Some of us have encountered many cases of difficulties in deciding things, especially in companies, and in certain traditional organizations, the deliberation process is often more dominantly carried out by certain groups, making it unbalanced.
Since the discovery of cryptocurrency, a new breakthrough has emerged which is a solution to this, namely DAO or Decentralized Autonomous Organizations.
Understanding DAO
It was first proposed by big figures such as the founders of BitShares, Steemit, and EOS in 2015, and this concept began to be developed by Vitalik Buterin, the creator of Ethereum in 2016.
Decentralized Autonomous Organizations or DAO is an organization or entity whose management is carried out by computer programs and algorithms so that there is no particular leadership or authority that has the potential to manipulate the voting process.
It is also believed that DAO can be a solution to the problem of Human Error or manipulation of investor funds in venture capital companies which often occurs in traditional organizations.
A DAO is not affiliated with anyone but is usually operated by a community that is given incentives in the form of tokens, and the community has the right to ensure the DAO protocol is running properly.
How DAOs Work
Applications in the form of DAOs can work independently on blockchain technology without human intervention, so how do DAOs actually work?
The first step is to implement rules and regulations which are then programmed into a smart contract, namely a smart contract program that can run independently on the Ethereum network. However, the role of a third party is still needed, namely humans who will be involved in the verification process and implementation of the program.
These rules are decided through voting on a proposal and only stakeholders have the right to vote, then documents and transaction records will be packaged transparently and stored in the blockchain ledger.
After various rules were established, the DAO began to enter the funding stage. This step covers 2 important elements in DAO, namely:
- A DAO requires tokens that will be used by the organization as loans or incentives given to debtors.
- By investing in DAO, users have the right to vote to validate or reject donations to projects that will be funded by the organization.
When the funding session is complete, then the DAO can be run automatically to be autonomous and independent from its creator.
After that, all decisions regarding the use of funds will be made by making a joint agreement, and each individual who holds the token will later have the right to make proposals for the future of the organization. There are also efforts to limit the number of incoming requests for proposals by providing a minimum deposit for investors.
Only the proposal with the highest percentage majority will be adopted by the DAO through the voting period
Examples of DAO Usage
1. Grants (Grants)
Grants within the DAO are designed to facilitate non-profit donations or strategically deploy capital assets across the web3 ecosystem. An example is Aave Grants DAO, a community-led program to fund ideas and projects that support the development of the Aave protocol.
2. Investment and Venture
DAOs of this type act as venture capitalists who raise funds to invest in early-stage web3 startups, and gain access that is not available in traditional finance.
And there are many other types of organizations in the form of DAOs such as Philanthropy, SubDAO, Collector, and Social.
Advantages of DAO
1. Security Level
This is a plus point for DAOs because any necessary changes must be based on majority approval, so security against manipulation attempts is very high for the organization.
2. Open and Innovative
The concept of DAO is very interesting to implement in the modern world, where DAO can provide an opportunity for investors to create an organization according to their wishes.
In the absence of centralized leadership, anyone can express their ideas which will then be considered by all members involved in the organization.
3. Transparent
Because the DAO organization runs on blockchain technology, this makes it very transparent, so that anyone can track the flow of realization of funds spent by the organization.