Every year, the crypto world has something innovative to offer! There are so many potential opportunities for financial gains for investors and crypto enthusiasts who have the eye to spot trends and are interested in them later. A few years back, no one would have imagined gathering with unknown people and establishing your own rules to make decisions on blockchain. Here is DAO, making it a reality!
The first famous DAO, called “The DAO,” was a huge hit to the point where it made Ethereum almost see the end. Ever since then, the crypto space has matured, leading to a revival of the DAOs.
What is DAO?
DAO(Decentralized Autonomous Organization) is the next big trend in the crypto world. It works on the “led by community” model, where there is no central authority for decision-making. Instead, the business follows a democratic route that is autonomous and transparent that works through voting on proposals for putting into action major decisions. Every member of the DAO is responsible for making crucial project decisions – for example, allocating treasuries or leading technical upgrades.
You can think of a DAO as an internet community that gathers together, forms a group chat and decides to pull capital with the help of an Ethereum wallet. Once this is formed, the group members collectively make further decisions in the project to fund the DAO.
There are two types of DAOs: ones that manage a blockchain project together and the second are the ones that invest. They act like traditional limited liability companies (LLCs). How a DAO is going to function, built and what rules will be applied depends on its members and their shared goals. The incentive alignment is kept for the best interest of the members. Everyone is outspoken on their decision and mostly supports proposals that benefit the DAO.
How do DAOs Function?
DAOs work on smart contracts and blockchain technology. A smart contract is a thread of code that works on the blockchain and a blockchain is a decentralized digital ledger. Blockchain technology is commonly used to document transactions publicly. The transactions are made in different cryptocurrencies like bitcoin or NFT, but blockchain can also be used in other ways. When this realization struck, DAO was invented. Here, the blockchain acts as a backbone in keeping the structure and functioning alive and aligned.
For the functioning of a traditional organization, a hierarchy is followed where the board of directors and executives sit on the top to make decisions, and employees work towards achieving the desired goals. In contrast, DAOs work in a decentralized manner where the entire community work towards achieving a common goal of the DAO. The governance rules are coded in smart contracts. They cannot be changed unless the whole community votes in favor. A democratic model is followed where everyone has a say in deciding what will be the future of the DAO.
However, in a larger DAO, sometimes some teams tackle different aspects of the business with elected leaders to vote in. This means that not every member has to vote on everything.
Value of a DAO in 2022
Modern-day businesses still work in a centralized manner with a top-down governing body. The organizational changes that affect everyone aren’t transparent, even the finance allocation is not defined clearly. DAO solves the issue of transparency as the decisions are made through voting. Every token holder in the DAO gets to decide its future.
DAO can become an efficient method for conducting business functions as they can access finance without relying on the traditional corporate financing model. The concept of DAO is advanced; in fact, many crypto enthusiasts and investors are finding various ways to include it in businesses.
What the Future Holds for DAO?
The structure of DAO might not be fit for every type of business venture; however, the decentralized model can make a few processes and features more efficient in the future! One of the biggest challenges a DAO business faces at this point is the non-existence of a legal entity. Many states in the USA still have not recognized a DAO business legal and without this legal recognition, DAO cannot follow legislative provisions. This means it cannot get hold of certain corporate privileges or enter commercial contracts, limiting its growth.
However, the advanced technology a DAO works on has outpaced the legal challenges it faces. As of now, the current vision is to accommodate DAO into the company’s framework. There’s an urgent need for a regulatory framework to successfully use this technology in businesses. But as technology evolves, we can expect to see more innovation that can create an impact to help businesses adapt to the DAO structure.
With the vast ability to create networks and interconnect organizations and people, DAOs definitely carry the potential to redefine the way businesses work and exist!
Author Bio: Akanksha Malik writes to share her knowledge on crypto trends, investments, and NFT opportunities with her readers so they can stay updated! She works as a digital strategist and content creator for Mesha — an online investing platform that serves as a club where investors from around the globe can meet new fellow investors, compete in money challenges, and invest in NFTs & crypto. Besides finance and fintech, Akanksha loves architecture and discovering cuisines of new places she travels to.
