Decentralised Autonomous Organisations (DAOs) — Future of Organisations?

What are DAOs?

DAOs are a productive and secure method to collaborate with like-minded people all across the world.

Imagine them as a group of individuals who collectively own and operate an internet-based company. They have internal treasuries that nobody is allowed to access without the group’s consent. To guarantee everyone in the organisation has a voice, suggestions are ruled by voting.

There is no CEO who may approve expenditures depending on their whims, and there is no possibility of a shady CFO falsifying the records. Everything is in the open, and the DAO’s code contains the spending regulations.

Why do we need DAOs?

You need to have a lot of faith in the individuals you’re working with if you want to start an organisation with them that entails funding and money. But it’s challenging to believe someone you’ve only ever communicated with online. You just need to trust the DAO’s code, which is completely transparent and verifiable by anybody, while using DAOs; you don’t need to trust the other members of the group. This creates several new chances for international cooperation and coordination.

A Comparison

DAO :

1. Typically flat and completely democratic.
2. Any changes must first receive member approval through a vote.
3. Automatic tallying of votes and implementation of results without a reliable intermediate.
4. The given services are managed automatically and decentralizedly (for example distribution of philanthropic funds).
5. Every action is open to the public and is transparent.

A Traditional Organization

1. Most often hierarchical.
2. Depending on the arrangement, only one party may be required to make changes, or voting may be proposed.
3. If voting is permitted, the results of the vote must be handled manually. Votes are counted internally.
4. requires manual handling or centrally managed automation and is easily manipulable.
5. The public is often excluded from activity and it is private.

Benefits of a DAO

1. Its trustless : The programme or the entire organisation will continue regardless of whether a significant developer ceases working on the project or even if the money disappears, which is perhaps the biggest benefit of a DAO. In reality, you do not need to trust any CEO, manager, or leader with your decision-making skills.
2. Can not be shut down : The CIA, FBI, or any other significant government agency might theoretically intervene in the case of large organisations and say, “We’re shutting you down. Heck, give us all the information you have on this person.” If you were located in the United States, you would be compelled to comply in a DAO. They could only accomplish this if they had a significant number of tokens, made a proposition to be voted on, and fairly conducted the voting process. Therefore, a government cannot cut ahead.
3. Open source : DAOs are also open source, which means that anybody may view and even improve upon their code. Open source projects are typically considerably more dependable because other programmers can assist the main developers in finding faults in their code and then even provide solutions.

DAO examples

Here are a few examples of how one could use a DAO to help this make more sense:

1. A freelancer network : One may establish a group of independent freelancers who pool their resources to pay for workspace and software subscriptions.
2. Ventures and grants : Onemight establish a venture fund that combines funding and choose which projects to support. Repaid funds may later be divided among DAO participants.
3. A charity : Anyone in the world is welcome to join, and onecan collect money from them as well. The group decides how the donations will be used.

How do DAOs work?

A DAO’s smart contract is its structural foundation. The agreement holds the group’s funds and outlines the organization’s policies. Once the contract has gone live on Ethereum, only a vote will allow for changes to the terms. Anything that is attempted that is not permitted by the logic and principles of the code will fail. Furthermore, since the smart contract also establishes the treasury, no one is permitted to utilise the funds without the consent of the group. DAOs are therefore not dependent on a centralised authority. Instead, decisions are made jointly, and when votes are approved, funds are immediately authorised.

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Because smart contracts are impenetrable once they are live on Ethereum, this is conceivable. Everything is public, therefore you can’t unilaterally change the code (the DAO’s rules) without everybody noticing.

Real Life examples of DAOs

1. Gitcoin DAO : On the Gitcoin platform, programmers and developers can get compensated for their efforts creating open-source software in a range of different programming languages. The Gitcoin platform allows users to post their own project ideas in order to crowdsource funds from generous benefactors. Gitcoin uses a special technique called quadratic funding in addition to direct community crowdfunding to help match community funding efforts and speed up the development of the projects that the community believes to be the most popular.

2. Uniswap DAO : A DAO cryptocurrency exchange is called Uniswap. A decentralised financial mechanism called Uniswap is available on open-source blockchain networks for the trading of tokens and cryptocurrencies.
Owners of the native cryptocurrency and governance token known as UNI vote on protocol changes, which are subsequently carried out by a group of programmers. The first distribution of UNI coins went to the protocol’s pioneers.
Prior to September 1, 2020, each Ethereum address that has interacted with Uniswap was given the chance to claim 400 UNI tokens, which were valued about $1,400 at the time. As of February 2022, the UNI token’s market capitalization was over USD 6.6 billion.

Changes to the protocol are voted on by owners of a native cryptocurrency and governance token called UNI, and then implemented by a team of developers.

In order to build more efficient markets, Uniswap uses liquidity pools as opposed to acting as a market maker like centralised exchanges do.
By adding a pair of tokens to a smart contract that other users can buy and sell, people and automated programmes, referred to as “liquidity providers,” add liquidity to the exchange. Liquidity providers are compensated with a portion of the trading commissions generated by that trading pair.
Each time a trade is made, a specific number of tokens are taken out of the pool in exchange for a specific number of the other token, affecting the price. The ability to access a large number of Ethereum tokens is made possible by the lack of listing fees and the need for user registration.

Open Source Code of Uniswap DAO

3. Constitution DAO : An authentic copy of the United States Constitution was what motivated the defunct decentralised autonomous organisation (DAO) ConstitutionDAO to be created in November 2021. In a Sotheby’s auction, the group raised $47 million in ether cryptocurrency but was outbid by $43.2 million. ConstitutionDAO’s organisers feared that if they had submitted a bigger offer, they wouldn’t have had enough money to transfer, insure, and secure the artefact. Contributions would be refunded, less any Ethereum fees, according to the organisers.

List of notable DAOs

Downsides of a DAO

1. Attackable and susceptible : Since anyone can view the code, this also means that attackers may do so. If the attackers have a thorough understanding of how the code functions, they will be able to reverse engineer attacks and test their own code before deploying it, increasing the risk that the DAO will be attacked.
2. No business secrets : The absence of company secrets represents the second drawback. Business secrets are challenging to keep a secret because the code is all open source and really anyone can look at how the dao is set up so far. Consequently, research and development is typically corporate information that corporations have spent a lot of money and time on without yielding a significant return. Now they do this in the hopes that one day it will pay off and the payoff will be big because no other company has their advantage in a DAO.

Conclusion

Web3 development is still in its early stages today. It’s accurate to state that DAO adaptation has not yet gained widespread acceptance. But we would put that down to a slightly high entry barrier. Not everyone has experience creating smart contracts using code. And, last but not least, lack the ability to sustain them on a large scale.

However, as we saw with this article, certain ventures are able to garner a sizable fanbase. Additionally, individuals aren’t merely interested in a project because it benefits a good cause. Democracy as a system of government is appealing. Additionally, DAOs make it possible for the typical Web3 user to be heard.

We anticipate that a significant number of open-source projects’ structures will alter. As long as they make an investment in the native token, anyone can participate in DAOs at the moment. However, it will soon become problematic to have thousands of people debating how to proceed with a project.