crypto projects continue to grow and distribute governance, DAOs will continue to increase in importance.
Some DAOs to check out
- MakerDAO − If you would like to contribute to the protocol that introduced the world’s first unbiased stable coin, DAI, you can get involved in governance by voting on changes to the Maker protocol.
- Proof Of Humanity − This sybil-resistant registry of humans uses social verification and Kleros’ courts to distribute universal basic income (UBI) tokens to verified humans on-chain.
- Opolis − This member-owned digital employment cooperative offers benefits and shared services for the independent worker.
