What Is A DAO (Decentralized Autonomous Organization)


What is DAO?

Since the concept of Blockchain has been introduced in recent years, DAO has emerged as the most incredible concept to align with it.

DAO/DAC, abbreviated as Decentralised Autonomous Organisation or Corporation, is the digital version of an organization where all rules and regulations are stated in the form of source code.

It was developed by Slock and is executed by various network nodes together through some consensus algorithm. The Blockchain serves as the platform for the organization to run. Ethereum blockchain is commonly brought to practice for writing DAO in Solidity Language. Effective coding on a blockchain removes the need for a centralized governing authority. Hence, they were coined “Decentralised” and “Autonomous.” DAO is meant to operate as venture capital for the decentralized space and Crypto world. 

Emergence & Setback of DAO 

The first stepping stone towards making the milestone by DAO was set in April 2016 after a crowdfunding campaign. In the initial phase of May 2016, a member of the Ethereum community announced the entry of Genesis DAO, which was built as a smart contract on the Ethereum ecosystem. At the start of 2016, members of the Ethereum community declared the introduction of an inceptive DAO named Genesis.

It was built on the Ethereum blockchain as a smart contract. The creation period witnessed an unexpected boom phase where it gained 12.7 Ether, showcased as the biggest crowdfunding in history. 

The objective behind the introduction of this organization was to build a decentralized business structure for both commercial and non-profit enterprises. Yet, it lacked certain significant aspects DAO was called off in June 2016 owing to iterative call vulnerabilities by bloggers and coding loopholes.

During this time, 3.6 million Ether worth $70million were stolen. Therefore, the funds were put into 28 day holding period under the terms & conditions of Ethereum, wherein the Ethereum network had been complexly forked to move the funds back to their original owners. Later this hard fork came into force to use the original Ethereum blockchain called Ethereum Classic.

There have been recent reforms in the DAO protocols towards their betterment which further made DAO more reliable

.• The staked Digi DAO (DGD) tokens were unstacked in the initial phase for the second quarter.

 • The ETH tokens which were locked up in the DAO were moved to the DigiDAO refund contract,

 • The refund could only be availed via My Ether Wallet, limiting itself to two transactions. 

Functions of DAO 

Proposal: The DAO token holder can submit a proposal anytime. This proposal defines the quantity Ether paid to the service providers in exchange for products or services.

DAO is expected to engage in various proposals over time.

Vote: The decision regarding the proposal is taken by casting a vote, staked by the Ether control by the members.

Development: since we are aware that DAO operates as a smart contract to deliver on a service of objectives for which the payment is made for the predefined installment period in a lump sum.

This further establishes the mutual relationship between the Ether holder and the service provider. 

Deployment: DAO can charge outsiders for using products& services as a part of the proposal. The revenue generated is then sent to DAO, contributing to the growth and expansion.

Working of DAO 

  • Framing the rules: The initial step in creating DAO is to prepare, design, define, and establish protocols for governing the entire crypto ecosystem. The rules and regulations so formed are stored in the form of a smart contract that is open, transparent, and immutable.  
  • Funding: After the required establishment of rules, the need for funding comes in an active role. The funds are raised through some crowdsource funding mechanism by issuing shares/tokens in exchange for money.
  • Such funding transactions are done in just real-time, unlike the period of 60 days in a traditional organization setup. Funding also contributes to the expansion of the network as far and widely as possible by providing certain rights and privileges to the members through tokens.
  • Becoming Autonomous: Following specific deployment, DAO has emerged as a completely autonomous body, i.e., free from external control. Everyone holding DAO’s native tokens owns a corresponding proportional stake.
  • The action or votes in the DAO are represented by some form of a Blockchain transaction, whereas Ethereum addresses represent members. Such addresses are owned by a robot, human,
  • IoT devices, or even another DAO, makes it a seamlessly automated and full-fledged mechanism.  
  • The token provided to each member represents the share of DAO, which is used to vote for decision-making. The volume of tickets in the address is directly proportional to the intensity of control in the Blockchain. Under this system of DAO running in the Blockchain, the democratic approach, the power of wilful delegation of authority, exists.

This majority voting system holds both pros &cons. The decision-making and funding serve as a significant advantage, whereas the existence of the same delays the decision-making process prolonged and drawn-out.

Prominent Working Examples of DAOs

With the comeback of DAO with more secure and subtle protocols, it gained the most comprehensive market base in the crypto ecosystem adhering to the following digital platforms:

  • Dash:  It is the most comprehensive and well-known project in the crypto environs, founded in 2010 by Evan Duffield. Initially, it was meant to be a fork in the Bitcoin space. In January 2014, it was improvised to create Xcoin, which gradually became Dash.
  • It consists of standard and primary nodes. The controller nodes are responsible for two critical functions of Dash – Scalability (Instant send) and Privacy (Private Send).
  • The funds generated out of Dash are distributed as follows – 45% to the miners, 45% to primary nodes, and 10% to DAO governance.
  • Digi DAO:  This is recently dissolved in the crypto community by a wide vote to build DGX on the Digi DAO platform. There have been more than 50 projects submitted on this platform, out of which Neutral 4G, Bullion IX, and Sesocio.com are notable. Digital also funded projects related to marketing, off-ramp, on-ramp, community management, exchange integration & Uniswap liquidity.

Apart from these two prominent platforms, DORG, Augur, Steem, Aragon, Colony, etc., have made DAO expand quickly.

It is evident now that no such concept can claim to be fully decentralized & autonomous as the governance rules vary within the network. Yet DAO can be assumed to be the most architecturally, geographically, and logically decentralized compared to similar concepts.

Owing to its specific characteristics, DAO witnessed significant growth & expansion. In 2019, UK-based Nexus Mutual (the first decentralized mutual insurance) was corporate, resulting in the widespread acceptance of DAOs. The DAO has set benchmarks and lessons simultaneously for other invasions to operate and sustain in the long run.