Compared with traditional companies, DAO is easier to access globally and has a lower barrier to entry. DAOs with similar tasks may need competing members. These competing members need to be motivated while ensuring that they are as transparent as possible, while not charging too much “rent” from the organization so that the organization can attract top members. On the other hand, the DAO may also need to develop rapidly to meet the needs of its members.
Original title: “A beginner’s guide to DAOs”
Original author: Linda Xie
Translator: Lu Jiangfei
What is DAO?
A Decentralized Autonomous Organization (DAO) is a group organized around a task that is coordinated through a set of shared rules implemented on the blockchain.
Compared with traditional enterprise projects, one of the greatest advantages of DAO is greater transparency, because anyone can see all actions and funds in DAO, which greatly reduces the risk of corruption and censorship. Listed companies must provide independently audited financial statements, but shareholders cannot understand the company’s financial status anytime and anywhere. In contrast, because the DAO’s balance sheet exists on the public blockchain, you can understand what happened to each transaction at any time, because the DAO has always been completely transparent.
Compared with traditional companies, DAO is easier to access globally and has a lower barrier to entry. Given the high transparency and low barriers to entry, even if there are DAO members who disagree with the rules and actions, the switching costs may be relatively low. DAOs with similar tasks may need competing members. These competing members need to be motivated while ensuring that they are as transparent as possible, while not charging too much “rent” from the organization so that the organization can attract top members. On the other hand, the DAO may also need to develop rapidly to meet the needs of its members.
Comparison between DAO and traditional companies. Source: Aragon
The main purpose of this article is not to introduce each encrypted DAO in detail, but to outline from a higher level what is DAO, why DAO is so interesting, and to show some potential use cases of DAO.
DAO example
So far, the most notorious DAO may be The DAO, which was launched as a decentralized venture capital fund in April 2016. Many members contributed ETH to the organization and received DAO tokens. In return, the tokens can be used for voting To decide which projects to allocate funds to. The DAO raised a total of 150 million US dollars worth of ETH, but 60 million US dollars were stolen by hackers, but the “interesting” thing is that even though The DAO, a decentralized autonomous organization, has failed, people can still see everything happening. Transactions, because these transactions are recorded on the public blockchain and will never disappear. Unfortunately, the hacking incident has caused many people to have a lot of negative impressions and doubts about the decentralized autonomous organization, the term “DAO”. In fact, the DAO is an extremely powerful form of organization. It is expected that in the near future, the DAO Will become active again in the encryption industry.
In fact, encrypted projects themselves can be considered as a form of DAO. If these projects rely on decentralized governance to manage, it means that token holders can vote on the development direction of the project or various parameter settings, rather than by A centralized team decides individually—encrypted projects with these characteristics can be regarded as DAOs. For example, holders of MakerDAO tokens who mint decentralized stablecoins can vote for the governance system, and can also vote for system parameters such as fees.
Shows an example of MakerDAO executing a proposal
Another example is Curve DAO, a decentralized autonomous organization that has established an automated market maker (AMM) that incurs fees and provides and shares revenue for token holders who lock their tokens. The longer the Curve Token (CRV) is locked, the more voting rights and rewards that DAO members will receive. Unlike traditional companies that distribute profits in proportion to equity, Curve DAO, a decentralized autonomous organization, can weight voting rights and income shares according to the length of investment time of token holders.
Curve DAO
Token pledgers can directly control DAO assets through tokens. They can be anonymous and can live anywhere in the world. These anonymous token pledgers can gather through the network to vote for the distribution of DAO assets for anything, including hiring employees-this is what is happening today. DAO can be composed of many real-name and anonymous members, who can become legally hired employees based on the reputation of the community. For example, Empty Set Dollar (ESD) DAO recently paid its community manager Lewis a salary of $180,000, which Lewis said was the highest paid position in his entire career. Some other blockchains, such as Tezos and Decred, have similar systems to reward contributors for their work.
We have also seen some decentralized autonomous organizations created to fund investments or grants. Let’s look at a few examples:
Moloch DAO is a DAO that promotes the development of the Ethereum ecosystem through incentive funds. If the final overall decision of the DAO is not agreed, the organization allows people to withdraw funds “for free”. The MolochDAO contract has been forked multiple times to create other DAOs.
MetaCartel Ventures is a for-profit fund that mainly invests in the field of decentralized applications (dapps), and is an early investor in many well-known crypto projects (including Zapper and Rai). The fund members are composed of experienced BUIDLers in the crypto community .
Similarly, The LAO is another decentralized autonomous organization formed by Ethereum enthusiasts. The organization mainly invests in some crypto projects, such as Boardroom and Aavegotchi.
MetaCartel Ventures and LAO are both more typical examples of decentralized autonomous organizations. They both have access to a strong encryption ecosystem “deal flow”, and even perform better than many venture capital funds because of the The founders all hope to cooperate with DAO members, and DAO itself represents the spirit of encryption.
In addition, we also see some decentralized autonomous organizations that are satisfied with more specific investment opportunities, such as NFT art and virtual game projects. For example, Yield Guild Games is a DAO based on the “play-to-earn” business model. Investors can buy NFTs in games such as Axie Infinity, League of Kingdoms, and The Sandbox.
