What Is A DAO And How Does It Work?

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What Is A DAO And How Does It Work?

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An in-depth look at how decentralised autonomous organisations work and what they mean for the future of business

Key Takeaways

A DAO is an entity designed to be fully autonomous and operable without a central point of control

A DAO is commonly defined by these five characteristics: flat organisation, transparency, open access, democracy, and decentralisation

The Rules of a DAO are established by a core team of committee members and executed through smart contracts

Well-Known Examples include The DAO, Uniswap, and ConstitutionDAO

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What Is A DAO?

The concept of a decentralised autonomous organisation (DAO) was first proposed in 2015 by Dan Larimer, founder of BitShares, Steemit, and EOS (Block.one). However, this method of governance only received mainstream attention after Ethereum co-founder Vitalik Buterin refined its theory.

By definition, a DAO is an entity designed to be fully autonomous and operable without a central point of control. Instead, it is composed of a committee that agrees to comply with certain rules for a common purpose. These committee members collectively own and manage the DAO through its native token and help the DAO work towards a unified goal.

A DAO is commonly defined by these five characteristics:

Flat Organisation: A DAO has no hierarchy, and decisions are made by its stakeholders or members instead of leaders or managers; although, certain spheres of decision-making may be delegated to a core or selected team

Transparency: A DAO must be open-source, and anyone can inspect the code on the smart contract or view the DAO’s transaction history on the blockchain

Open Access: Anyone can, in theory, be a member of the DAO, as long as they fulfil the predetermined requirements, such as holding its governance token

Democracy: No single party can veto a request once it passes the voting process

Decentralisation: DAOs rely on smart contracts for execution. Occasionally, members of the DAO may hire human resources to fix issues like bugs or updates

How do DAOs Work?

Governance Through Smart Contracts

The rules of a DAO are established by a core team of committee members and executed — at least in theory — through the use of smart contracts.

Smart contracts lay the foundational blueprint that the DAO operates from. Once finalised, these contracts are published on the blockchain. They are highly visible, verifiable, and publicly auditable; any existing or potential member can peruse the code and ensure the smart contract is aligned with the goals of the DAO.

"We Are Living In A New Age For Commerce With DAOs! Because of the changes in the Geo Political Landscape on the planet in today's world, people with great ideas will be able to prosper, mostly without limits, from the Controllers!" --- Juan Jose Piedra

In principle, a DAO cannot be changed or altered unless the majority of members reach a consensus on the matter. Similarly, because the treasury (the funds) within a DAO is safeguarded by the smart contract, no single party can access the assets without approval from the majority of the DAO’s members.

The implementation of smart contracts in a DAO allows for the organisation to be less reliant on human input to operate. Instead, decisions are made collectively through a voting process and executed automatically by the smart contract.

Voting Power

DAOs are considered participatory and democratic. In other words, if the majority of members support a decision, the decision is made.

To obtain voting power or membership in a DAO, users are typically required to own its governance tokens. Further, the voting power is often distributed amongst its members based on the number of tokens each member holds.

To illustrate, a member who owns 100 tokens in the DAO may have twice the voting power compared to a member who holds only 50 tokens. The belief behind this common distribution of voting rights is that users who have allocated more capital to a DAO hold more decision-making clout, as they are incentivised to act in good faith of the DAO.

Examples of DAOs

Types of DAOs

DAOs are formed for a multitude of reasons, often - but not always - for monetary gain. Here are some ways that DAOs are currently used:

Protocol DAOs: One of the current primary uses for DAOs, protocol DAOs govern decentralised protocols. For example, MakerDAO maintains the stablecoin DAI’s peg to the dollar.

Collector DAOs: The purpose of a collector DAO is to acquire non-fungible tokens (NFTs). Members of a DAO will pool their money and buy the NFTs chosen by the members of the DAO. PleasrDAO, one of the most high-profile collector DAOs, purchased Wu-Tang Clan’s album “Once Upon a Time in Shaolin” in 2021 at a government auction. ConstitutionDAO attempted to buy a copy of the US Constitution at an auction, raising US$47 million in Ether to do so.

