The dawn of Web 3 has seen decentralized organizations being run differently from traditional centralized organizations. DAOs have stepped into this space to regulate and direct collective decision-making in ways that best deploy the community’s resources and operations.
Code is one of these ways, as DAOs are run by smart contracts agreed upon by the Decentralized Autonomous organization community. decisions taken collectively by the community are implemented into the smart contracts immediately, changing the DAO as it goes along.
A series of smart contracts can also be tailored together to perform varying levels of completed tasks such as hiring and firing, invoice payments, and even pay raises to the members of the DAO.
Smart contracts are efficient because they reduce the coordination costs within the DAO as well as enable participants to govern cooperatively. A key strength of DAOs is that they can continuously improve in the course of its life, absorbing proposals by their members through a vote.
Besides, DAOs are powerful in the sense that any profits or other benefits realized by the DAO are redistributed back throughout the community, creating powerful incentives for the community to advance only the best proposals.
Not only can DAO governance tokens hold value in the form of redistributed profits, they also bear voting rights that lend a voice to the holders as regards the future direction of the DAO. DAOs have opened the channel for ownership in projects to which we are contributing meaningful value.
DAO Decision-Making
It is not compulsory to get a sign-off from each member of the community; those who opt to vote for a given decision can do that in a meaningful transparent way for everyone to see.
Each project could have a visible project lead within the DAO, but with everyone able to contribute to the project. A trust structure typically exists within every DAO, through which maybe 3-5 people can own that project and that conversation, eventually rolling all these out into a list of community proposals that get unanimous sign-off along the way.
DAOs have also begun to put deeper thought into alternative delegation systems, such as quadratic voting, which gives greater significance to the number of people behind a vote rather than the number of tokens backing a vote. The eventual aim is to have a highly representative model of community governance which does not however depend on each individual member of the DAO to vote.
What Are Some Benefits of DAOs?
The DAO ownership model is immensely powerful; the DAO community feels very powerful as having a stake in the DAO in the form of tokens makes every decision taken very intentional.
It is trustless. smart contracts make it such that the organization continues to run even if a major developer leaves the organization. key processes and decisions do not rely on a single person to execute successfully.
DAOs cannot be shut down, not unless a majority vote happens, with the requisite number of tokens required to back the decision.
DAOs are much more reliable considering that the governing code is open-source in nature. External developers can find bugs in the code and propose ways to the DAO developers to fix them.
This last benefit might also be viewed as a disadvantage, as an open-source network is simultaneously much more susceptible to outside attacks.
A Few Disadvantages For Working in DAOs
Their open-source nature makes them susceptible to attacks, as black-hat hackers can see the code as well, and might deploy code to allocate resources to themselves.
There are questions to be answered as regards how a DAO would be integrated into the greater corporate and regulatory framework of the existing world. This becomes even more complex as there isn’t one clear figurehead to be accountable for the indiscretions of a DAO.
Types of DAOs
Investment DAOs
This type of DAO is slightly more regulated than the Grants DAOs and allows for community members to pool capital which is then invested into early-stage start-ups for a big payday e.g MetaCartel, theLAO, Flamingo, BitDAO, UdacityFund, Komorebi, Free Company, Duck DAO
DAO Operating Systems
This is the starting block of code for a complete DAO ecosystem e.g DaoStack, Syndicate, DaoHaus, Aragon, Orca, COLONY
Protocol DAOs
Protocol DAOs are big on delegating power back to the community, which then determines the direction of the DAO e.g Uniswap, Compound, Sushi, Yearn, Curve, MakerDAO
Social DAOs
These work as group chat decentralized platforms where the community is made up of friends who then go on to become collaborators on a decided project e.g KrausHaus, Seed Club, FWB, Radicle
Service DAOs
Service DAOs have set out to connect communities to resources and talents that they need, almost acting as talent agencies and working groups that connect the increasing number of current blockchain companies to the talents that they need e.g PartyDAO, MetaFactory, ShinyDAO, VitoDAO
Grants DAOs
This type of DAO acts as a venture capital firm where the community pools funds then decide on how the funds would be applied e.g Aave Grants, Audius Grants, MetaCartel Ventures
Collector DAOs
These ones became ever more instrumental especially as NFTs exploded. A DAO like this ensures that only NFTs with long-term value are held by the group members.