DAOs

DAOs, a new way to create and govern organizations

Explore the origin and update of decentralized autonomous organizations


Today we find constant references to blockchain, web3, NFTs, and DAOs, the subject we wish to deal in this article. And we find these references not just in specialized media or channels but also in general and popular press. Though all the mentioned concepts are somehow connected, we talk about different things. 

In this article we focus on DAOs, their meaning, main features and relevance in the present and future of a digital world we are already dwelling in. Hopefully, you can form your opinion about the potential of decentralized autonomous organizations. 

A little bit of history about DAOs

The concept of decentralized autonomous organization - DAO - is not new, though it is starting to be known by general audiences, and not only by tech and blockchain experts. 

In 1997, the German computer science professor Werner Dilger published an article titled “Decentralized Autonomous Organization of the intelligent home according to the principle of the immune system”, wherein he defined DAO as a self-sustaining and autonomous system. Dilger was far ahead of his time. 

Many people think that DAOs emerged with Ethereum. Though this not so, it is certain that Ethereum made the concept popular among blockchain involved stakeholders and experts, and of course, has a lot to do with the emergence of decentralized autonomous organizations. 

What is a DAO?

One of the co-founders of Ethereum (ETH), Vitalik Buterin, defines DAO as a “virtual entity that has a certain set of members or shareholders who have the right to spend the entity's funds and modify its code”, the aim of which is to replicate “the legal trappings of a traditional company or nonprofit but using only cryptographic blockchain technology for enforcement.”

DAOs (decentralized autonomous organizations) are governed by a set of codes, are based on smart contracts and are executed on blockchain (Ethereum or any other platform). 

To understand that, let us try to change the traditional way we think about a company or entity and imagine an organization that does not need to be located in a specific physical place. It has not a visible head, that is what we call CEO, who centralizes the representation or decision making. Rules, relationships, interactions and exchanges are generated and managed on a peer to peer basis. 

Smart contracts, the DAOs cornerstone agreements

And how do you do that? How is it possible to lead an organization without leaders? DAOs do not need human intervention because algorithms are used to carry out those human functions according to a set of encrypted rules. And at this point, smart contracts arrive on the scene. Smart contracts are key to govern DAOs. 

Smart contracts lay the foundational rules of decentralized communities. They enable the interaction and transactions their members. We can even consider a DAO as a collection of smart contracts that define the rules of the same. And, this is very important, these smart contracts are recorded on the blockchain platform, bringing transparency and verifiability to the entity. They can not be modified by a person; previous consensus is needed. And how are these kinds of decisions taken?

Governance tokens

No leaders, no hierarchy, no specific location… How do the community members bring proposals? How do the DAOs members make decisions? Each action is put to the vote. And here, we come up with another term that, together with smart contracts, we hear or read every day: token. 

A token is a unit of value that an organization creates to govern its business or community model. Though cryptocurrencies are tokens, the concept of token is much wider. A token can support different types of value, that means a token represents what a person or entity owns. 

Depending on how the token is designed, it can be used for different purposes. For instance, tokens are used as a coin to pay for a job; as a gift voucher to promote a product, or as a right to vote, and these last ones are the governance tokens, which are fundamental at DAOs.

At DAOs, community members create proposals about the future operations of the protocol and then come together to vote on each one. The ones that achieve the predefined level of consensus are then accepted and enforced by the rules defined within the smart contracts.

Main features of DAOs

Here we summarize the main characteristics of decentralized autonomous organizations:

  • They do not follow the traditional organization scheme.
  • There is no need for a physical location.
  • DAOs reside on the internet.
  • Human intervention is automated according to specific rules defined by the members through smart contracts. 
  • They are based on transparency, provided basically by three key elements (blockchain, smart contract, token).  
  • Open access. They are global. 
  • They operate democratically.
  • Hierarchies do not exist. 

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Working different

DAOs have brought the opportunity to operate in a different way. If we get free from the traditional vision of business and communities, decentralized autonomous organizations will let us gather the economics players around more transparent and equitable schemes. That will bring access to innovation and to create new valuable digital proposals. We are ready for that.

How can we help you to work in a different way? At Wealize, we are experts in next generation technologies and have a profound experience carrying out blockchain projects that require, among other solutions, the creation and use of plataforms, smart contracts, NFTs and other digital products. At Wealize, you will find an agile and dedicated partner to help you achieve your digital innovation goals.

Let’s start a project

 

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