Social DAOs: Most DAOs have some kind of social aspect to them, but social DAOs are purely created with the explicit purpose of gathering people with similar interests.

Therefore, since most DAOs require ownership of governance tokens, they can start to look a bit like a country club. For example, Friends with Benefits requires full members to buy 75 FWB tokens. Famously, the Bored Ape NFT collection grants owners access to the Bored Ape Yacht Club discord channel and members-only events.

Investment DAOs: Members of investment DAOs — also known as venture DAOs — pool their assets and vote on how and where to invest them using governance tokens. Profits and losses are shared by all members proportional to their stake.

Philanthropy DAOs: These DAOs act as a community-led charity, gathering funds and collectively deciding on which organisations to donate to. These operate similarly to grant DAOs, which choose decentralised finance (DeFi) projects to support.

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Examples of Well-Known DAOs Include:

The DAO

The DAO, the first of its kind, was created as a form of an investor-directed venture capital fund. It was developed by Slock.it, a German-based company built on the Ethereum blockchain, with the goal of integrating real-world transactions into the blockchain.

In early 2016, the company was looking for a method to raise funds for its project, whose founder, Christoph Jentzsch, referenced the concept of crowdfunding and applied it to the blockchain. Hence, the idea of a DAO was born.

During its creation period, The DAO became an unexpected success, as it managed to raise around US$150 million at that time from more than 11,000 participants, making it the biggest crowdfund ever.

Uniswap

Uniswap is a cryptocurrency exchange that runs on a decentralised network protocol. This organisation aims to facilitate automated transactions between cryptocurrency tokens on the Ethereum blockchain using smart contracts.

Similar to a typical DAO, Uniswap relies on its governance token, UNI, as a means to return the control of the protocol to its members. The UNI token gives the Uniswap community the ability to vote on proposals that impact the Uniswap project’s day-to-day operation and development.

The UNI token has a maximum supply of 1 billion that is shared amongst the core contributors of the platform, including the development team, Uniswap community members, external investors, and advisors.

Uniswap can be accessed via the Crypto.com DeFi Wallet.

ConstitutionDAO

ConstitutionDAO was formed in November 2021 with the goal of purchasing the original copy of the United States Constitution. This single-purpose DAO banded over 17,000 people and raised a collective US$47 million. However, ConstitutionDAO ultimately lost the bid to Ken Griffin, the founder of Citadel, and all assets were refunded to the DAO’s participants.

Despite this, the event represented a crucial step that showcased the power of a DAO.

Due Diligence and Do Your Own Research

All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. Any descriptions of Crypto.com products or features are merely for illustrative purposes and do not constitute an endorsement, invitation, or solicitation.

Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.

Article Credit: What Is a DAO and How Does It Work? https://crypto.com/university/what-is-a-dao-decentralised-autonomous-organisation Tags: DAO, Blockchains, Smart Contracts, Decentralised , Autonomous, Organisations, Vitalik Buterin, Open-Source, WEB3 Utility Tokens

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"We Are Living In A New Age For Commerce With DAOs! Because of the changes in the Geo Political Landscape on the planet in today's world, people with great ideas will be able to prosper, mostly without limits, from the Controllers!"

-- Juan Jose Piedra

Here at QuantumDrive.io we believe that entrepreneurship is a critical driver of economic growth and a significant contributor to innovation. Entrepreneurs are individuals who are willing to take on significant risks to create something new and innovative, often starting their own businesses to bring their ideas to market.

By identifying gaps in the market and addressing unmet needs, entrepreneurs create value for consumers and society as a whole. The process of entrepreneurship involves not only the creation of a new business but also the development and execution of a business model, marketing strategy, and operational plan.

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Entrepreneurship requires a unique set of skills and characteristics, including creativity, determination, and a strong work ethic. Entrepreneurs must be able to think outside the box, identify opportunities, and take calculated risks to achieve their goals. They must also be able to communicate their vision effectively, build a strong team, and manage resources efficiently. Successful entrepreneurs are often those who are able to adapt to changing market conditions, learn from their mistakes, and persevere in the face of adversity.

