DAO 101: What You Should Know About DAO and the Best DAOs Today
Especially when you are on the internet, interacting with people from across the globe. It doesn’t make sense to trust people you haven’t seen once in your life when you can’t trust yourself with a tub of chocolate ice cream.
DAOs powered by blockchain technology offer a unique solution. Let’s find out how.
What is a DAO
As the name gives it away, a Decentralized Autonomous Organization (DAO) is an organization that is run by all its members, guided by a unified vision.
No single commanding body holds unyielding power here, unlike a traditional organization that is characterized by hierarchy. DAOs replace human authorities with smart contracts that anybody can see and verify.
They tap into the incredible power of the internet to bring people together, breaking geographical barriers. Great things can happen when like-minded people unite. However, most online discussions remain discussions. The ideas fail to shape into actions. DAOs give people the economic incentive to raise money, collaborate, and work for a common goal in a transparent, trustless environment.
Let’s say you want to donate to a cause that is close to your heart. While you may find a plethora of charity organizations, none can guarantee you that the money actually goes to the deserving cause. A DAO charity, on the other hand, will give you a transparent record of the transactions on the blockchain. If the charity fails to meet its goals, the funds are distributed back to members. If they choose to donate it to another cause, they can vote on the matter and come to a decision.
The same principles can be applied across different sectors. For example, UpLift DAO helps promising projects get off the ground and scale growth through its launchpad, incubator, and accelerator.
What are the key features of a DAO
Here are the key features that set apart a DAO.
1. Smart contracts run the show
Smart contracts are the foundation of a DAO. Once the rules are ingrained into a smart contract, they can’t be changed without a vote. An ideal smart contract is immune to manipulations. Moreover, it executes the decisions of the collective without manual intervention, saving time and effort. This also means that a DAO is less prone to human errors, unlike traditional organizations.
2. Bottom-up model of governance
A DAO can have a CEO, CFO, and other positions that are key to guiding the project in the right direction. However, they will have no more role in governance than other members. Each stakeholder of the project, or token holder as they are called on the crypto side of the world, can voice their opinion by employing their voting rights. They can voice their say on a variety of matters, including who should be the CEO!
Recently, the UpLift community voted on a proposal to channel its funds into a referral program in the event of an early unstake. It was later implemented on the platform, benefiting those engaged in referral activities.
3. Governance tokens
In most cases, the number of votes given to each member depends on the number of governance tokens they hold. Governance tokens represent each member’s stake in the DAO. Anybody can buy and sell them on an exchange. However, if the DAO opts for limited access to governance, token-based voting rights may not be the right way to go. Share-based DAOs grant access to the DAO based on a predefined set of criteria. These best suit organizations that need the human touch.
3. Community-governed treasury
A DAO holds a community-governed treasury to fund its activities. The rules of the smart contract, too, are defined by the treasury. Nobody can use the funds without the approval of the collective. The payments are executed automatically when the members come to an agreement.
4. Vibrant communities
DAOs stay relevant through their incentive systems. Each project will have one or more native tokens that accrue value for the stakeholders. Since the growth of the project translates to an increase in demand for the token, and in turn a price uptick, DAOs motivate the community to actively engage in the project. The self-sustainable mechanism of growth has played a key role in bringing DAOs to the mainstream.
What to look for in an ideal DAO?
It’s important to do your due diligence before investing in a DAO. Listed below are some key factors that will help you decide early on if a DAO is worth your time and money.
Go through the project’s website, social media channels, and whitepaper to understand its relevance and competence. There are many pitfalls out there. Recently, a scam version of AssangeDAO, a fund dedicated to supporting Wikileaks creator Julian Assange, was unearthed by PeckShield.
Legitimate DAOs will operate in full transparency. Dashboards can come in handy when you need a quick glance at the numbers. UpLift DAO publishes key statistics related to the project on Dune Analytics.
Do a background check on the team. Do they have the experience and skills to drive the project? Are there reputed advisors and KOLs onboard? Many cryptopreneurs choose to stay anonymous for a variety of reasons. If that is the case, you can either opt out or base your decision on other factors. Make sure the project operates in full transparency.
UpLift is led by a group of crypto enthusiasts who have an excellent track record in the industry. They regularly engage with the community, keeping them updated about the project development and discussing future plans. The AMAs and interactive sessions are published on platforms like YouTube.
Even if you are not a developer, it will be worth taking a look at the smart contract. Has it been thoroughly audited by well-established blockchain security companies? You may have heard about ‘The DAO’, one of the earliest DAOs launched in 2016. An unfortunate hack worth $50 million of ether, exploiting a loophole in the code, left a stain on the project and has tainted ‘DAO’ as a term.
What about the governance system? Does the community make all decisions collectively? A robust DAO will keep track of the community proposals and their status. On UpLift DAO, decisions are made by the community on Discord. The proposals are voted on Snapshot, a gasless voting tool based on the IPFS decentralized storage system. This is a step that emerging DAOs can adopt to encourage members to participate in decision-making.
When decentralization drives the world
With DAOs, global coordination finds a decentralized footing. In the coming years, we can expect more projects to lead the space with unique value propositiossns.