This article 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.
In recent months, the hype around cryptocurrencies and Web3 has been huge. And while most people are already familiar with NFTs, another term 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 organization’s goal) and collect funds (native tokens).
Of course, you may wonder how a DAO differs from a traditional business contract. First, the people in a DAO participate in the collective decision-making process. Any changes proposed within the DAO community must be approved by those 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 look at how they work.
- 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 a vote decides the changes.
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 with the contract’s address.
- 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. 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 how smart contracts are written. As such, the best way to learn more is through examples.
Examples of DAO projects
This section 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 protocols, philanthropy, publishing, social media, and others. But in general, the possibilities are endless. You can browse the DeepDAO directory site to get a 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 and the founder of WikiLeaks. After publishing several articles on the war crimes in the Afghan war, 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, 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 provides the resources for biotech scientists to attract money for research into longevity†. Still, 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, you get better exposure because the project is built in an open space. 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.
In 2016, several Ethereum users launched what was then known as “the DAO. The project attracted a large following while breaking countless records for a public crowdfunding campaign.
Unfortunately, the project experienced a critical security vulnerability and eventually saw its demise.
If you want to know more, I recommend reading Laura Shin’s article in Forbes Magazine†.
This is also the starting point for the 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 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 in.
One of the unique aspects of Blockchain is that all transactions are public.
Your identity is generally 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.
A DAO is flatter and more democratic when a traditional organization emphasizes a hierarchical structure. Likewise, the voting rules depend not on one person but on those who invest in the project.
The future of the DAO concept
We are still in the early stages of Web3 development. It’s fair 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, we can 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 many open source projects’ structures 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, problems will eventually arise if thousands of people negotiate the right course of action for a project.