DAOs or Decentralized Autonomous Organizations are an organization of individuals with a common goal and motive. As the name implies, DAOs are decentralized, which means there is no central power or authority over the organization and it is also autonomous, meaning the organization is governed independently.
In the case of DAOs, the rules that will help in governing the organizations are written as smart contracts on a blockchain.
Decisions that will be made concerning the organization will be done by members of the DAOs when they vote for a particular rule to apply or a move to be made for the organizations.
One of the unique features of smart contracts is that since they are written on a blockchain, they are immutable. This means that any rule written on the smart contract cannot be changed by anyone.
Every DAO has a native token which is both used as a loan to debtors in the funding stage and also serves as voting right on how the DAO should be operated and organized.
These native tokens are can be used by all those who invest in the DAO. Having more tokens means you have more voting rights in the organization
How do DAOs work?
The traditional system of corporate structure has a centralized hierarchy of authority which is an individual or a board of directors and executives. These executives or board of directors have the power to make decisions and put them in effect.
The DAOs are quite different. The DAO is more decentralized which means there is no hierarchy of power in the organization and the rules governing the organizations are written as smart contracts on a blockchain.
This means the rules cannot be changed or altered without the votes of every member of the DAO.
DAOs have a native token that can serve a voting right to its members and also as a form of access.
Some DAOs use cryptocurrencies as their native tokens while others use NFTs as theirs. For example, the Bored Ape Yacht Club uses its NFT as a native token which serves as a form of membership and a voting right.
DAOs in DeFi
Defi evolved from the need among blockchain users and developers to create a financial system that is open, decentralized, and permissionless.
This move was to take out the centralized authority in the financial system. This was done by blockchain developers who used smart contracts and the power of blockchain technology to allow financial transactions to be carried out without a middleman.
The creation of DAOs was a way of showing support and commitment to this quest for decentralization through community governance.
A couple of DeFi centered applications like Uniswap and Compound emerged and also launched their native tokens that allowed the users and holders of these tokens to participate in the new form of governance which is decentralized governance.
There are also Investment DAOs that are into investing in DeFi protocols and NFTs. These DAOs have native tokens that also allow their members and holders of those tokens to participate in decentralized governance.
Conclusion
The evolution of DAOs is going to take a little time with some bumps on the road because creating a completely decentralized and autonomous organization is going to take a lot of work and cannot be done in months. But I do believe DAOs are going to change the way we work, interact, network, and invest in the nearest future.
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