Spend any amount of time in the cryptoverse and you will hear plenty of talk about DAOs. From DAOs attempting to buy the US Constitution to NFT projects looking to encourage investment with DAO-led incentives, this influence and power of this nascent technology is only just beginning to be understood.
A DAO is a “Decentralized Autonomous Organization.” They exist as smart contracts on various blockchains and allow groups of individuals to co-operate and pool capital. DAOs are used to autonomously manage and secure blockchains, acquire assets such as NFTs as well as borrow and lend cryptocurrencies.
While familiarity with DAOs and their operation comes with time and interaction with them, you can give yourself a head start by better understanding how they work and how the crypto-space is currently using them. In this article, we will not only ask what is a DAO but also why they exist, and where they are going.
What is a DAO?
As decentralized autonomous organizations, DAOs allow communities, individuals, and professionals to pool resources securely and work together to achieve certain aims.
The concept is not new. People have always found strength in numbers and, collectively, working together is the foundation of all communities and society. What DAOs provide, however, is a way to organize such cooperation with no need for a central authority, which is often a weak point in terms of security.
DAOs operate on a bottom-up model, meaning the collection of individuals and parties owns the organization. They typically participate in a DAO through owning and staking particular tokens known as “governance tokens,” or assets such as NFTs.
DAOs are therefore a safe way to co-operate, trade, and interact with strangers. They native to the internet and managed by the members of the DAO itself. They are often used to vote on blockchain proposals, accumulate and spend treasury funds, and reward members for their participation.
How do DAOs work?
Under the surface, DAOs are lines of executable code that are run on the blockchain, typically Ethereum. This code is auditable, meaning DAOs are transparent. While outside of a DAO, a rogue agent could scupper the plans of an entire organization with a few self-interested acts, a DAO prevents this sort of behavior, with only the authorized code executable.
These chunks of code are known as smart contracts and are the backbones of all DAO projects. Smart contracts are implemented to ensure agreements are met and fairness is maintained with smart contract code looking to ensure certain conditions have been fulfilled before executing.
Smart contracts, therefore, comprise the rules of the DAO, with the community voting and shaping the collective organization proportionally through their stake in it. Being decentralized, DAO proposals are only implemented once a majority of stakeholders approve of it. This threshold varies between DAO projects.
Why are DAOs needed?
Simply put, ultimately, you can’t trust people. While this sounds negative, the reliance on trust for investment and business arrangements is a point of weakness that can (and often is!) exploited by those acting in bad faith.
With its reliance on immutable, verifiable smart contract code, DAOs remove the need for trust and oversight by centralized powers to enforce agreements. Instead, arrangements involve a flat hierarchical structure, with any stakeholder able to vote and propose changes.
DAOs also empower individuals to get involved with projects and partially acquire assets that they otherwise never would be able to. Pooling resources means joint ownership is possible and comes with future rewards.
We are just scratching the surface with the use of DAOs. Being able to organize large groups of individuals to achieve certain ends with no need for trust is something we are just now learning to wrestle with.
So far, DAOs are /(almost) exclusively used for crypto purposes, but the use-cases are growing.
One of the most well-known DAOs, making the news for pushing the boundaries is PleasrDAO (https://pleasr.org/), a collective of DeFi leaders, NFT collectors, and artists that aim to build a collecting empire. Exploring the idea of shared ownership, PleasrDAO is experimenting with the idea of fractionalizing NFTs, memes (https://www.cnbc.com/2021/09/01/fans-can-buy-a-fraction-of-original-doge-meme-nft-owned-by-pleasrdao.html), and other assets, distributing the value to the DAOs participants.
The PleasrDAO collective is no stranger to making the news either. In July 2021, the DAO secretly bought the last known copy of the Wu-Tang Clan’s “Once Upon a Time in Shaolin” for $4 million. Pooling their resources allowed the DAOs members to collectively acquire the real-world piece that has since been minted as an NFT.
Despite the album having legal prohibitions against its release to the general public until 2103, ownership of the album affords certain rights to exhibition at listening-parties and gallery-style events.
A collective focusing on acquiring music-based NFTs, BeetsDAO are a community of collaborators and collectors that have been pooling resources and making group investments to empower the NFT music scene.
Originally comprising just 58 collaborators, the DAO has extended the governance cap to 99 members. While the DAO is relatively exclusive, it still wants the community-at-large to get involved, intermittently opening up seats for its “collaborator network” where members get artist access, airdrops, print stalking and more.
THe group’s first investment was Euler Beats, an NFT project that pushes the boundaries through algorithmically generated music and art based on the work of famous mathematician, Leonhard Euler. These ultra scarce NFTs helped BeetDAO to use the treasury to form partnerships with Snoop Dogg to create its first NFT collection based on Nyan Cat.
For those already involved in the metaverse, Decentraland is one of the most well-established virtual worlds currently out. Despite some of its 90,000 plots of LAND now going for millions of dollars (https://decrypt.co/86921/decentraland-virtual-land-plot-sells-record-2-43-million) and big-business looking to get involved, Decentraland is still governed by its users through a DAO.
A little like a homeowners’ association and governing board, the Decentraland DAO affords representation according to how much LAND and MANA (the native token) is owned and allows shared ownership of the world. The DAO is used to issue grants, approve or band place names, and make any large-scale changes to the world.
Crated by the well-known NFT collector, Kylo.eth (https://twitter.com/kyloren_nft/), APE DAO began by fractionalizing 49 of the Bored Ape Yacht Club (https://boredapeyachtclub.com/) NFTs and a female CryptoPunk. Turning the NFTs into one million APED tokens, the DAO allowed investors who otherwise would be priced out of ownership the opportunity to take a share of these assets.
Now, with more assets added to the DAO’s treasury and more people getting involved, the value of the collection is growing all the time.
Other notable DAOs include:
- HerStory (https://twitter.com/herstorydao) a DAO project that aims to collect art both online and offline to preserve and promote the stories of marginalized people.
- Friends with Benefits (https://www.fwb.help/) an exclusive community of enthusiasts, artists, and collectors that use a DAO for access and rewards.
- The Komorebi Collective (https://syndicate.io/syndicate/komorebi/) is a DAO protocol that invests in female and non-binary creators.
The future of DAOs
The collective power of non-hierarchical groups to pool their resources is staggering. Though ultimately being outbid, a flurry of activity in late 2021 saw Constitution DAO (https://www.constitutiondao.com/) attempt to purchase one of the few original copies of the US Constitution, breaking records for the most amount of crowdfunded money in 72 hours.
This ability to coordinate and self-govern is something that is going to be explored further as the space develops. While there have been teething problems, as seen with the very first DAO in 2016 that saw $60 million worth of ETH stolen and the blockchain forced to rollback, the technology is already becoming incredibly resilient and reliable.
With DAOs allowing a fully decentralized form of democratic organization to occur with no need for trust, the potential of the technology for NFTs, crypto, and society at large is exciting.