FlamingoDAO is a for-profit DAO focused on NFTs. They have been actively investing in NFTs. Recently, they spent 605 ETH (valued at approximately US$7.62 million) to buy the rare CryptoPunk NFT, which also attracted attention in the industry.
Some DAOs are organized around work, such as Raid Guild, which is a decentralized BUILDer and designer collective organization, focusing on the development of cryptocurrency products; MetaFactory is a decentralized autonomous organization centered on fashion and culture, mainly for sales Some creative products.
DAO tools
There are many tools for creating and coordinating DAOs on the market, such as Aragon, DAOStack, DAOhaus, and MyCo, so members do not have to build everything from scratch.
The figure above shows an example of creating DAO in DAOhaus
There are also tools like Snapshot, which are mainly used to manage the voting proposals of token holders. These tools make it easier for members of the organization to view proposal details and voting status.
The figure above shows the voting page of the Year.finance proposal on Snapshot
In some decentralized autonomous organization projects, you can even buy and sell governance votes, such as Automata. However, this concept may be controversial because it can cause those with large amounts of capital to control votes, but I believe that the creation of such a lending system is inevitable and will only lead to a more stable project governance system.
In terms of indicators, there are some decentralized autonomous organizations that track the DAO ecosystem, such as Deep DAO. Although the current data provided by the organization may not be comprehensive, at least many key indicators can be viewed, such as the number of members, proposals, and voters. Participation etc.
The figure above shows some key indicators of decentralized autonomous organizations on Deep DAO
Future use cases
There are many interesting use cases for DAO, and we are just beginning to design. With the help of DAO, we can quickly test the governance system to understand which governance methods are effective and which governance methods are ineffective. For example, in the future, there may be a DAO that makes decisions about the future of the organization, allowing members to place bets in the prediction market, and then use the results of the prediction market to make action decisions.
When the DAO itself serves many different protocols and receives governance tokens in return, we will also see “meta-governance”, a decentralized autonomous organization that can not only vote on its own, but also accept delegates, representing Other decentralized autonomous organizations vote.
Let’s take a look at a potential anonymous DAO use case: all members of this decentralized autonomous organization can be anonymous. By building a reputation in the DAO, they don’t have to reveal their identity, which means that each member can Work in a more level playing field and make it easier for DAOs to reward individual contributors, rather than cater to members of organizations with a large number of “fans” and higher visibility.
Another interesting use case of DAO is “shared” NFT art. For example, each member of an organization can vote on different attributes of an artwork and change the overall artwork according to each attribute.
potential problems
Although DAOs are a powerful way of organization, they may also have potential problems. After all, they are not an ideal system for everything. Although DAO can use code to replace all aspects of legal contracts and save a lot of operating expenses, in some cases, in addition to the DAO rules outlined in smart contracts, decentralized organizations and organizational members may not be able to obtain the necessary laws protection. In addition, although some DAOs may also form legal entities behind the DAO, if the control of the DAO becomes centralized or vaguely defined, problems may also arise. It is worth mentioning that on March 10, the U.S. Senate of Wyoming passed the first committee hearing and approved Bill 38, which was introduced in January 2021. The bill aims to recognize the legal status of decentralized autonomous organizations, and Give them limited liability company (LLC) capabilities.
Depending on how it is set up, it may be more difficult for a decentralized autonomous organization to coordinate and act quickly compared to a centralized leadership model (for example, a company’s CEO can make quick decisions when necessary). However, DAO can actually solve these problems, such as setting a decision-making quorum to reduce the length of decision-making, and setting DAO members’ decision-making response requirements, and so on. This means that when many decisions are to be made at the beginning of the organization, some members may have more centralized power, but the DAO will gradually decentralize over time. This is the so-called ” Progressive decentralization”.
On the other hand, DAO “voters” also have some potential problems, such as: not all members want to vote (this is what we often call “voter indifference”), or the qualifications and level of some of the members who participated in the voting are actually not up to the standard. . In this case, there may be “voters” who authorize their votes to members of organizations who are more aware of the situation and actively participate in voting, and these members are also in line with the wishes of the “voters.” These voting trustees are sometimes called “protocol politicians” because they often fight for the authorization of DAO members to vote, similar to politicians in the real world. Therefore, we may see the emergence of some agreement lobbying groups, which will influence the decision-making of “agreement statesmen.” Not only that, in the future we will even see decentralized organizations directly participate in lobbying and become the main political institutions in society.
Finally, there is another problem. If the membership of a decentralized autonomous organization is too open, it may lead to a decline in the internal quality of the organization and more and more “noise”. However, this problem can be solved through organizational screening, or setting a minimum token holding amount, etc., to ensure that each DAO participant shares the risk, and ultimately inspire the organization to succeed.
Information sharing
If you want to know more about DAO, you can read the article by Ethereum co-founder Vitalik Buterin:
“DAOs, DACs, DAs and More: An Incomplete Terminology Guide”, you can also share your thoughts on DAO or project information on Twitter @ljxie.
Thanks to Will Warren, Jordan Clifford, and Brian Flynn for reviewing this article.
Disclaimer: Linda Xie is the managing director of Scalar Capital Management, LLC. Scalar Capital Management, LLC is a crypto asset investment company focusing on ETH and Ethereum tokens. This article is not investment advice.
Source link: linda.mirror.xyz
