Decentralized Autonomous Organisations (DAOs) appear to be the next great development in blockchain technology.DAOs present a fundamentally decentralized approach to governance, allowing new types of organizations and approaches. DAO is a blockchain-based system that enables people to coordinate and govern themselves mediated by a set of self-executing rules deployed on a public blockchain and whose governance is decentralized.
What is DAO?
A DAO or decentralized autonomous organization, is an organisation that makes decisions and conducts its business without a central authority. It is possible to utilize DAOs for everything from fundraising to governance. DAOs enable people to coordinate and self-govern themselves online.
A DAO source code is deployed in a blockchain with smart
Benefits of DAO
A DAO can do the following
- Based on decentralization and eliminates the dependence on central authority.
- Encourages more participation.
- Ensures that everyone gets a fair vote in the organization.
- DAOs are built on open-source software the votes that are cast on blockchain are visible publicly.
- Enables people from all over the world to connect with each other.
Downsides of DAOs
DAO carries following risks:
- Automated smart contracts can be difficult to change.
- Casting a vote becomes a more time taking process.
- There are chances of severe exploits which can result in theft of treasury reserves.
- It is highly technologically driven it may limit a large part of population who may not be equipped with the right technology.
- It can be time-consuming and costly process.
How does a DAO work?
DAO works on the basis of smart contracts. These smart contracts are responsible for the functioning of DAO without requiring human intervention. In order for the DAO to function seamlessly there is a need for funding. Funding is gathered using the token issuance method, wherein the protocol sells tokens in exchange for funds. People who receive tokens are given voting rights based on their holdings. With the completion of funding, DAO can be deployed. Once the codes are written and implemented they cannot be changed.
What makes DAO different from traditional organizations is its decentralized system.
Popular DAO Platforms
Uniswap is the largest decentralized exchange operating on Ethereum blockchain. It allows users anywhere in the world to trade without an intermediary. UNI is the governance token that allows users to vote on key protocol changes.
Uniswap uses an automated market maker(AMM) system, which allows for more efficient price and liquidity provision. It allows users to trade crypto anywhere without an intermediary.
By pooling tokens to Uniswap liquidity pools, users can earn rewards. Anyone from anywhere can supply tokens to liquidity pools. Users can create liquidity pools on Uniswap. It allows users to control their funds. Uniswap’s blockchain is open source so anyone can view and contribute to the blockchain’s code.
MakerDAO is a decentralized autonomous organization that provides a stablecoin Dai.
Maker is the governance token of the MakerDAO.
MakerDAO was founded in 2014 by Rune Christensen and Wouter Kampmann.
DAI is created by depositing collateral into maker’s vaults and borrowing against it. Users borrow from Maker in DAI. Maker offers investors a saving rate for locking DAI in their vaults.
AAVE allows users to securely lend and borrow cryptocurrency. AAVE users have complete control over their funds as a smart contract governs the transfer of funds between lender and borrower. Lenders can earn passive income by providing liquidity to the market and borrowers can obtain loans.
AAVE was built on Ethereum network and used Ethereum blockchain to process transactions. They are known as ERC20 tokens.AAVE protocol uses a decentralized autonomous organization (DAO) as it is operated by the people who hold AAVE tokens.
SushiSwap is an Ethereum token where users can sell and purchase digital assets.
SushiSwap is a copy of Uniswap with some changes to Uniswap’s open-source code.
SushiSwap allows users to create a liquidity pool by providing ETH and any ERC20 tokens. SushiSwap uses the Automated Market Maker (AMM) model, which allows users to swap their tokens using collections of digital assets called liquidity pools.
Compound is an Ethereum-based market protocol that allows holders of crypto to lend and borrow funds in exchange for collateral. Lenders can send their tokens to generate interest. Borrowers are permitted to borrow cryptocurrencies supported by Compound. Compound has adopted DAO model for its functioning.
DAO are organizations in which control of the organization is not vested in any one person or group. DAOs’ autonomous code-driven functionality makes them a fit for decentralized applications. Since the launch of first DAO various types of DAOs platforms have emerged.DAOs can be immensely beneficial and have the scope for future growth.