What are DAOs?

DAOs and how they communicate 

A Decentralized Autonomous Organization (DAO) is an organized community on the Internet that pools funds together in an effort to achieve a common goal. DAOs are often run using Ethereum (ETH) tokens, but they can have their own governance tokens specific to the project as well. The DAOs that tend to get news coverage are those that fail at their goal, or that get hacked and lose millions. It’s conventionally unfair to use that as a reason to disparage the decentralized organizations, as the same thing also happens to normal LLCs. 

Discord is a platform that users can use to create servers for a variety of purposes, business, gaming, and hobbies. It’s able to host hundreds of thousands of users on a single server, and allows the admins to organize the server how they deem fit. Many have used this platform as a tool to make new connections, found new business ventures, and start decentralized organizations. 

Discord, at the moment, is essentially the dream application for these DAOs as it allows them to organize their conversations into different channels, and assign roles to users depending on how much they contribute to the organization financially, as well as the role they play within the functionality of the DAO. The majority of DAOs run on smart contracts. They do this in order to ensure that the fundamentals and governance of the DAO don’t change unless a majority of the organization votes that they should be. 

Voting and governance 

To become a voting member of most DAOs, you need to buy into the governance of the organization, generally through the governance token of the specific DAO. For example, the Aave DAO allows holders and stakers of the Aave token to participate in the running of the organization. Some DAOs don’t have a governance token specific to only the organization, and run off of an already established coin like Ethereum, but can also use others such as Polkadot (DOT) or Cardano (ADA). Often, the DAO doesn’t distribute all of the tokens supply to its members, and some is kept in reserves to pay for extra expenses the DAO may have. These expenses can include paying for marketing, legal issues, endorsements, and anything else an organization may need that it can’t get from its already participating members. 

In order to make changes for a DAO, members need to submit a proposal, which is then voted on. For instance, with the Compound DAO, anyone can submit a proposal for only 100 COMP, the governance token of the protocol. However, until the member’s address receives at least 65,000 COMP delegated to it, it will be ineligible for voting. If the proposal gets through, members then vote on whether or not to pass it. If passed, it is put on the protocol’s Timelock for 48 hours before it is implemented. A Timelock is essentially a type of smart contract that doesn’t go through until a certain amount of time has passed. Not all DAOs operate in the same way, and they use different types of smart contracts. There is one theme that remains the same though nearly every DAO, which is that in order to vote on or propose protocols, people need to be holding or staking the governance token. 

The future of decentralized business

Recently, a DAO called Constitution DAO was all over the news. This organization’s goal was to crowdfund and buy a rare copy of the U.S. Constitution. This is one of the thirteen copies printed during the 1787 Constitutional Convention, and one of the two privately owned copies. They were then going to turn the document into an NFT. They raised over $40 million for the auction, but Ken Griffin, a billionaire hedge fund manager, outbid them. Constitution DAO is now having the problem of reimbursing everyone who donated, which is not easy to do on the blockchain. This leaves questions in the air about the legitimacy of DAOs and the legality of them.

It’s hard to regulate the decentralized, a problem the government has been facing more and more with cryptocurrency and blockchain technology. It’s not like the DAO did a cut and run with the money; they’re working to reimburse everyone for their donation. An individual needs a good team of lawyers in order to sue a decentralized autonomous organization, the name alone makes that apparent. Regardless of the outcome, it is still impressive that they were able to raise that amount of money for any blockchain project purely through crowdfunding. 

More DAO news made headlines this week as Kimbal Musk, millionaire brother of billionaire Elon Musk, announced open membership of the Big Green DAO. According to their website, “Big Green is a USA 501c3 non-profit that believes growing food changes lives. We’re launching a DAO (Decentralized Autonomous Organization) as an experiment in democratizing and decentralizing our grantmaking.” They also claim the title of “The First Non-Profit Led Philanthropic DAO”. The organization aims to give tools and training to communities globally, allowing them to foster their own food and gardening programs. 

Back in May, Mark Cuban shared his own thoughts on DAOs in a series of two tweets. He refers to DAOs as “The ultimate combination of capitalism and progressivism.” This is big coming from a billionaire entrepreneur, and shows that there it potential for more big names to move into decentralized organizations.