A DAO or a Decentralised Autonomous Organisation is meant to be a group of like-minded individuals from around the world who come together to form an autonomous organisation. The organisation is created through smart contracts, and autonomy is achieved because each member is allowed to vote on how the organisation will function. So, there is no concept of a board of directors or C-suite executives calling the shots.
The wave of crypto assets, blockchain, and decentralisation is based on a common concept: that of creating autonomy and doing away with the hassles of a centrally governed system where people have no control. A decentralised system brings people together from across the globe through digital networks. Over the years, several use cases have sprouted where decentralisation provides better alternatives for traditional financial products. DAOs in crypto are also inspired by the same purpose.
How does a DAO compare to a traditional organisation?
| DAO | Traditional Firms |
| Entirely autonomous – all decisions are based on votes | Follows a hierarchy system which is often referred to as the organisation structure |
| Voting is required on all matters | Usually, the majority is held by key players calling the shots. Most of the internal policies are not subjected to voting. |
| A smart contract manages the voting and its results, ensuring complete transparency | Voting is conducted manually |
| Usually, the voters decide the services offered and the investments made and are fully automated | Core services are not entirely transparent, and processes are susceptible to human error or manipulation |
| All activities are 100% transparent | Only the parts mandated by the law are reported. |
What does a DAO do?
Every DAO can do something different. There is no set rulebook for what a Decentralised Autonomous Organisation must do. When a group of people come together and invest, they get voting rights. These votes give them the power to decide what they want to do with the funds.
The DAO could be a charity-based organisation where people donate and then vote on how the donations can be used. DAO in crypto could also pool crypto together to form a community-driven decentralised finance organisation like Mantra DAO, for example, where people can stake, lend or borrow crypto.
A DAO can also be something as simple as a freelance network where a group of people comes together to use a shared resource like software. Venture Capitals can also be DAO, where people pool in crypto and then vote on strategic investments that the DAO will make with the combined funds.
JennyDAO, for instance, functions as a platform where people can own fractional NFTs by combining their crypto to purchase the NFTs. Their first NFT was a song by Steve Aoki and 3LAU.
ConstitutionDAO, on the other hand, attempted to purchase one of the original copies of the U.S. Constitution but could not make the highest bid.
What a DAO can do is limitless and depends entirely on the people running it. Not all DAOs taste success. In fact, one of the first DAOs saw a bitter end.
The history of DAOs
The first DAO was simply called ‘The DAO’, and it was managed by a company called Slock.it. The German-based firm operated on the Ethereum blockchain, and the DAO aimed to function as a venture capital with an open-source code. Its launch in 2016 through a month-long crowdsourcing effort raised $150 million as funds. This was massive for a time when no one truly understood the meaning of DAO in crypto.
The objective of The DAO was to replicate a Kickstarter or a GoFundMe but in a decentralised manner where people making the donations can decide how the crypto funds will be used. By mid-2016, a paper was published covering the potential security concerns in the DAO in an attempt to caution the members. The purpose was to get the members to vote with vigilance because the issues could not be fixed without majority votes. However, in June 2016, these vulnerabilities were exploited by hackers who gained access to 36. Million ETH, which was worth $50 million at that time.
As a result, the first DAO was delisted from the central digital exchanges by September 2016. However, since then, many DAOs have learned from past mistakes and adapted a better system, keeping the original vision intact.
Parting Thoughts
Evidently, the entire blockchain ecosystem, including crypto and DAOs, has been evolving over the years, learning from the challenges previously faced. DAOs address some serious gaps present in traditional organisations and bring people from anywhere in the world closer together. How DAOs will further evolve to reach the true potential that developers envision will be an interesting journey to follow.
