What is a DAO?

What is a DAO?

What is a DAO (Decentralized Autonomous Organization) MEWtopia blog piece by MyEtherWallet

By Kealii Naluai

3 min read

Key Takeaways:

  • DAO stands for Decentralized Autonomous Organization
  • DAOs allow for truly decentralized communities to form
  • No one person or entity controls a DAO
  • DAOs are run by smart contracts

Surely you’re familiar with the concept of a vending machine - the convenient machine full of goodies that serves as the middleman for your snacking needs. You pay the machine and it dispenses the snack you want. However, despite its autonomy, a vending machine still requires human intervention to function properly. Humans are needed to pay the electricity bills, check the inventory, restock the machine, collect the money, and so on. In essence, a vending machine is designed to function without humans, but it still requires them.

A Decentralized Autonomous Organization (DAO) is an organization that's run by code agreed upon by the people who created it, via smart contracts. Smart contracts can do just about anything if programmed correctly, such as deciding who to hire or asking for a raise without human intervention. This makes the organization self-sustainable and autonomous.

So. What do vending machines have to do with DAOs? Well, imagine if a vending machine was a DAO. Every instance where a human was required would be replaced by code. The vending machine would be able to automatically check its own inventory, and when supplies were running low, it would send a message to the server indicating which products needed restocking. A smart contract could also organize the automatic transfer of payments from the vending machine to a company account. This kind of setup not only reduces the need for constant oversight, but prevents tampering and fraud. Essentially, this is how a DAO functions.

DAOs also use smart contracts for governance. Big companies such as Apple or Walmart hold board meetings where shareholders come together to vote and make decisions for the company. In a DAO, there are no CEOs; once the members of a DAO submit their votes and a decision is made, the code of the platform is modified so that the entire “company” is immediately affected. This allows computers and code to handle much of the decision-making and routine operations required for a DAO to function. Shareholders can propose and vote on changes to the DAO, so any member can influence the development of the organization.

Typically, a DAO is launched with a few million tokens, with each token representing a vote. The only way to affect change within a DAO is by submitting a proposal to be voted on and going through a fair voting process. Using this model, the largest token holders wield the most voting power, giving the tokens a value and a purpose. In the case of our vending machine, if it made any profits, it would distribute all of those profits to the shareholders through its native DAO token. Also, DAOs often hire and pay developers with crypto within the autonomous organization. Community y’all.

Most importantly, the benefits of a DAO go beyond just financial gain. Perhaps the biggest benefit is that it's trustless, meaning you don't need to rely on a CEO, manager, or leader to make decisions for you. Take SporkDAO for example – the organization behind the ETHDenver conference and community event. Because they are a DAO, the code that runs operations will continue to function no matter what happens to individual developers or funding. That also means that a DAO can’t be shut down by external forces, such as government agencies, and it doesn’t need to be ‘based’ anywhere. Another cool thing about DAOs - they’re open source! This means anyone can view and improve upon the code. This results in more reliable and secure projects because other programmers can help identify and fix bugs.

Although not yet perfected, DAOs are an exciting development in the world of blockchain technology and their potential applications are far-reaching. From decentralized finance to social networks, DAOs offer a new paradigm for building decentralized communities and organizing collective action. Want to get in on the action? Enkrypt by MEW is your multichain answer to crypto. Whether you’re operating on Bitcoin, Ethereum, Polygon or Polkadot, we got you covered. Download Enkrypt and find a DAO that fits your needs today!

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