DAO, what is it? Find out what a DAO is, there is more and more talk about this type of governance. So, what are its particularities?
DAO, a governance system often used by DeFi projects and if now a country used it to get out of a crisis?
Could this system of governance bring a country out of the crisis, or is it only a useful system of governance for decentralized finance?
What is striking in the current DeFi news is that the most used mode of governance, the DAO, can be considered to save a country.
DAO, what is it? What exactly are we talking about?
DAO = Decentralized Autonomous Organization.
In fact, we are talking about a type of organization that was designed to be automated and decentralized. It acted as a form of venture capital fund, based on open-source code and without a typical management structure or board of directors. To be fully decentralized, the DAO was unaffiliated with any particular nation-state, though it made use of the Ethereum network.
Why make an organization like the DAO?
The developers of the DAO believed they could eliminate human error or manipulation of investor funds by placing decision-making power into the hands of an automated system and a crowdsourced process.
Fueled by ether, the DAO was designed to allow investors to send money from anywhere in the world anonymously. The DAO would then provide those owners tokens, allowing them voting rights on possible projects.
In summary, here is the definition given on Wikipedia:
A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC),[a] is an organization constructed by rules encoded as a computer program that is often transparent, controlled by the organization’s members and not influenced by a central government, in other words they are member-owned communities without centralized leadership.
This governance system is widely used by decentralized finance projects. It allows for a mode of governance that is based on the community. Both big and small decisions are taken during votes made possible, in general, thanks to a token.
A DAO, or Decentralized Autonomous Organization, is a type of organization that is run through smart contracts on a blockchain network.
This means, in short, that its organizations are decentralized, i.e. they are not controlled by a single entity. They operate on the basis of a set of rules encoded in smart contracts. The rules and decision-making processes of a DAO are transparent and open to all members, and are executed automatically by the smart contracts on the blockchain.
How a DAO works?
As we’ve just seen, a DAO (Decentralized Autonomous Organization) is a decentralized governance structure that uses blockchain technology to allow members to make collective decisions about the management of funds and activities of the organization.
DAO members can vote on proposals using participation tokens, which give them a voting weight proportional to their token ownership. Voting results are recorded on the blockchain, ensuring immutability and transparency of decisions. DAOs can be used for a variety of purposes, such as community project management, decentralized corporate governance, and decentralized finance (DeFi).
Examples of companies that use this governance model:
There are many companies and organizations that are using or exploring the use of DAOs. Here are a few examples:
MolochDAO is a decentralized organization that provides funding for Ethereum-based projects. It operates on a token-based voting system where members can propose and vote on projects to fund.
Aragon is a platform for building and managing decentralized organizations. It allows users to create and manage their own DAOs on the Ethereum blockchain.
Gnosis is a prediction market platform built on the Ethereum blockchain. It uses a DAO to govern the platform and make decisions about its development.
MakerDAO is a decentralized organization that maintains the value of the Dai stablecoin, which is pegged to the value of the U.S. dollar. It uses a combination of smart contracts and a token-based voting system to govern the organization.
Ocean is a data sharing protocol which leverages the power of DAO, allowing data providers to monetize their data and data consumers to access high-quality data.
These are just a few examples of the many companies and organizations that are using or exploring the use of DAOs. As the technology and understanding of DAOs continue to evolve, it is likely that we will see more and more companies and organizations adopt this decentralized model of governance.
But some ask the question, certainly rightly, could this type of governance be applied to a country?
Let’s take Sri Lanka as an example:
Sri Lanka is currently on the brink of collapse. Inflation is rampant. This has pushed the country to increasingly worrying levels of poverty in recent days.
Added to this is the shortage of essential commodities such as fuel, gas, and even food.
The Sri Lankan rupee has also lost half its value against the dollar. This situation has been going on for almost three months. It is worrying because it makes the import of foreign products very expensive. Of course, the authorities are finding it difficult to cope.
So, what if in this context, the DAO became the solution to get the country out of the crisis in which it finds itself?
In fact, as things stand, there are many voices calling for a DAO system to give Sri Lanka a chance to emerge from its crisis.
In fact, Justin Sun, the founder of the Tron Network wrote on Twitter that “Sri Lanka is officially in DAO mode.” While some people oppose this concept, others approve and hope that the DAO will solve things.
Of course, in reality, at present this is only a dream. Indeed, in any case, even if Sri Lanka decided to use this type of governance, it would not happen overnight.
It would require constitutional reform and a complete overhaul of the country’s laws. As a result, it seems impossible for the DAO to take over the governance of the country at this time. However, it appears to be a good solution.
Sri Lanka’s rampant inflation is pushing the country towards a poverty line that is becoming worrisome for institutions around the world. At a time when various solutions are being put in place to save the Sri Lankans, many people are recommending the use of DAO.