How Does A DAO Work?

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The backbone of the blockchain network and cryptocurrencies is decentralization. This mindset went further to birth communities where people are given the equal unbiased right to co-exist and operate without any form of human operation. These decentralized and autonomous organizations on a blockchain network are what we call DAOs.

 

Since the recent rise of DAOs, a lot of these communities have been created serving various purposes. For many, understanding how a DAO works will be key in helping them partake in such social communities and contribute. This is why we’ll be taking a deep dive into the basics of how DAOs work, exist, and operate.

 

DAO Membership

 

Memberships for DAOs are open and mostly permissionless. Most DAOs work on Discord with a few operating on telegram and accessing them could be as easy as checking their social media handles and joining the group on Discord. Gaining initial access could be easy in most cases though with limitations without full membership. 

 

Depending on the nature and purpose of the DAO, there are two ways of gaining membership to vote and engage fully in governance processes.

 

  1. Token Acquisition: Every DAO works with a mission and the essence of joining would be to contribute to the progress or fulfillment of such a mission. Depending on the token used, intending members can gain access to the tokens by providing liquidity in exchange for the community token or providing proof of work in some situations to gain access. 

 

Regardless, owning the DAO token is surely how one is able to leverage the DAO tools during voting to make a decision. 

 

  1. Share Membership: In this situation, membership while open is allowed. For example, a DAO could exist as an investment and developer hub for funding and improving Ethereum projects. In this case, intending members would be required to send a proposal showing the ability to provide tokens for funding purposes or valuable work. Once approved, certain share power is given which represents membership and voting power.

 

DAO Work Operations

 

The excitement of DAOs makes most people engage literally all day, especially with social networks like Friends With Benefit $FWB. A funny realization for people that run away from their 9-5 jobs. The benefit however is working with a deep sense of ownership, autonomy and joy.

 

As it stands today, for an autonomous organization to be recognized as a DAO, it must be on a blockchain and controlled by smart contracts since they help execute pre-set conditions that are met on the blockchain. It can also send and receive funds for the DAO without needing any human assistance.

 

The smart contracts are filled with the terms of operation of the DAO before it is set to go live on the blockchain. Once it is live, it is automated and cannot be altered by an individual. In a DAO, the treasury or bank and the mode of governance are keyed in the lines of code of the smart contract meaning that no one can even spend the community fund in the DAO treasury. 

 

This is why part of what is important before joining a working DAO is to read its Charter that shows and explains all the governing principles of the DAO. 

 

For a new DAO about to launch, it mainly follows 4 processes:

 

  1. A core team of early community members and developers would need to come together to draft the rules of the DAO into a smart contract on the blockchain.

 

  1. The DAO charter is developed to highlight the future of the DAO and where it is heading to. 

 

  1. The next will be figuring out how to raise funding for project work and engagements through token issuance and fund acquisition. 

 

  1. After fundraising, the governance roles are shared based on token quantity held after which the DAO is fully ready to go live. 

 

Once this is done, no further change can be made until the vast majority of the community agree to make a change on the blockchain protocol.

 

DAO Examples

 

SharkDAO, for example, allows users to pool funds from their individual token to acquire rare NFTs that would have been impossible or too expensive for each person to acquire. To decide on what to buy, members would make cases in the Discord group on NFT options after which they can go and vote on which NFT to purchase on the blockchain network they exist on.

 

FWB DAO

 

https://twitter.com/FWBtweets/status/1481340544311709696

 

Friends WIth Benefit is also another active DAO with over 4,690 wallet addresses holding $FWB which is their governance token. The social community has high engagement with its market cap exceeding $84 million and giving high value to members’ tokens which is truly amazing.

 

Conclusion

 

The future of DAOs is bright as they can serve multiple purposes. Smart contracts for example can be used to automate and scale businesses from logistics, data validation and conducting free and fair elections. Companies can leverage DAO platforms to automate and fasten some parts of their business in a more scalable manner without hampering quality delivery. 

 

Amidst growth, some analysts are also apprehensive about legalities, structure and security for the numerous DAOS coming into existence. However, these are challenges accustomed to emerging tech and with DAO tools and systems being built as well, there is huge room for growth. At the recent prominence and success of most DAO, they could likely take over traditionally styled businesses and forms of community building. 

 

DAO is a typical example of how web2 operations such as how traditional business ownerships are structured can get into a more web3 fit structure. Learn how more industries can make innovative entries into the blockchain space and innovative ideas to explore here. 

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Disclaimer: The views expressed in The Coin Times are solely those of the authors cited. It does not constitute The Coin Times recommendation to buy, sell, or hold any investment. Before making any financial decisions, it is recommended that you undertake your own research. Use the information supplied at your own risk. For additional information, please see the Disclaimer.

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