What is DAO and how it works
Understanding Decentralized Autonomous Organizations or DAOs — community-led entities that are completely autonomous & transparent with the presence of no central authority. DAOs are a new path that creates an effective and safe space for all like-minded people around the world to work together. A true DAO has no centralized body controlling its every decision. Instead, users who hold voting shares or tokens get to vote on everything, often weighted by how many tokens they have. Every transaction is published on the open blockchain for everyone to see, making it more difficult for DAOs to lie to their members.
A DAO must improve the traditional management structure of many companies. Instead of relying on a single individual or few individuals to guide the way of the entity, a DAO can give every member a voice and chance to propose initiatives. A DAO also aims to have strict governance that is dictated by code on a blockchain.
But how DAO makes money? A DAO raises funds by trading its native token. The value of native token depends on success of DAO. The native token gives right to vote and ownership ratio across members. It is also possible if DAO invest in assets if the members decide to. For an example purchase companies, NFT (Non-fungible token), or another projects token. If those assets rise in value, the value of the DAO increases.
Types of DAOs & some examples
AMM & DeFi
Automated Market Maker (AMM) and Decentralized Finance (DeFi) DAOs. This type of DAO using smart contracts to provide decentralized services to users. Examples: MakerDAO, Aave Protocol. On the image below you can see howAMM works for MakerDAO.
Social Club DAOs
This is the type that gathers people with similar ideas, skills, views. Example: Lobster DAO.
Anyone can join some Venture DAO and contribute decentralized venture capital funds. Every member can decide how to spent DAO funds and have voting power. Example: Alpha Venture DAO.
Community of this type of DAO usually donates funds into grant pools and collectively votes on allocating and distributing the funds. Example: Gitcoin DAO. Gitcoin is focused on grants for funding digital public goods starting from clean water, open source software, content, AI models and finishing national defense.
Media DAO provides organic content driven by community, rewarding content creators in the native token and removing advertisers from the equation. Bankless DAO is a community driven newsletter/media for educating and onboarding people to web3 without the need of traditional banking.
Features of DAOs and advantages over traditional organizations
- providing trust and transparency for organizations to work, without participants having to know each other.
- fully independent and clarity since they’re built on open-source blockchains, meaning that all participants can access and view their code.
- anyone can become a DAO member by having governance tokens, which allows to hold voting rights on main decisions, for example, how to implement the DAO’s rules.
The another great example of DAO is Joystream — decentralized and community-led video platform built in the Polkadot ecosystem. It has all advantages discussed in this article.
Joystream consists of two parts: Pioneer(control panel or governance app) and Atlas(videohosting, possibly it will be renamed in the near future). Joystream is powered by $JOY token, this token will be used in governance. With Joystream users will be ablee to upload/watch videos, create channels, sell videos as NFTs and even create own channel tokens.