DAO

A decentralized Autonomous Organization (DAO) is a community-owned company without any central authority. It follows a completely transparent and autonomous approach with smart contracts establishing the fundamental rules and executing the relevant decisions. DAO also offers the flexibility for public audits of the proposals, voting, and the smart contract code underlying the DAO. The governance of a DAO ultimately falls upon the individual members, who are responsible for making critical decisions regarding the future of the DAO. 

Smart contracts are one of the fundamental blocks of decentralized autonomous organizations. You can think of smart contracts as pieces of self-executing code that follow specific conditions. Smart contracts execute the transaction specified for particular conditions. The applications of smart contracts help in creating the fundamental rules for the operation of DAOS. With the flexibility of customizing smart contracts for different use cases, you can tailor different types of DAOs. 

Decentralized applications are smart contract-based programs or software with two key elements. dApps feature infinite users and are more than conventional financial applications. Decentralized applications ensure that participants remain anonymous and follow almost instant atomic transactions. Decentralized applications also include reputation-based alternatives with the facility for tracking nodes and maintaining the status of applications in nodes. Decentralized applications offer the benefit of autonomy through smart contract codes.

Automation agents are one of the significant elements in the discussions around decentralization. An autonomous agent does not imply the necessity of human involvement. You can find the example in a simple computer virus, which survives through replication from one machine to another without deliberate human actions. You can also notice the example of autonomous agents in decentralized cloud computing service, which starts through operations of an automated business on a virtual private server. 

Conventional organizations involve property or the work environment and a protocol for a group of individuals. The protocol could be divided into classes featuring specific conditions to enable participation or exclusion from the property set. Some of the other important components of the corporation include three different members: investors, customers, and employees. Decentralized organizations consider the same concept for an organization, albeit decentralized, by removing the traditional hierarchical structure.

Decentralized autonomous corporations or companies are a smaller subclass of DAOs. The notable difference between DAOs and DACs is evident in the fact that DACs can pay dividends. Decentralized autonomous corporations feature the concept of shares, which users can purchase and trade differently. Subsequently, the shares could guarantee continual receipts of rewards according to the success rate of the DAC. On the contrary, DAO users must make money by increasing participation within the DAO ecosystem. 

Holographic consensus is one of the proven solutions to the problem of resolving challenges due to conflicts between resilience and scalability in DAOs. It helps in ensuring faster local implementation of decisions in massive DAOs. Holographic consensus leverages a crypto-economic model for transforming conflicts between local and global opinions to achieve broader economic opportunities. The solution can serve as the foundation for using a limited number of users’ approval to reflect a majority’s approval.

The element of resilience in the context of DAOs would point towards the global opinion or general opinion of a DAO regarding a specific proposal. The opinion of the DAO about a proposal would indicate its ultimate decision or the output based on its decision-making protocol. Decentralized decision-making systems can claim improved resilience when all decisions in the DAO would align with the approximate opinion. Upon compliance with its global opinion, the DAO can ensure good decisions in all cases.  

DAOs work for a specific mission and use governance to drive decisions that empower the concerned mission. The decision-making systems of DAOs must grow to accommodate the rise in resource-allocation requirements. The scalability of a DAO refers to its ability to scale up the number of decisions it could implement effectively in a specific time. DAOs can be scalable when they can grow their decision-making and operation capabilities alongside increasing the number of agents.  

Relative majority in DAO is an essential concept for scaling up the decision-making power rather than using the concept of an absolute majority. The absolute majority in DAO refers to the majority of all the voting power in the organization. On the other hand, approval of the relative majority implies the majority of people who vote on a specific proposal within a specific timeframe. The relative majority voting approach offers the benefits of indefinite scalability while sacrificing resilience.

The basic design of a DAO relies on the approval of decisions with the assurance of an absolute majority. In some cases, the relative majority helps ensure that decisions on proposals align with an absolute majority of the DAO. Boosted proposals refer to the transition from the absolute majority to the relative majority model. You can create boosted proposals by boosting the conditions, which refer to certain criteria that proposals must satisfy to become boosted proposals to support DAO governance.

The practice of boosting proposals can help agents capitalize on the value of the community’s collective attention. It is difficult to obtain collective attention to enforcing relevant decisions on issues within a finite time. Therefore, the monetization of collective attention is an essential requirement for the operations of DAOs. You can gain the community’s attention through payments in native DAO tokens. Remember that you would only promote a proposal with the monetization of attention. 

DAOs cannot rely on fixed boosting rates for creating boosted proposals. Higher boosting rates could affect the decision-making process, and lowering the rates could increase vulnerabilities for attacks. Therefore, a credible boosting threshold must be protective and dynamic to keep up with the quantity of already-boosted proposals. You can rely on the exponential boosting threshold to restrict the number of decisions made by the relative majority at any time. Dynamic threshold also helps in stretching the number of simultaneously boosted proposals. 

The economic model in DAOs relies on two tokens for improving the boosting condition. First is the DAO native token, compensating voters for their efforts on specific proposals. The second token refers to monetization associated with boosting proposals to relative majority approval models. Both monetization approaches are different, and the token for boosting proposals can boost effectiveness and alignment. The two approaches for monetization rely on two different tokens and network effects.

The predictor’s network in DAOs is a network of individuals coming up with predictions regarding the outcome of different DAOs. Predictors have to back up their predictions by staking tokens and would receive rewards as compensation for good proposals. In addition, predictors could also lose their stakes when they support rejected boosted proposals. Predictors serve crucial value advantages such as identifying the line of difference between good and bad proposals. The primary motivation for predictors focuses on short-term economics.

