In this article, we will try to understand what exactly DAOs are and how they are used. In addition, we will look at some practical examples of active DAO projects.
The hype around cryptocurrencies and Web3 in general has been huge in recent months. And while most people are already familiar with NFTs, there is another term that is getting more and more popular.
And that term is Decentralized Autonomous Organization or DAO for short.
What exactly is a DAO?
In layman’s terms, a DAO is a smart contract agreed upon by people who share similar interests. Those people then decide on a common goal (the goal of the organization) and collect funds (native tokens) for this.
Of course, you may be wondering how a DAO is different from a traditional business contract? First, the people who participate in a DAO participate in the collective decision-making process. Any changes proposed within the DAO community must be approved by the people who have invested in the project.
The rules and goals for each DAO project are determined individually. However, each project will eventually have to be published as a smart contract.
How does a DAO work?
Before we look at real-life examples of DAO projects, let’s take a look at how they work.
1. Smart contracts as the backbone for rules and goals
A DAO is based on a smart contract, without any authority point that can influence it. When a smart contract (DAO) is created and implemented, the only way to change its “regulations” is through a community vote. Because the smart contract must be defined using code-based logic, all attempts to change the rules will fail unless the changes are decided by a vote.
Likewise, the money collected by the DAO cannot be spent unless approved by its members. This is also the definition of a decentralized project. Since the contract lives on the blockchain, it is visible to anyone who has the address of the contract.
2. Native tokens are used to fund the DAO
After a smart contract is hard-coded and implemented in the blockchain, the DAO can start raising funds for the project goals. This is done through native tokens, a form of currency linked to the smart contract linked to the DAO itself. Once users start investing in the project, they can earn special rights: votes, feedback and possible goals for future ideas.
The inner workings of any DAO project will be unique because of the way smart contracts are written. As such, the best way to learn more is through examples.
Examples of DAO projects
For this section, we will focus on highlighting existing and successful DAO projects.
I think for many people crypto as a whole still feels like a foreign topic. So the best way to learn is to see how something is implemented in a realistic scenario.
Generally, a DAO falls into categories such as protocols, philanthropy, publishing, social media, and others. But in general, the possibilities are endless. You can browse the DeepDAO directory site to get a much broader view of active DAO projects.
The directory also includes examples of proposed changes to the project and how members voted for them. Alternative, DAOList offers a similar service, although it does not include sample proposals.
And now let’s look at a few specific projects.
Julian Assange is one of the world’s best-known journalists, as well as the founder of WikiLeaks. After publishing several articles on the war crimes in the Afghan war, both Julian and WikiLeaks faced adversity. Namely major credit card companies and payment processors stopped validating donations for the WikiLeaks platform.
And over the years, the platform has had to innovate in new ways to accept support and donations from people who want to help.
One of those ways was cryptocurrency.
And in recent history, WikiLeaks has gone one step further. On December 10, 2021 – Julian Assange collaborated with the digital artist Business suit to form the AssangeDAO† The DAO is based on a dynamic NFT project called ‘censored† In particular, the dynamic NFT is called Clock – a representation of the number of days Julian Assange was imprisoned.
The total money raised for the DAO was: over 17,000 Ethereum, which translates to about $50 million US dollars. When the fundraising part was over, the AssangeDAO itself bought the NFT. As such, the money raised through the project goes directly to the WikiLeaks fund.
This project shows how grassroots movements can deal with uncertainty in situations controlled by external sources.
One of the misconceptions about crypto is that it is only useful to buy things online. And projects like VitaDAO do a pretty good job of proving such a case otherwise.
VitaDAO specializes in providing the resources for biotech scientists to attract money for research into longevity† But, unlike traditional grants or government-backed investments, VitaDAO creates an IP NFT for every project it invests in. IP-NFT stands for Intellectual Property – Non-Fungible Token.
And there are quite a few benefits that IP-NFT offers:
Raise funds for your project without forming a foundation or registering a patent. Involve people directly in your research, including real patients. Likewise, because the project is built in an open space, you get a better exposure. Manage progress and research submissions through an open-for-all approach.
And this also has long-lasting implications for when the research bears fruit. Since the IP-NFT is still tied to a DAO (and a smart contract), the peer members can decide on pricing, availability, and further data exposure.
This is also the starting point forthe LAO” project. It is built to replicate the same functions (venture capital fund), aiming to promote and sponsor the Blockchain ecosystem.
The way it works is similar to what we discussed earlier. You can participate in the project by purchasing investment tokens with Ethereum. And, depending on the amount invested, earn special privileges, such as the ability to vote on which projects to support.
In addition, because “The LAO” works as an investment fund, you can also enjoy the proceeds. For example, if the project supported by The LAO makes a profit, you may be eligible for a refund. This depends on the number of LAO Units you own or have invested.
One of the unique aspects of Blockchain is that all transactions are public.
In general, your identity is kept and hidden, but transaction history is not. This has some benefits, such as making it easier to identify fraudulent transactions. However, there are real cases where you want your trades untraceable.
Enter the Tornado Cash DAO protocol.
This protocol provides a fully decentralized solution for conducting private transactions on the Ethereum network. And in practice it is quite easy to use:
Connect to your wallet, make an ETH deposit and enter a secret note. Tornado Cash creates and implements a custom smart contract that accepts withdrawals. You use a new wallet to withdraw the deposit from the smart contract.
This is also called the Zero-knowledge proof (ZKP) method.
And when it comes to Tornado Cash, this is compounded by the fact that the service works like a DAO.
Even the Tornado Cash developers cannot interact with the smart contracts because it lives entirely on the blockchain.
I think the picture is pretty clear. Where a traditional organization emphasizes a hierarchical structure, a DAO is flatter and more democratic in nature. Likewise, the voting rules do not depend on one person, but on the people who invest in the project.
Here are some other exciting DAO projects to check out:
Metaverse DAO: Offers a unique Farm-as-a-Service approach. Earn crypto rewards from a range of blockchain networks while maintaining one native token.Aave: Aave is a DeFi protocol that you can use to borrow or lend crypto in exchange for collateral for digital assets.blocker: A cryptography-based media platform that emphasizes user-generated content. The platform has its own token (BXR) that forms the backbone of all ads on content pages.Aragaon: A platform that specializes in providing open source tools for building and deploying DAOs. Contains tools to make governance more accessible.
The space is still ripe for innovation. And I expect that in the coming years we will see much more creative ways in which a DAO can be used for decentralized business.
The future of the DAO concept
We are still in the early stages of Web3 development. It’s fair to say that DAO customization hasn’t gone mainstream yet. But I would attribute that to a somewhat difficult barrier to entry. Not everyone has experience writing code-based smart contracts. And, least of all, have the capacity to sustain them at scale.
But as we saw in this article, certain projects can attract a somewhat monumental following. And people aren’t just interested because a project is for a good cause. The idea of democratic governance is attractive. And DAOs make it accessible for the average Web3 user to make their voices heard.
I expect that the structure of many of the open source projects will change drastically. At the moment, the foundation of DAOs is that anyone can join as long as they invest in the native token. However, if thousands of people negotiate the right course of action for a project, problems will eventually arise.