Hierarchy or centralized management is often known as the standard organizational structure. Over the years, companies and entities have been moving towards a more egalitarian structure where every person has a voice. More companies are experimenting with decentralized organizational structures. And the DAO governance model has lately been a catalyst of change.
Moreover, no entity can be fully centralized or decentralized; instead, they exist in degrees of both. In the crypto-verse, Bitcoin is the first DAO. Bitcoin fits the conceptualization of an organization due to the inherent core features: a multiagent system, identifiable boundaries, a purpose, and the agent’s efforts for a contribution.
However, DAO is in its embryonic stage and a somewhat murky territory. Is it worth the hype? The article provides insight into the dao definition, the different dao models, and the dao pattern. Let’s delve deeper.
What is DAO governance?
DAO is a community-led entity without a central authority. Traditional organizations follow a hierarchical structure with a governing body that makes critical decisions. DAO is not an application but a “firm” that follows a “flat organizational structure .” DAO is autonomous and transparent.
The community members collectively create proposals envisioning the organization’s future projects and then vote on the proposals. Further, the community accepts the proposals that garner higher votes and implement them according to the smart contracts.
How do DAO governance tokens work?
Now that we are acquainted with DAO meaning, let’s understand the dynamics. A governance token is a type of cryptocurrency that helps community members to voice their opinions in a blockchain project’s decision-making process. What’s the purpose of the tokens?
The fundamental purpose of the governance tokens is – to offer decentralized decision-making in the blockchain. How does a DAO governance token work? A dao governance token works on smart contracts. Who defines smart contracts? The community members define the rules with smart contracts and the core of Dao crypto. They lay the foundation of DAO and define the rules for the entity’s operations.
Transparency is the foremost benefit of smart contracts. The protocols are verifiable and auditable; most importantly, anyone can analyze them and comprehend their functions.
The next predominant question is – who funds DAO? A D O treasury gets funded by the issuance of tokens. Consequently, the token holders get voting rights to have a say in the project’s future developments. Finally, the deployment of DAO is after the initial round of funding.
What is a DAO business model?
There are different types of dao models. The following is a comprehensive list of daos:
1. Constitution DAO
The first example of a dao model in crypto is Constitution DAO. The Constitution DAO is DAO entailing a shared pool of resources; to make purchases and ownership of assets through digital cryptocurrencies, such as Bitcoin(BTC) and Ether(ETH).
The founders envisioned the project with a core community of members who initially persuaded people to purchase a copy of the US Constitution.
The DAO came close enough to achieving its goal. And the DAO managed to collect $47 million in ETH. Furthermore, the community sold the DAO artifact for $43.2 million; eventually, the auction house reduced the DAO’s bid, accounting for taxes and the costs of protecting and maintaining the US constitution.
However, the dao demonstrated the power of DAO governance and a significant milestone in decentralization.
2. Ethereum Service DAO
Ethereum Service DAO(ENS) is a significant governance model based on the Ethereum blockchain. ENS DAO is the DOA that governs ENS protocol. The airdrop and request accelerated the ENS DAO.
What’s the hype? What is an ENS domain? Primarily, an ENS domain is similar to a DNS domain. However, it provides a decentralized and secure approach to mapping your name to the Ethereum wallet address.
ENS domains end with .eth and can deploy smart contracts. Now back to the roots – $ENS airdrop. The $ENS token is an essential step to decentralize the ENS protocol. The ETH domain owners who owned a domain on or before 31st October 31, 2021, were eligible to claim ENS tokens.
In short, ENS DAO is a crypto-backed voting service on the blockchain. It uses ETH to assign proportionate voting power. Moreover, the proposals start on Discord, and the community members decide on voting for the proposals.
The ENS DAO follows a three-layer approach:
- Discourse of proposals
- Off-chain voting by delegates
- Voting on blockchain
The three proposals launched in the ENS DAO are
- Social Proposal: Modifications that do not on-chain activity that requires consensus, such as the proposal to chain royalty percentage on OpenSea.
- Executable Proposal: Proposals for smart contract operations through DAO wallets.
- Constitution amendment: Includes proposed modifications to the DAO constitution.
3. Friends with Benefits DAO
Friends with Benefits DAO is a group of like-minded Web3 people like artists, innovators, thinkers, and others. You can even term it – a decentralized social networking platform for web3 enthusiasts. The FWB token is a means to step into FWB DAO, connect with people, and achieve the envisioned goals.
The DAO has a limited supply of 1 million tokens. How does the DAO work? The FWB DAO governance model has transitioned from simple governance by consensus to multi-group-based.
In addition, the DAO uses Discord as a medium to communicate proposals and define a definitive structure. And Snapshot to achieve a consensus on the proposals.
