- A beginner’s guide to DAOs
- DAOs, DACs, DAs and More: An Incomplete Terminology Guide
A few months ago, I started seeing tweets about NFTs and at the time I didn't really know anything about them. So I started doing a bit of research and quickly fell into the 🐇🕳. Now, NFTs are everywhere. But one rabbit hole often leads to another and right now I'm fascinated with DAOs.
I'm still scratching the surface of it but hopefully, we'll learn a thing or two together on this week's ONE THING.
Let's get to it.
What are DAOs?
- DAO which stands for decentralized autonomous organization, is a group organized around a mission that coordinates through a shared set of rules enforced on a blockchain
- It runs on a blockchain and gives the decision making power to the shareholders instead of the executives
- Basically DAO is like a company that doesn't have managers. Instead of having a top-down hierarchy, anyone with tokens have the governing rights and share all of the upside
Example of DAOs
- Crypto projects can be considered DAOs if they are managed by decentralized governance. One of my favourite example is The DAO.
- The DAO is a decentralised venture capital fund where members contribute ETH and received DAO tokens which they can use it to vote on which projects the funds should be allocated to
- Unlike traditional funds where the LPs invest money into a fund and the GPs invest into companies, investors in the DAO would be able to vote on proposals based on a pre-set rules, established in smart contracts
- Each person’s vote is weighted by the number of tokens they held, which was based on how much they had invested. If a proposed project received enough votes, the smart contract automatically triggered the investment of The DAO’s funds into the project’s ETH wallet
- The DAO raised $150million in ETH but unfortunately was hacked with $60million stolen. Those ETH would be worth $6.6 billion today if it weren't for the fork
The Bull Thesis for DAOs
- DAOs give group of people the means to pool resources in the pursuit of a greater goal. It gives them the ability to drive down cost significantly
- DAOs have a very strong network economy. Each time someone joins a DAO and uses the protocol, the tokens get more valuable. DAO gets stronger > More people build on top of it > DAO gets even stronger > Attracts more people and so on
- One of DAO's biggest unfair advantage is the community. The DAO community consists of bright enthusiastic individuals who genuinely want to contribute and make the DAO more valuable
Just like NFTs, the current stage only represents a small silver of their full future potential. It may be decades before we see a DAO taking on multi-billion dollar conventional hedge funds but who knows it might be closer than we think.
After going down the rabbit hole, I'm more confused than before, more curious than ever and can't wait to see what makers build in this space