In late 2021, a group of crypto investors named Constitution DAO carried out a crowdfunding campaign on social media, attempting to purchase a rare copy of the U.S. Constitution at the Sotheby's auction. Although they lost the bid, they made an impressive record of raising about $40 million from 17,437 donors in just a few days. That was nearly impossible to accomplish if they didn’t run the campaign as a DAO — a Decentralized Autonomous Organization.
You might be wondering what a DAO is. In fact, it is another invention that leverages groundbreaking blockchain technology, just like Bitcoin and NFTs, the million-dollar Jpegs. Particularly, DAOs are revolutionizing how we organize communities, companies, and even countries: they allow you to connect and collaborate safely and fairly with strangers.
A DAO is a digital organization collectively owned by a group of like-minded people who shares the same purpose, from simply networking to crowdfunding (like Constitution DAO, as mentioned above) to even investing in digital assets. DAOs, self-explanatorily, have two key characteristics that make them different from your average Facebook group or any other online organization.
First, DAOs are decentralized and fully democratized: there isn’t a sole individual who holds the ruling power like a CEO or president in a centralized system; all members of a DAO make decisions collectively for the direction of their organization.
Second, DAOs are autonomous and transparent: DAOs are not governed by humans but by smart contracts — computer programs coded on blockchains, often Ethereum; they perform tasks automatically according to a set of rules and hold the built-in treasury of a DAO. And when something is on a blockchain, everyone can see it (technically, with a blockchain explorer.) “No one can change the rules except by a vote. If anyone tries to do something that's not covered by the rules and logic in the code, it will fail. And because the treasury is defined by the smart contract too that means no one can spend the money without the group's approval either,” the website of Ethereum explains.
In the physical world, you will get a student ID if you enrol in a school and a membership card if you join a loyalty club. The same applies to DAOs. To participate in a DAO, you will need some sort of membership. “It can be through token or NFT ownership. Well, let's say the group is a country, right? And basically, this NFT will be your citizenship card,” Wilhelm Detry describes. He co-founded Soju DAO, a rising social DAO based in South Korea.
Generally speaking, you will have to purchase the governance token of the DAO to become a member of it. That is also how DAOs keep themselves financially sufficient. “Funding of DAOs is primarily through token issuance; the protocol sells tokens to raise funds and keeps the DAO treasury filled.” Ben Knaus, CEO of a crypto management platform called Firepot Finance, states in an article for Forbes.
As mentioned before, the membership of a DAO usually comes in the form of a governance token, which not only represents your ownership of the DAO but also grants you the right to vote. In a lecture at the GBI Blockchain Academy Spring 2022, blockchain expert Dr. Milly Perry, the founder of DAO4DAOS, pointed out that once any member of a DAO submits a proposal to alert other members of the group, they can vote on it using their governance tokens.
Members of a DAO decide on various subjects together, from proceeding with a transaction to assigning important roles to fellow members. “We have three major committees within Orange DAO: governance, treasury and program. Each committee has three members. I'm one of the nine so-called committee members. For that one, you do need to vote,” Thomas Pun shares in a video call. He is the senior venture partner of the investment-focused Orange DAO; this DAO raised $80 million in funding last year and has supported 90 start-ups so far. “Say, hey, have a one-liner. Talk about your experience. Why are you interested in this role? And it can be put out as a proposal for the DAO members to look at it.” Then, the 1,400 members of Orange DAO can vote for the candidate they see fit with their governance tokens, Orange Tokens ($ORANGE). “Well, they have the option to vote. Not everyone votes,” Pun adds. Like many other DAOs, Orange DAO’s voting system is quadratic, which allows members with lesser tokens to have greater weight in decision-making. By doing so, a DAO can protect minorities and balance power.
Sometimes, a common goal is not enough to motivate everyone in the community to work toward it. As a result, a DAO has to encourage members to participate by providing incentives. The most common way is to reward contributors with tokens. “I get tokens when I do work for the fund,” says Pun, who works full-time for Orange DAO, “People can get compensated by the Orange Token. So the token is like our currency that incentivizes people.”
The potential of DAOs is promising and limitless. As someone who works for and lives on a DAO, Pun believes that DAOs and bounties are the future of work, “Maybe like ten years down the road, people don't necessarily join a company. They may join a DAO and actually do work. And the work may be fractional. So if I'm really good at, I don't know, interviewing people, I may do that for different jobs.” Fractional employment might become a trend if DAOs grow prevalent.
