What is a DAO?
The abbreviation DAO stands for Decentralized Autonomous Organization, it is a new way of conducting business where power is shared by voting among its users, and where ownership is collective. This model is considered by many as the future of organizations, there are no hierarchical levels of power, decisions are made by all users of the network through voting.
DAOs were organizations created by developers to automate decisions, believing they could eliminate human error or possible manipulation by putting the power of decision in the responsibility of an automated system. Most of these organizations run on the Ethereum blockchain, as it is the most decentralized and proving to be the most secure over time leading to the preference of most developers.
How is a DAO coordinated?
Through smart contracts and governance tokens so that participants can vote on the company’s decisions, globally people from different parts of the world can collaborate on the DAO. To obtain voting power or participation in a DAO users typically buy governance tokens which are cryptocurrencies tied to a particular project.
In some organizations, governance tokens can only be obtained in structured funding rounds.
They involve a group of people interacting with each other according to an open source protocol, they are not regulated by legal entity and have not signed formal contracts, the rules are totally transparent that are written in the software and any changes to be implemented need to go through a vote.
Do all users have the same voting power?
Within this new organization model, usually the voting power is proportional to the amount of tokens that the voting user owns, usually tokens native to the project that can have exclusive distribution or not, as the demand for the project increases, the token can also increase in value. You can buy DAO tokens just like you can buy Bitcoin or Ethereum tokens, but you just need a wallet. When you buy a DAO token you will have voting power on strategic decisions proposed by the community, the users lead where the company should go, all in a transparent way.
A DAO is the opposite of a centralized organization where we see several levels of hierarchies being part of the company culture, labor contracts that regulate rights and obligations under the country’s legislation. Another big difference is that the operations of DAOs are all recorded on a blockchain making all decisions transparent for anyone to consult free of censorship, while in traditional companies all information is private, only the organization knows what is happening.
Some features proposed by DAOs are:
- No hierarchy: there is no hierarchical management. Stakeholders generally make decisions without leaders or managers.
- Transparency: the code is open, which means that anyone can see it. On the blockchain, anyone can see the history to observe how decisions were made.
- Open access: anyone with internet access can have DAO tokens, having decision-making power over the project.
- Democratic Changes: Investors can change the rules of a DAO by voting on new proposals.
- Recruitment: a DAO could even theoretically hire outside talent, since there are still tasks that only humans can do.
Of course we also have negative points, but the future is moving towards organizations being built more horizontally than vertically. We must follow how the future will evolve and how we can benefit from this new organizational model.
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