DAOs have started to grab the attention of conventional investors, including billionaire Mark Cuban, who called them “the ultimate combination of capitalism and progressivism.”
Venture capital firm Andreessen Horowitz also led multimillion-dollar fundraising rounds in both companies that support DAO creation and individual DAOs.
But as members of the cryptocurrency community predict DAOs will become the “next big trend” and mainstream investors start to take notice, what is a DAO and how do they work?
What are DAOs?
Simply put a decentralised autonomous organisation (DAO) is a community where instead of control being given to one authority figure, it’s spread out across the team.
A small group of people will come together, form a group chat – usually on Discord or Telegram – and decide to pull capital together, usually using an Ethereum wallet.
Types of DAOs:
DAO is a broad term that encompasses a huge number of different types of groups and business.
Many DAOs come under one of two things: those that manage open source, blockchain-based projects together and those that make investments.
The specifics of each DAO, including its type, structure, rules and governance, depend on their group and its goals.
Crypto projects
Crypto projects such as Ethereum Name Service (ENS) and Uniswap (UNI) are DAOs as they are managed by decentralised governance where token owners can vote on the direction of the project.
Collecting
The increased interest around non-fungible tokens (NFT) has seen collector DAOs soar such as FlamingoDAO.
Grand funding and investing
A DAO can be used to award grant funding and development funds, such as MolochDAO which was created to fund the development of Ethereum dapps.
MolochDAO has been forked many times which means the chain splits, producing a second blockchain that shares all of its history with the original, but is heading in a new direction.
MolochDAO has been forked to create for-profit DAOs which can distribute and transfer shares and other assets between holders such as MetaCartel Venture.
Examples of well-known DAOs:
The MetaCartel Venture DAO is a business which invests in early stage decentralised applications
ConstitutionDAO tried to buy the US Constitution at a Sotheby’s auction
The PleasrDAO collects NFTs and invests in other assets
The HerStory DAO collects and funds projects by black women and non-binary artists
The Komorebi Collective DAO funds women and non-binary crypto founders
The Friends with Benefits DAO is an social club you pay to enter
Most DAOs rely on blockchain technology and smart contracts which are collections of code that run on the blockchain.
A blockchain is a decentralised, digital ledger.
Although they are usually known to publicly document transactions of different cryptocurrencies, such as Bitcoin and other digital assets, like NFTs, they can also be used in other ways.
For DAOs, the blockchain keeps the rules and structure on-chain.
DAOs are decentralised, which means they aren’t governed by one entity or person like in traditional organisations.
The rules and governance of each DAO is coded in smart contracts on the blockchain and can’t be changed unless it’s voted on by DAO members.
Members of each DAO can vote on decisions together, instead of a select few having the majority of say.
For example, PleasrDAO members decided to purchase the Wu-Tang Clan album.
They then created an NFT to represent a deed of ownership for the album.
The members of PleasrDAO now co-own the NFT deed and share ownership of the album.
In larger DAOs, leaders are sometimes voted in so not every single member is needed to vote every time.
Usually, when joining a DAO, you agree to the code in place.
It isn’t easy to change that code, and requires a vote between members.
To get voting power or membership in a DAO, you usually need to buy or earn governance tokens, which are cryptocurrencies that are tied to a certain project.
By having these tokens, members are able to shape the DAO’s future.
Although each project varies, the weight of a member’s vote depends on the amount they have contributed to the project.
Beyond voting power, members can also work for their DAO.
There are usually a number of jobs, including token distribution and treasury management.
What was The DAO?
The DAO was the biggest and first example of a DAO.
It was created by Slock.it and built on the Ethereum blockchain.
As its code was open source anyone could contribute to it.
The DAO was made to work as a venture fund platform for crypto projects.
The idea was a pitch would be made and anyone with DAO tokens could vote on projects to award funding.
But, The DAO never actually started…
The DAO raised 12.7 million Ether, worth around $150 million at the time, but was hacked due to vulnerabilities in its code.
Ethereum developers reached a consensus to reverse the theft transactions and restore users’ lost funds through a network-wide change called a hard fork.
The fork split the blockchain in two, leaving the old fork, Ethereum Classic, behind.
However, not all parties agreed with this decision, which resulted in the network splitting into two distinct blockchains: Ethereum and Ethereum Classic.