Ethereum is the foundation for creating DAOs, owing to different value advantages. First, Ethereum follows a robust and distributed consensus mechanism alongside the advantages of immutable smart contracts. Ethereum-based smart contracts could also support the transfer of funds without needing third-party agents. On top of it, Ethereum has been driving a sense of collaboration within the community rather than fuelling competition. Ethereum is also tailor-made for DAOs with rapidly advancing support systems and best practices.

Delegation refers to the real-world process of representative democracy. The users would remain in power while allocating certain individuals in power to important tasks. In the delegation process, DAO members or native token holders would delegate their votes to users. The users selected in the delegation process must place their nominations to earn DAO member votes. The delegates selected in a DAO must work on safeguarding the protocol and staying updated. 

Automatic transaction governance is an essential highlight of DAOs as it ensures the automatic execution of transactions. It relies on achieving affirmative votes from a quorum of member votes. Nouns DAO is the perfect example of automatic transaction governance, which follows the automatic execution of transactions upon compliance with the desired quorum of votes and majority of affirmative votes. Automatic transaction governance in Nouns DAO also involves that founders have not vetoed the proposals. 

DAOs also rely on multisig governance to safeguard the decisions’ integrity on the different proposals. You could find thousand of voting members in a DAO. However, the funds are received in a wallet, shareable with around 5 to 20 active community members. Every community member selected for managing the DAO treasury is a trusted community member. Most importantly, multisig governance relies on allocating the treasury management task to public identities in the DAO community. 

Token-based membership is a model that depends on the type of token and ensures that it is permissionless. This membership model trades governance tokens in a permissionless approach on decentralized exchanges. One can also earn membership through facilitating liquidity or some other consensus protocol. Individuals can earn token-based membership by enabling access to voting through token ownership. Token-based membership is suitable for the governance of broader decentralized protocols and tokens.

Share-based membership in DAOs follows a more permission-approach, albeit while maintaining open accessibility. The prospective members could help submit a proposal for joining the DAO, offering a tribute of a certain value. It can help ensure that tokens or efforts serve as contributions and shares that would provide direct voting power to owners. The flexibility for exiting share-based DAO with their share of the DAO treasury offers a significant value advantage for members.

Reputation focuses on representing proof of participation alongside enabling voting power within a DAO. Unlike token or share-based DAOs, reputation-based DAOs don’t confer ownership on the contributors. The reputation of DAO members depends on their participation. No one could buy, transfer or delegate reputation in the DAO. On-chain voting is permissionless, and prospective members could enable proposals for joining the DAO. This model focuses on receiving reputation and tokens through contributions to the community.

DAO operating systems refer to the platforms on which you can create DAOs. DAO is an approach to creating digital organizations by incorporating code on blockchain networks. As the demand for DAOs has been increasing profoundly, the DAO community needs new tools for supporting the development, management, and scalability of DAOs. DAO operating systems have come up with the functionalities of supporting steps starting from the development of DAOs to the management and automation of expenses.

Protocol DAOs are notable DAO examples for the governance of a decentralized protocol like borrowing or lending applications, dApp, or decentralized exchanges. Popular examples of protocol DAOs include MakerDAO, Yearn Finance, and Uniswap. MakerDAO uses smart contracts for enabling a credible DeFi application for lending and borrowing cryptocurrencies. MakerDAO utilizes the MKR governance token for safeguarding the basic principles of DAOs. The MKR governance token can help vote on changes to the Maker protocol.

Investment DAOs or venture DAOs refer to the decentralized autonomous organizations which can pool capital for investments in early-stage web3 startups. The investment DAOs could target their investments towards new protocols and off-chain investments. Investment DAOs could help access different types of portfolios that are not accessible through traditional finance. Popular examples of investment DAOs include Krause House DAO and MetaCartel Ventures. Another notable example of investment DAO points at BessemerDAO.

Grants DAOs are another popular example of DAO variants and their flexibility in different use cases. The new Grant DAOs can help support non-profit donations while strategically deploying capital assets across the web3 ecosystem. Grants DAOs could evolve as charitable extensions for larger projects or completely different entities in the DeFi landscape. One of the popular examples of grants DAO is Aave Grants DAO, a community-led program for finding ideas and projects for Aave.

Collector DAOs focus on the members pooling their funds in one place for investing the funds in blue-chip NFT collections and other digital assets. Members of the collector DAOs would have a share in the collectibles based on their investment in the specific collection. One of the most interesting examples of collector DAOs is the Constitution DAO, which tried to purchase the United States Constitution. Collector DAOs also have their share of risks while offering more exposure to NFTs.

Service DAOs focus on creating a community of individuals and enabling better collaboration to drive efficiency in your services. The working of service DAOs involves passing off the revenue to the treasury or the general asset pool of the DAO. Service DAOs are generally registered as for-profit organizations, with the partnership agreement addressing the functions of the DAO constitution. It is also important to note that the creation of service DAOs involves a clear analysis of the types of services on the DAO.

Social DAOs, also called creator DAOs, emphasize the self-organizing community aspect of DAOs. These DAOs could bring like-minded individuals together. Social DAOs are more community focused and have barriers to entry with conditions such as ownership of a specific number of tokens. Invitations to join the group can also guarantee membership in social DAOs. Furthermore, NFT ownership could also grant you access to the social DAOs community. Some notable examples of social DAOs include Developer DAO and Friends with Benefits.

Media DAOs follow an alternative to the top-down approach in which content has to be produced with a centralized agenda. The objective of media DAOs revolves around reinventing conventional media platforms by developing content through community members. Media DAOs serve the same purpose as social media, albeit without the control of corporate organizations governing the profits. Many people in the crypto space and media network could obtain rewards from the DAO’s profit according to their contributions.