Understanding “DAO” in just 3 minutes – The ₿log

The idea of ​​an autonomous and totally decentralized organization appeared as early as the 90s, well before the idea of ​​cryptocurrencies and the blockchain. But it is with the advent of the crypto ecosystem and technologies from the blockchain that these DAOs will experience a new boom.

But in reality what are we talking about behind this term DAO? How does it work? The pros and cons ?

What exactly are DAOs?

The “Decentralized Autonomous Organization” for “decentralized autonomous organizations” are inseparable elements of Web 3.0. More precisely, DAOs can be compared to discussion groups like Telegram or Discord for example. The particularity is the self-regulation of the group by its own members.

Another peculiarity lies in the fact that this group is a kind of “common pot”, a shared bank account. The accumulated tokens can be used to invest in an NFT, an artist, or organize an event.

It should be understood that these groups can operate like small companies where each member is a partner. A substantial and well-structured group will have one person in charge of managing the social networks, another will take care of the cash flow… They will be rewarded with the granting of tokens.

How do these organizations work?

Once the purchase of tokens is made by a user, he becomes a full member of the DAO. This grants him a right of inspection, interaction, decision and governance in the organization of this community.. Of course, just like a company, the more tokens a member has, the stronger his power to intervene or interfere in the decision-making process.

All this is governed by the use of smart contracts to ensure compliance with predefined rules. To strengthen the security of the DAO, it is not uncommon for service providers to be hired to carry out actions in the name and on behalf of the DAO or even validate certain services. It can be somewhat akin to a form of trustee.

Some examples of CAD

You can find DAOs on all kinds of themes. Thereby, Whiskey Pioneers is a whiskey lover DAO. Herstory highlights works by crypto artists.

Among the pioneering and famous DAOs, we can mention MakerDAO. This organization created in 2015 has its own token called Maker (MKR). The objective announced by this DAO is to ensure the viability and proper functioning of the DAI cryptocurrency. Indeed, a voting right in the management of the DAI is granted to any holder of MKR.

Read also 3 minutes to (finally!) understand DeFi, Decentralized Finance!

What are the pros and cons of DAOs?

DAOs take full advantage of some of the benefits of the blockchain, namely transparency and decentralization notably. They also have the advantage of their autonomy, which allows them to make quick decisions without a heavy administrative or societal structure.

Moreover, regardless of the degree of involvement in the group or the project, everyone has a voice that counts and can make it heard without discrimination. The objective here is to move forward together in the interest of the group, of the community.

Of the minuses, it can be noted that DAOs suffer from a very limited or non-existent regulatory framework. There will be no legal recourse for aggrieved members. In the short term, this can act as a brake on the adoption of DAOs. For example, a group called “AnubisDAO” brought together many members, some having deposited hundreds of thousands of dollars. From one day to the next, all of the sums collected disappeared by being transferred outside the group.

Finally, we must not forget that decision-making power is generally proportional to the tokens acquired within the group. This can therefore lead to a strong imbalance in the organization of the DAO.

Conclusion: The new 3.0 communities

For some, the DAOs are only a place of exchange between cryptocurrency speculators, with sometimes unreliable projects and more generally high-risk investments (the value of the token can suddenly collapse). For others, it is a means of revolutionizing exchanges within Web 3.0.

Indeed, the potential is very real. These self-managed communities have a revolutionary governance model that can eventually adapt to the decision-making process of a company, or an NGO, association, or even a football club.

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Understanding “DAO” in just 3 minutes – The ₿log

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