Entrepreneurship can be a rewarding career path, offering the potential for significant financial gains and personal fulfillment. However, it is not without its challenges and risks. Entrepreneurs must be prepared to work long hours, face uncertainty, and make difficult decisions. They may also face financial challenges, including limited access to capital and the need to generate revenue quickly to stay afloat. Despite these challenges, many entrepreneurs view the risks and challenges of entrepreneurship as an acceptable trade-off for the potential rewards, including the opportunity to build something new, create jobs, and make a positive impact on society.

Clarity DAO: A Leap Forward in Community Engagement and Reward Systems.

Author: QunatumDrive.io / ARTICLE / 07/2024

Key Takeaways

A Decentralized Autonomous Organization (DAO) and a Corporation are both organizational structures, but they have several very important key differences:

Ownership and Control: In a DAO, decisions are made collectively by the community of token holders through smart contracts. In a Corporation, decisions are typically made by a small group of shareholders or a board of directors.

Funding: DAOs are often funded through crowdfunding or token sales, while Corporations usually raise funds through share issuance or loans.

Regulation: DAOs operate in a decentralized and largely unregulated space. Corporations, on the other hand, are subject to various legal and regulatory requirements.
Transparency: DAOs are usually transparent and open-source, while Corporations can have varying levels of transparency.

Change of Control: In a DAO, control is distributed and can't be easily changed. In a Corporation, control can be changed through share acquisitions or board decisions.

Risk and Reward: In a DAO, rewards are typically tied to the performance of the DAO itself. In a Corporation, rewards are usually in the form of dividends or capital gains from share ownership.

Key Characteristics Of A DAO:

A DAO is commonly defined by these four characteristics:

Decentralized: DAOs are not controlled by a single entity or government.

Autonomous: The organization operates independently, without human intervention.

Governed by Smart Contracts: The rules and decisions are encoded in a computer program.

Blockchain-Based: The organization’s transactions and decisions are recorded on a blockchain.

A DAO (Decentralized Autonomous Organization) . . .

Is an organization that operates without a central authority, governed by a set of rules encoded in a computer program. This program, also known as a smart contract, is used to manage the organization’s decision-making process and finances through a blockchain.

-- QuantumDrive.io / Juan Jose Piedra"

Why Are Entrepreneurs Important?

Entrepreneurship is indeed a vital resource in production, along with land/natural resources, labor, and capital. Entrepreneurs identify opportunities, take risks, and mobilize resources to create value. They develop business plans, hire labor, secure financing, and provide leadership, ultimately contributing to economic growth and innovation.

The term "entrepreneur" originates from the French verb "entreprendre," meaning "to undertake." Classical and neoclassical economists often overlooked entrepreneurs in their models, assuming perfect information and rationality. It wasn't until the mid-20th century that economists like Schumpeter, Knight, and Kirzner began to formally incorporate entrepreneurship into economic theory, recognizing the importance of risk-taking and innovation.

The contributions of these three influential economists in shaping the theory of entrepreneurship. Joseph Schumpeter emphasized the role of entrepreneurs in driving economic development through innovation. Frank Knight focused on the entrepreneur's role in bearing uncertainty and the impact on risk premiums in financial markets. Israel Kirzner, on the other hand, viewed entrepreneurship as a process of discovering and acting upon opportunities, further enriching our understanding of this vital economic concept.

Today, entrepreneurs commonly encounter several significant challenges while building their companies. Among the most daunting are navigating bureaucracy, recruiting top talent, and securing financing.

The DAO Killed the Corporation! Clarity DAO: A Leap Forward in Community Engagement & Reward Systems!

The Decentralized Autonomous Organization (DAO) concept was introduced in early 2016 by Christoph Jentzsch. It's a method of raising funds for projects through blockchain-based crowdfunding. The DAO created by Jentzsch became a significant success, raising around US$150 million from over 11,000 participants, making it the largest crowdfund at that time.

A DAO is characterized by its decentralized nature, autonomy, governance by smart contracts, and blockchain-based transactions.

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