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What is a DAO - Decentralized Autonomous Organization

A DAO is a fancy web3 term for Decentralized Autonomous Organization - a set of rules that people agree to for a common purpose. Recently I went to a DAO event in Vancouver and even after a few hours I'm still trying to get my head around it just like NFT's. DAO's are increasingly becoming ubiquitous in the web 3 and decentralized finance space space alongside NFT's albeit not as sexy.


Here are some key features of a DAO

  • It is decentralized with a flat hierarchy and if used in an organization there is no CEO or board

  • It could operate like a venture capital fund and save on costs from having no central authority controlling the funds

  • A set of rules that people agree on that are programmed into code in the form of a smart contract deployed onto the blockchain

  • Because the DAO lives on the blockchain it offers full transparency to the public

  • Web3 advocates believe DOA's could replace a traditional board and function automatically in a corporation

Steps in Creating a DAO

  1. The creators of the dao have to decide on the purpose of the dao and rules and program this in a digital smart contract and test it. Once they have tested it they then deploy it on the blockchain. The DAO can only be changed through group voting after it's launched.

  2. DAO's run on a digital treasury raised by the group members. People can now buy into the vision of the dao by purchasing tokens to determine their stake. Rules of the DAO can also be established here

  3. The Dao is then launched onto the blockchain where it can be seen by everyone and can only be changed by collective voting. The original group no long have control of the projects

Potential Cons of a DAO

  • A DAO cannot anticipate natural disaster like an earthquake impacting a business and making better subsequent decisions compared to a human manager

  • You may not have enough smart contracts to anticipate every decision. It am not sure if you can add additional smart contracts to a DAO once deployed onto the blockchain

  • DAO's can be hacked. The original DAO worth $150 million in Ethereum was hacked and about 70 million was stolen

  • As mentioned at the Vancouver event people can also be part of the problem. Original coders have early access to the code and could set up some exploits at this stage that they could use to drain funds once the dao is launched



Summary

It is still early days for web3 and dao's and time will tell what the use case and adoption will be in 5-10 years when the technology is more mature and the cryptocurrency market is a bit warmer. The promise of many cryptocurrency technologies are decentralization; however in reality in order to gain acceptance with different governments and off-ramp funds there must be some agreement with centralized authorities. Stay tuned.

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