A Decentralised Autonomous Organisation (DAO) is an organisation where rules are encoded in a computer program and is controlled by the members or community within the DAO, rather than a central body or organisation.
The financial transaction history of the DAO is recorded on the blockchain used to build the DAO.
The first Decentralised Autonomous Organisation (DAO) to be invented was ‘the DAO’ that was created in April 2016 by slock.it, a German startup, for venture capital funding.
The story of ‘the DAO’
The DAO, which used the symbol 0, was launched on April 30, 2016, as a form of crowdfunding. Its main objective was to organize non-profit and commercial business enterprises using a new decentralised blockchain-based business model.
In May 2016, the project crowdfunded through a token sale raising a whopping $150 million to become one of the biggest crowdfunding campaigns in history back then.
In June 2016, a hacker(s) identified a vulnerability in the DAO’s open-source code and used it to steal about $50 million in ether (ETH), which represented a third of the collected funds. Following the hack, the Ethereum blockchain performed a hard-fork to restore the stolen ether (ETH) funds. The original Ethereum blockchain was renamed Ethereum Classic while the blockchain that was formed after the hard fork maintained the name Ethereum.
The DAO was dismissed later in 2016 and its cryptocurrency delisted from the exchanges where it had been listed. How a Decentralised Autonomous Organisation (DAO) works
When Bitcoin was launched as the first blockchain, it was viewed as the first DAO since it includes a pre-programmed set of rules, and its functions are autonomously performed and coordinated by a distributed network of nodes through a distributed consensus protocol.
However, it is the introduction of smart contracts by the Ethereum blockchain that shaped the current DAOs. To function, the current DAOs first require a set of rules, which are programmed using smart contracts on a blockchain.
An internal cryptocurrency token that can be spent by the members of the organisation, and that can also be used to reward certain activities within the organisation, is created and incorporated into the smart contracts.
Once the smart contracts (set of rules and the token) are established, it will enter into the crowdfunding phase just like any blockchain project. During this phase, tokens are issued to people wishing to become DAO members, who purchase the token using other cryptocurrencies or fiat depending on the requirements of the DAO.
By purchasing the tokens, one gains voting rights and can actively participate in influencing the operations of the DAO.
By the time the crowdfunding ends, the DAO gets the members that make it fully autonomous and decentralised, since these members become responsible for making all the decisions through voting. At this stage, its creators relinquish control of the DAO to the token holders. If they want to have a say in the DAO’s future, they can only do so by purchasing the DAO’s token to become members, meaning they would hold equal voting rights as any other member in the DAO’s community.
Anyone who bought the DAO’s token can propose anything in regards to the DAO’s future, and the proposal is voted on by the rest of the members, where a majority consensus is required for the proposal to be adopted. The majority level required to reach a consensus can however vary depending on the DAO, but it is normally specified within the DAO’s code.
Also, to avoid the DAO being spammed with proposals, a target monetary deposit could be required for anyone wishing to bring forward a new proposal.
Characteristics of a DAO
•It is a decentralised organisation – Its functions are not controlled by any central body but rather by its members.
•Its functions are performed autonomously – The set of rules that are set out in the DAO’s smart contracts dictate what should happen, and when it should happen. An example is a certain number of majority of members is required for a proposal to be adopted. Therefore, in the event that the threshold is not reached, the proposal is automatically dropped; if the threshold is achieved, the proposal is automatically adopted.
•It is built on a blockchain network – The majority of DAOs being created on the Ethereum blockchain.
•It has a token or cryptocurrency- Used within the DAO for rewarding certain activities. Some DAO tokens have also been listed on exchanges for trading.
•Financial transactions are recorded on the blockchain network – making the transactions immutable and incorruptible.
•It has an open-source code – The codes that power the DAO can be accessed by anyone.
Examples of currently operational DAOs
- MakerDAO – This DAO is formed by the community of MAKER token holders, and was created to govern and Maker Protocol, which contains the smart contracts that power the DAI cryptocurrency.
- APl3 – This is a DAO built on the Ethereum blockchain. It provides a means for governing and insuring off-chain APls data feeds used by smart contracts. Its cryptocurrency is the APl3.
- Dash – This is a DAO that governs the Dash blockchain. Its cryptocurrency is the DASH.
- DxDAO – This DAO is built on Ethereum blockchain, and was developed to develop,govern, and grow DeFi products. It uses REP and DXD tokens.
Disclaimer: The content in this report is from the open source and for educational purposes only, therefore should not be considered as financial advice. We all know that the cryptocurrency market is highly volatile. Therefore, all the financial decisions should be made after doing your wide spectrum research.