Decentralized Autonomous Organization aka DAO has become a trending term in recent times. Especially after the crypto and NFT trend “exploded” from the beginning of 2021.
The term is also stealing the attention of crypto investors. You see, the DAO is predicted to be the next financial trend that will go viral and guarantee money. In fact, traditional investors are also eager and try to implement this DAO concept.
We also believe that as a crypto activist or those who are new to it, you should be curious about what is a DAO, how does it work and what does it have to do with NFTs.
To answer your curiosity, let’s discuss Decentralized Autonomous Organization (DAO) as below!
What is Decentralized Autonomous Organization (DAO)
A decentralized autonomous organization is a decentralized autonomous organization that operates by a special algorithm. DAOs can be realized as communities, ecosystems, organizations for companies.
Simply put, a DAO is an organization/company (usually over the Internet) that is run by computer algorithms and not directly controlled by humans. Crypto activists commonly refer to this principle as “the code we rely on”.
Therefore, DAOs are not run by a sole proprietorship or central leadership like traditional companies or organizations. Everything operates through a series of codes/rules (blockchain) that are condensed into a smart contract.
Thus, a DAO will not have its commissioners, boards, committees, or officers. The DAO certainly still has the figure of a founder or CEO. However, they do not have a hand in policy-making or decision-making.
A decentralized autonomous organization is a decentralized autonomous organization that operates by a special algorithm. DAOs can be realized as communities, ecosystems, organizations for companies.
Simply put, a DAO is an organization/company (usually over the Internet) that is run by computer algorithms and not directly controlled by humans. Crypto activists commonly refer to this principle as “the code we rely on”.
Therefore, DAOs are not run by a sole proprietorship or central leadership like traditional companies or organizations. Everything operates through a series of codes/rules (blockchain) that are condensed into a smart contract.
Thus, a DAO will not have its commissioners, boards, committees, or officers. The DAO certainly still has the figure of a founder or CEO. However, they do not have a hand in policy-making or decision-making.
How Decentralized Autonomous Organization (DAO) works
Because there is no centralized decision-making, everything that is done in a DAO is managed in a smart contract. It is as if, this smart contract becomes the “backbone” of the DAO for organizational and treasury rules setting.
After the contract is executed on the Ethereum blockchain platform, the rules can no longer be changed by anyone, unless there is a vote. Even those who try to take steps to do something deemed “illegal” by contract are doomed to fail.
The same principle applies to corporate finance regulated in DAO smart contracts. That is, no one can use the company’s cash without group approval.
Although everything seems to run automatically, humans still have an important role to play in the DAO, especially to verify all activities. Humans are also required to perform some tasks that smart contracts cannot.
Then, which group has the authority to determine the DAO’s decision? To enter as a “shareholder” of the DAO, one must have an Ethereum token.
This token is used by the organization as a “loan” to be provided by the debtor. Therefore, DAOs are also often referred to as crowdfunding, aka crowdfunding.
This is where shareholders who already have DAO tokens have a say in the organization’s policy-making or decisions. They also have the right to reject or validate any funding of projects financed by the organization. Everything is done on the basis of the principle of a mutual decision.
The shareholders are also entitled to submit proposals regarding the future plans of the organization. However, they have to deposit a certain amount to prevent the submission of a large number of proposals. The proposal that receives the most approvals from the shareholders will be used by the next DAO.
After the smart contract and funding phase is completed, the DAO will automatically become autonomous and independent of the founder or creator. All financial terms and transactions will be recorded in detail on the blockchain. Therefore, everything is transparent and it is very difficult to corrupt.
Decentralized Autonomous Organizations (DAOs) and NFTs.
The DAO has the principle of creating an organization that is transparent and open to all. The purpose of building DAO from this principle is to become a trustworthy investment platform.
It’s hard to put a lot of money on the Internet for a party or someone we don’t know at all. Therefore, the existence of the DAO also indirectly makes the crypto and NFT community bigger at the moment.
You can buy NFT assets to be used as investment assets without entrusting them to anyone. All thanks to smart contracts that are 100% transparent and can be verified by anyone.
As a result, there is now a special DAO for NFTs as well. For example, PleasrDAO aggregates various types of NFT assets and invests in many other types of assets.
In addition, the DAO principle is also used in many NFT game titles that implement a governance system, such as Champion Hunters and Star Atlas.
Therefore, players can buy governance tokens as “shareholders” of the game. Therefore, players who have token governance have a voice to guide game development policies and decision-making. Of course, everything has to go through polling.
Advantages and Disadvantages of DAO
Since the explosion of crypto and NFT trends, the DAO is predicted to become a governance system that will be implemented in the future of the Internet, specifically Web3. Because of that, DAOs must have advantages and exclusivity which is an attraction.
Here are some of the advantages and specifications of The DAO as a promising crypto platform:
Advantages of Decentralized Autonomous Organization
- An organizational model that does not impose a hierarchical system. Anyone can share thoughts and suggestions for the future of The DAO.
- An open and fair voting system for the shareholders.
- Regulations are built into a code (smart contract) which are binding in nature to prevent internal conflicts within the DAO.
- Transparent blockchain system so that the public can know the development of the company. Each member may also be involved in decision-making in terms of both the company and the finances.
While this may sound ideal, the DAO system also has its own risks and drawbacks. This is something you really need to know and pay attention to, especially if you really want to get into the DAO model.
Disadvantages of Decentralized Autonomous Organization
- The DAO had 3.6 million pieces of Ethereum stolen by hackers a month after its release in 2016.
- The security system has indeed been improved, but it is possible that the system may be hacked again.
- There are no investment guarantors and special regulations governing financial services activities on the blockchain.
- All profits received in the DAO business model will be shared. This also means that the loss will also be shared.
Verdict
This is a short explanation about Decentralized Autonomous Organization (DAO). Simplified, a DAO is a community on the Internet that has a joint ledger account, but in crypto form.
Given the benefits it offers, The DAO has the potential to become a commercial platform, especially for NFT games, in the future. However, don’t forget the risks that will be faced so that you can earn without losing!