What Is A DAO And How Do They Work?


Table of Contents

  1. By Glory Adebajo
  2. Exploring DAOs: Understanding What They Are and How They Function
  3. Top Crypto DAO projects in 2023 that you should know about
  4. How DAOs Are Funded

In the bid to advance the course of a decentralized financial future, attention has been shifted to the DAO initiative. This might be a game changer for the realization of decentralization both in the crypto and blockchain space.

By Glory Adebajo

Exploring DAOs: Understanding What They Are and How They Function

Over the years, the concern of blockchain enthusiasts has been to attain decentralization of data. While many speculators say that DAO might lead this revolution, it is vital to know and understand the concept behind DAO and how it works.

The full meaning of DAO is a decentralized autonomous organization. It comprises a group of people who come together under specific rules and conditions to meet a set goal. These people are regulated by conditions and rules of engagement that are written in the organization's codes. This makes it impossible for any of the organization's members to alter or play against the set rules of engagement. These codes are run on smart contracts, which is a set of programs that only works when the originally set conditions are met. Smart contracts are built on blockchain and only run as programmed.

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Smart contracts are the skeletal structure upon which DAO works. The smart contract, once programmed, can run without any interference. The autonomous organization members come together to agree on the terms of the smart contract and then create it. Once created, the smart contract cannot be altered by any individual in the organization without the collective participation of every member of the autonomous organization.

Top Crypto DAO projects in 2023 that you should know about

  • SushiSwap (SUSHI)
  • Aave (AAVE)
  • ApeCoin (APE)
  • Uniswap (UNI)
  • DeFi Coin
  • DAO Marker
  • Metafarm DAO
  • DAO Stack
  • Compound (COMP)

How DAOs Are Funded

Funding is a crucial part of the DAO setup for it to work well. To gather funds to drive the DAO, tokens of the DAO protocol are sold, and then the token holders have access to voting rights on the DAO in the proportion of their token holdings. The members of the DAO set up the rules of engagement, which are locked up in a smart contract and kept on blockchain for security.

After the funding for the DAO has been secured, the DAO can then be implemented. After the deployment of the DAO, any adjustment or alteration that would be made to the contract will have to be decided upon after all members have reached a consensus through voting.

The major distinguishing factor that DAO has compared to other organizations is decentralization, coupled with the fact that every single member has a say in decision-making. The participants in a DAO are not legally bound by it. Instead, everyone is committed to the consensus norms since they all work towards the same objective.

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Core Benefits of a DAO

The use of DAO is rapidly growing with utilization in various spheres of life. Alongside its great features, the structure upon which DAO functions is public and transparent, and so many individuals and bodies are very interested in what it offers. Let us now consider some of the core benefits of the DAO structure.

  • Transparency

The DAO structure is very transparent. Its members conclude the terms of the smart contracts that power it, and it is then deployed. Upon deployment, no member of the organization has any power to interrupt or alter the smart contract. The smart contract will not execute any transaction or process that is not incorporated into its programming.

  • Member’s Participation

Unlike the conventional systems, every member in the DAO has maximum participation. Everyone has a say in the decision-making process, eliminating a situation where certain individuals control a large chunk of the DAO.

  • Community

DAO always has a strong community behind it. There is not much requirement to participate in a DAO. Anyone from anywhere in the world can participate. All that is needed is to be a holder of the DAO token and be able to connect to the internet. Also, since everyone contributes to the DAO, it helps to improve the collective goal of the autonomous organization. A community that contributes to a common goal often make commendable progress.

Bottom Line

Decentralized autonomous organizations (DAOs) are the revolution we have been waiting for. You can participate by identifying a protocol with the DAO structure, buying the token and contributing to the structure.

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