4. JuiceBox DAO
JuiceBox DAO is an unaudited fundraising initiative that helps to raise funds from people through public smart contracts on Ethereum. The DAO’s governance model facilitates the development of a fundraising page and a funding structure.
Building a treasury and distributing tokens is a complex process, but JuiceBox DAO makes it simpler by managing the fundraising initiative from scratch. However, the governance model of JuiceBox DAO adopts a more centralized approach.
What is the purpose of a DAO?
A DAO is for disrupting the traditional organizational structure. Moreover, it adopts a bottom-up approach instead of depending on a single member or a group of members to lead the organization. So, every member has a voice and an opportunity to bring forth their proposals and contribute to the entity. Smart contracts dictate the governance of the DAO and, thus, create a decentralized system.
To illustrate, here are the following are the few benefits of DAO:
In short, the purpose of DAO can be either investing in NFT projects, buying historical artifacts, or buying a stablecoin, amongst others. To achieve its goals, the DAO community leverages several dao governance tools:
- Discord: Until a web3 version, Discord, the social networking platform, is the absolute choice for web3 enthusiasts to collaborate, discuss and structure their proposals.
- Snapshot: It is a robust tool for voting using the token and NFT ownership. The three types of voting are single, approval, and quadratic voting.
- Aragon: An open-source infrastructure, Aragon helps with templates and apps to launch your own DAO.
- JuiceBox: It is a fundraising tool that facilitates fundraising for cryptocurrency.
- Tally: A powerful platform to create and pass proposals, delegation, and power voting.
DAO governance token examples
Governance token is an essential element of decentralization, primarily associated with Defi applications. However, now metaverse DAOs have far-reaching effects.
The following are the dao governance token examples:
- Curve DAO
CurveToken is one of the first DAO governance tokens. Cur e DAO manages the operations of the Curve platform and emphasizes the importance of CurveToken, which facilitates a liquidity pool.
- Uniswap DAO
Uniswap, a leading decentralized exchange, launched its governance token – UNI – in September 2020. UNI pushed the exchange to affirm its roots, with substantial growth in trading volumes.
Compound manifests the potential of DAO in Defi influencing how users access crypto lending. COMP token, its native token, allows users to borrow crypto even in a decentralized environment.
Aave is the native token of the Aave protocol. A popular crypto lending platform, Aave operates on decentralization rules and enables direct interaction between the borrower and the lender.
MakerDAO is a necessary DAO in the decentralized world. Dai, its stablecoin, is stated to be the world’s first unbiased digital currency. The platform helps borrowers to keep volatile cryptocurrency as collateral for obtaining loans on stablecoins pegged to US dollars. In short, it demonstrates how decentralized governance can influence projects.
What is dAO in NFT?
One connection between DAOs and NFTs is – collector DAOs. What are collector DAOs? Collector DAOs help to pool to acquire and issue NFTs. Investing in a popular NFT project can be expensive, making it difficult for small traders.
How does Collector DAO help? It allows multiple individuals to collaborate and own a small stake in the NFT. To illustrate, APE DAO is an example of a collector DAO that factorizes the Bored APE Yacht Club NFTs.
Another connection is via community governance. DAO has immense potential to provide a platform for emerging NFT creators and groups of investors for gated community events, raise funds, and provide voting for smaller projects. Besides, there are early-bird benefits, such as discounts and lower fees for investors.
Is Ethereum a DAO?
While experts term Bitcoin as the first DAO, it heralded an era of many cryptocurrencies, including Ethereum. So, indeed Ethereum is a DAO. Technical advantages and cheaper transactions are the prime reasons to choose Ethereum as the DAO foundation.
Given that, Ethereum is the absolute foundation for other DAOs for the following reasons:
- Ethereum’s consensus is established and secure for other organizations.
- Smart contracts are irreversible once deployed. Hence, this helps the entities function on the earlier rules.
- Smart contracts can send and receive funds eliminating the need for a trusted intermediary to manage the funds.
- Above all, Ethereum is better at co-existing with other networks rather than overtaking them.
Dao 2.0 crypto, with its Midas touch, has spanned a variety of use cases: music, art, purchasing high-value assets, NFTs, and others. DAO swiftly overshadows traditional hierarchical organizations, with its naive, community-led ethos resting on the blockchain network. The ultimate aim of a DAO is a creator’s economy with direct and transparent connections rather than a one-size-fits-all model.
Wyoming was the first US state to recognize DAOs as legal entities in 2021, and CryptoFed was the first corporate entity. In the face of the challenges ahead in traditional and crypto markets, crypto dao is a crucial instrument to anchor resilience and empower the Web3 space.