Still, it’s hard to tell what the future of DAOs holds because they are still in the early stage of development. “I think it may not be very suitable for big corporates to use DAO as one of their operating models. But maybe for a small startup, maybe they only have several co-founders,” says Cherry Koo, another co-founder of Soju DAO. She finds that many people are unfamiliar with DAOs and usually want to be led rather than take ownership. Detry understands Koo’s concerns; he recounts that many DAOs failed in the past two years because they didn’t have core members pushing them forward properly. But he also suggests, “DAO doesn't mean no leader in some way. It just means another way of operating and transparency.” Overall, he holds a more positive view on the prospect of DAOs, “I think DAOs actually can fit everything.”
One thing for sure is DAOs open new doors for communities to grow. Koo expresses that it is hard to “find a place where we can embrace different people from different countries with different cultural backgrounds” in South Korea, mainly due to language barriers; but with a DAO, they can. “We are also trying to expand to different regions,” she adds.
**********
Barber, K. (2022, July 12). WTF is a decentralized autonomous organization (DAO). Digiday. Retrieved March 27, 2023, from https://digiday.com/media/wtf-is-a-dao/
Brown, A. (2022, April 21). Crypto investors lose out in $43.2 million sale of rare copy of U.S. Constitution. Forbes. Retrieved March 27, 2023, from https://www.forbes.com/sites/abrambrown/2021/11/18/constitution-dao-crypto-ether-constitutional-sothebys-sale-auction/?sh=2468583e6ad4
Cointelegraph. (2022, September 23). Types of DAOs and how to create a decentralized autonomous organization. Cointelegraph. Retrieved March 27, 2023, from https://cointelegraph.com/daos-for-beginners/types-of-daos
Ethereum. (n.d.) Decentralized Autonomous Organizations (DAOs). Ethereum. Retrieved March 27, 2023, from https://ethereum.org/en/dao/
Hackl, C. (2022, November 9). What are DAOs and why you should pay attention. Forbes. Retrieved March 27, 2023, from https://www.forbes.com/sites/cathyhackl/2021/06/01/what-are-daos-and-why-you-should-pay-attention/?sh=68963e8f7305
Hertig, A. (2023, January 17). What is a DAO. CoinDesk. Retrieved March 27, 2023, from https://www.coindesk.com/learn/what-is-a-dao/
Knaus, B. (2022, October 27). Council post: The power of DAOs. Forbes. Retrieved March 27, 2023, from https://www.forbes.com/sites/forbestechcouncil/2022/10/26/the-power-of-daos/?sh=76a047856b4c
moreReese, & DJ. (2022, March 29). What are governance tokens? how token owners shape a DAO's direction. Decrypt. Retrieved March 27, 2023, from https://decrypt.co/resources/what-are-governance-tokens-how-token-owners-shape-dao
Orange DAO. (n.d.). Proposals (Submitting, Voting etc.). Orange DAO. Retrieved March 27, 2023, from https://orangedao.notion.site/Proposals-Submitting-Voting-etc-30254ceef9d34f99ad167fde27f3e5e2
Ramaswamy, A. (2022, August 12). Y Combinator alumni raise $80 million for DAO to back crypto startups. TechCrunch. Retrieved March 27, 2023, from
https://techcrunch.com/2022/08/23/y-combinator-80-million-web3-crypto-startup-venture-capital-dao/
Ruane, J., & McAfee, A. (2023, January 10). What a DAO can - and can't - do. Harvard Business Review. Retrieved March 27, 2023, from https://hbr.org/2022/05/what-a-dao-can-and-cant-do
Soju DAO. (n.d.). A digital lifestyle and social DAO committed to expanding Korea's web3 ecosystem. Twitter. Retrieved March 27, 2023, from
https://twitter.com/sojudao_?lang=en
Werbach, K. (2023, February 21). How DAOs could bring Organizational Trust and Transparency. Knowledge at Wharton. Retrieved March 27, 2023, from https://knowledge.wharton.upenn.edu/podcast/wharton-business-daily-podcast/how-daos-could-bring-organizational-trust-and-transparency/
Global Blockchain Initiative (GBI). (2022, March 9). What are Decentralized Autonomous Organizations? | Dr. Milly Perry, DAO4DAOS [Video].YouTube. https://www.youtube.com/watch?v=RPNv0hOcYFE
Web3 Business. (2022, December 30). How to Govern a DAO [Video]. YouTube. https://www.youtube.com/watch?v=pSvevsYodzA&t=1673s.
C. Koo (personal communication, March 19, 2022)
W. Detry (personal communication, March 19, 2022)
T. Pun (personal communication, March 12, 2022)
************
Last Update: 04/28/2023
.svg)
