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What Is a DAO and How Does It Benefit NFTs?

2022-06-10

Main Takeaways

  • DAO is an acronym for Decentralized Autonomous Organization, a community-led organization that lets members vote on the direction of their entity

  • Collector DAOs allow multiple individuals to own a fragment of an NFT; this gives smaller NFT traders an opportunity to join more expensive projects.

  • NFT creators and community members can collectively decide on the future of an NFT project via a DAO. 

  • DAOs also have the potential ability to help emerging NFT creators foster a community. 

Ever imagined what a collaborative environment for creators and community members in the NFTs space would look like? Let a DAO show you.  

Blockchain technology has come a long way since its inception. In recent years, we’ve seen blockchain technology revolutionize different industries, from the financial sector to the creative industries. Along with the wider mainstream adoption of DeFi, GameFi, and NFTs, other blockchain technologies are also becoming increasingly popular in the digital space – namely Decentralized Autonomous Organizations (DAOs). But what exactly is a DAO, and what does it have to do with NFTs? 

Keep on reading to learn the basics of what a DAO is and how DAOs can benefit the NFT ecosystem. 

What Is a DAO and How Do They Work?  

A Decentralized Autonomous Organization or DAO is a community-led group governed using tokens or NFTs that grant members voting rights. DAOs operate using smart contracts to automatically execute a command whenever a set of conditions are met. As the name suggests, DAOs are decentralized and autonomous. The rules of a DAO are stored on an open-sourced blockchain, meaning anyone can look at their code and transaction records. A central entity does not direct the decisions in a DAO but through proposals shared with the project community, who then vote on them. 

In a sense, a DAO functions similarly to a corporation, except it works without a hierarchical structure; it attempts to provide a new, democratic process through decentralized governance. Unlike a traditional organization, members of a DAO are not bound by any formal contract. Instead, they are bound together by a common goal or incentives written into their rules. 

There are many different types of DAOs out there, and you can even create your own if you wish

Want to learn more about DAOs and how they work? Check out our article on Decentralized Autonomous Organizations (DAOs) Explained

How Are DAOs and NFTs Connected?

One of the ways NFTs and DAOs are closely connected is in the form of collector DAOs. A collector DAO is an organization that pools together funds to acquire and issue NFTs. 

Investing in an NFT project, especially a more popular one, can sometimes require significant capital that could be difficult for smaller traders to afford. Collector DAOs let multiple individuals own a fragment of an NFT. An example of a collector DAO is the APE DAO, a DAO that fractionalizes Bored Ape Yacht Club NFTs, allowing multiple users to own a fraction of the same asset.

The connection between DAOs and NFTs isn’t just limited to collector DAOs. DAOs can also help create NFT projects via community governance. Community members and creators can collaboratively come to decisions and contribute ideas for the future direction of the NFT project.

Moreover, DAOs have the potential to help smaller projects or creators build a dedicated community. However, unlike some celebrities and well-known artists who already have a sizable following, not every emerging creator will have a dedicated community from the start. Much like a crowdfunding platform, collector DAOs can help raise funds and create engaged communities for different NFT projects by allowing people to vote on the projects they most want to succeed. 

Conclusion

DAOs have been around for a while and have a variety of interesting use cases. In the NFT space, they can be a beneficial tool in supporting the growth of existing and emerging NFT projects. As the NFT space continues to grow, we will likely  see more projects incorporating DAOs. 

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DISCLAIMER: NFTs are an emerging asset class that is still evolving. The information in this article should not be construed as investment or financial advice. Always do your own research before making any decision to buy, sell or trade NFTs.