Decentralized Autonomous Organizations (DAO), as the name suggests, is a centre-less authority that follows the structure of an entity where decisions are made by the token holders of the entity. DAOs gained prominence when cryptocurrencies took the market.
Bitcoin is the first DAO. However, it was not until the launch of ethereum that DAO gained the popularity and credibility that it enjoys today. In this article, you will read more about DAOs, their working and their relevance in the crypto world.
What Is A Decentralized Autonomous Organization?
A Decentralized Autonomous Organization (DAO) represents a group of leaders and activists who work as a governing body that makes decisions on various aspects in a decentralized manner. Most of the blockchain networks and cryptocurrency protocols function in the pattern of DAOs whereby their privacy and security are taken care of.
A DAO anoints its users as decision makers when they hold a certain percentage of the governance token of the entity. Thus, users are decision makers; they can determine the utility of the DAO as per their use cases, without the stronghold of any third party center.
How Does A DAO Work?
DAOs are divided into several networks and nodes and are operated by users from different parts of the universe. So how does such a system work without a centralized authority? That is where the role of governance tokens come to play.
DAOs achieve this goal through smart contracts. It is easier to change the code of the platform, which is in the form of smart contracts, according to the decisions made by a majority of token holders.
The voting power of each token holder is based on the number of tokens they hold. A user with more tokens can wield higher power. That means those investors who have invested more of their money and efforts to the entity are rewarded with voting rights to vote for the good of the platform.
If the user tries to work against the goodwill of the entity, they will lose their invested money. So no one will willingly jeopardize the goodwill of the entity. In this way the security and growth of the platform.
What Is The Relevance Of Decentralized Autonomous Organizations?
It is very important to know how DAOs benefit their their users more as compared to traditional, centralized authorities.
Decentralized Structure:
The most important point that makes DAOs relevant is its decentralized status. The users determine the path of innovation of the entity as per their use cases. No centralized authority regulates the working or formulates policies concerning the entity.
Participation of the Users:
The fact that the users or token holders can participate in the decision making process itself empowers them. The voting power is like a reward which empowers them to work for the best of the entity.
Community Feeling:
DAO works as a community of users relentlessly striving for its betterment. This community spirit is important as voters feel energized to make decisions, and right decisions are approved by the community.
Autonomy:
Autonomy is another important feature of DAOs. The power to decide on the in-house issues without the regulatory interference of a central authority or third parties who are not direct beneficiaries of the platform is the greatest bonus that DAOs offer its users.
DAOs are represented as smart contracts. They appear to the public as a group of smart contracts coded to work for a single goal. So the changes made to the entity are also easily visible and verifiable for the user public.
Transparency:
Transparency of the protocol is also an important benefit that makes DAOs relevant to its users. The DAO, in the form of smart contracts, are highly transparent and are verifiable for every stakeholder and user. This gives them a renewed identity and distinction.
Also, Read: A Beginner’s Guide To What DeFi Is And How It Works?
The Bottom Line
Decentralized Autonomous Organization, which first emerged in the field of cryptocurrency, has now become an acceptable working model in the online network.
Organizations are increasingly adopting this model to leverage the benefits that it provides. DAO is a model of functioning that is set to stay relevant in the coming years and expand to new realms through thoughtful innovations.
