As web3 and blockchain become more mainstream as the days come by, new acronyms and terminologies with little to no explanation are being thrown around in the space. One of them is DAOs (pronounced ‘Dows’).
Members of the crypto community predict that DAOs will become the next big trend in the space. But what exactly is a DAO? How do they operate and how can you benefit from them? We will answer these questions in this article.
What is a DAO?
A decentralised autonomous organization is basically a group of people who come together- without a central leader or company dictating any of the decisions – to achieve a common goal or purpose.
Decentralised autonomous organisations can be likened to a kind of clubs for crypto enthusiasts that typically operate under a shared goal and give each member an equal say in making decisions.
In regions like Africa, DAOs can be formed to raise money for a charity or to form an investment firm where all the members contribute funds in exchange for equity in some company or project. Each participating member might pay a certain amount of cryptocurrency, and the amount would dictate how many tokens the participant might receive from the DAO. The pay-in and pay-out might operate according to a schedule written into the smart contract on the blockchain.
Members of DAOs often buy their way in, most of the time purchasing a governance token specifically for the DAO that gives them the ability to vote on decisions that are made around how the pool of money is spent and managed.
How do DAOs work?
Most DAOs rely on blockchain and smart contracts, which are collections of code that run on the blockchain. The blockchain as a decentralised digital ledger acts as a backbone, keeping the structure and rules of DAOs on the chain.
Remember that in traditional organisations, there’s normally a hierarchy consisting of a formal board of directors and executives.
That is the upper management determines the structure and has the power to make changes. But DAOs, on the other hand, are decentralised, which means they aren’t governed by one person or entity. The rules and governance of each DAO are coded in smart contracts on the blockchain and cannot be changed unless voted upon by the DAO’s members.
What this means is that power lies in the hands of all members, rather than a concentrated few. An instance is when PleasrDAO members collectively decided to buy the Wu-Tang Clan album in 2021. After the purchase, they created an NFT to represent a deed of ownership to the album.
Members of PleasrDAO co-own the NFT deed, and in that process, share ownership of the album.
Why are DAOs important?
One of the reasons why a DAO is better compared to traditional organisations is that decisions impacting organizations are made by a collection of individuals rather than a central authority.
Additionally, DAO encourages people, mostly from different regions of the world, to come together to build a single vision and pursue it, seamlessly.
How to get started
When you’ve decided on the best for you at that moment, Join the community. It will come in handy to get involved in conversations on the Discord server and contribute to the community with any of your skills.
Despite the unknowns, those in the space think that DAOs will be disruptive to traditional business structures. There is a potential for more widespread adoption, leading to potential competition with traditional businesses and organisations.
Given that, it will be great to join a visionary DAO or create one now.
This content is for informational purposes only and should not be construed as investment, tax or legal advice. It is strongly recommended that every recipient seek appropriate independent professional advice before acting on any information contained herein, as Technext provides no endorsement, opinion or advice, including investment, tax or legal, and makes no representation or warranty about the suitability of a product for a particular reader or circumstance.
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