What is a DAO:

The name stands for decentralised autonomous organisation.

It’s people who form a group (small, medium or large), where everyone participating is a shareholder, as long as they have the group/organisation token/NFT, these shareholders can put forward proposals that everyone votes on.

So like having a pot of money between friends and you all choose what to do with it … But on a much bigger scale, everyone votes and then the actions are executed by code.

The main parts are that it’s decentralised & autonomous, otherwise, it’s just another traditional company with hierarchy, lack of transparency, etc.

Ingredients for creating a DAO:

• Communication via chat platform like discord (hopefully web3 soon)

• Governance via holding a DAO tokens or NFTs

• Voting via snapshot

• Money via cryptocurrencies

• Autonomy via smart contracts

• Privacy via cryptography

• Transparency via snapshot & blockchain

Traditional Company vs. DAO

Let’s use Netflix for example they probably need the promotion since they’ve been losing so many customers lately, they would have routine board meetings where shareholders (a small group of people who own the) are invited to make proposals, vote and generally make decisions on the direction of the company, then it’s the job of the CEO & leadership team to make sure those decisions are followed.

In a DAO, the same process would be followed but everyone who holds a token (DAO’s crypto token or NFT) can come up with proposals & vote, then smart contracts execute the decisions which could be on the direction, treasury or anything.

Types of DAOs

There can be many types of DAO’s some resemble what we see in web2 such as:

• Investment & VC funds; Pooling together funds to support new & upcoming projects, so mainly focusing on ROI like MetaCartel.

• Collectors; People pool together money, buy & collect blue-chip NFT’s like they do at FlamingoDAO or it could be to collect/buy a real-life item like with ConstitutionDAO where we were sooo close to buying the US Constitution!

• Protocols; Focusing on governing a decentralized protocol, most cases around DEFI such as borrowing/lending, buying/selling and managing a decentralised exchange of some kind, the biggest ones are Uniswap & MakerDAO.

• Public goods; Focusing on providing improvements across things that affect the public such as roads, clean air, and public broadcasting… Or like some public goods DAO’s provide specific improvements across blockchain networks & ecosystems such as MolochDAO which focuses on the Ethereum ecosystem.

• Social; Bringing together a community of like-minded people, it could be focused on their profession such as web3 builders, creatives, artists or/and people from a certain community by holding a certain NFT or token, etc. An example would be DeveloperDAO & FWB.

• Honestly, pretty much any use-case you can think of and there’s probably already a DAO for it, if you’re feeling curious, here’s a list of DAOs.

Pros:

• Trustless & decentralised; Since actions are done by the smart contracts you don’t need to trust one person or a group of people to make the right choice for you, as your vote actually counts and all discussions, proposals, votes & actions are recorded so things are transparent & out in the open.

• Decentralised; Can’t be shut down by external forces, since it’s difficult to block or shut down thousands of people especially if some are anonymous.

• Opensource; Projects that are open source mean everything is out in public which allows people within & outside the community to find & fix problems that may have been initially missed by the core team.

• Community-based; This gets more than a few select people involved, it’s everyone who’s a part of the community by owning a certain token or/and NFT, which also leads to whoever is involved having skin in the game.

Cons:

• Decision-making can be slow; depending on the way voting is done, there can be delays and sometimes take a lot longer than expected, especially if there is no time limit or a lack of activity.

• Security; Relying on smart contracts & other tools can be great for autonomy but they can have a degree of vulnerabilities which can be the subject of hacks.

• Regulation; The lack of defined rules and regulations over crypto, let alone DAOs makes it difficult to plan for tax and also to enforce tax from the regulators’ side.

• I’m sure there are plenty of other negatives, but it’s too late and I'm needing sleep…

The main challenge for DAOs is governance, which is how we coordinate humans which sometimes can be described as herding cats (since herding cats can be pretty close to impossible)

This begs to question, what is the laser pointer which grabs focus & attention, a question I’ll try to tackle in the next few weeks… Until then, this meme should capture my question in art form.