What are Decentralized Autonomous Organizations (DAOs) in simple words

Imagine a business model that is not constrained by the state and the banking system, has no board of directors, its participants are distributed all over the world and have the right to make decisions and run the community equally.

Decentralized autonomous organizations or DAOs exist among supporters of a decentralized Internet and are already attracting significant investment or capital for management. In this article, we will look into what a DAO is, what types of DAOs exist, and how you can make money by participating in a DAO.

What is DAO

The idea of blockchain and cryptocurrencies, based on open source, transaction transparency and decentralization, led to the creation of the first DAOs. In general terms, DAO is a community that collectively coordinates the investments and work of a group of people to achieve common goals.

DAOs are managed by voting through smart contracts. Thus, a DAO is characterized by the principle of openness, because anyone can see the source code and the history of the decisions made. There is no traditional hierarchy in DAO, it is managed by all members. Every interested DAO member, with its tokens, can participate in decision-making and voting.

The organization is usually made up of a group of people united by a common idea, goals and objectives. There are a number of ways to join an open DAO:

• obtain tokens of the organization at the time of its creation;
• purchase tokens after the project has been launched;
• get tokens for providing services to the DAO.

DAOs work online, members can be located in different countries, they are not bound to each other and are coordinated through forums or Discord chats. All members of a DAO have the right to put forward proposals and vote for one or another solution, for example, changes in smart contracts, rewards for developers, budget allocation, etc.

A DAO usually has a fund that can be used to implement the community's ideas. What those ideas are and how to implement them is what community members vote on. Voting by members on blockchain allows for the allocation of budgets in a fair and open manner. In most DAOs, the strength of a user's vote depends on the number of tokens he or she has. At times, this leads to a conflict of interest, as the vote of one person holding more tokens can outweigh the votes of a group of people. This problem is solved by delegation, where the majority of community members delegate power to a few community members that they choose themselves.

Thus, two types of management have emerged in the DAO:

1) a model where any member can propose whatever changes they want, and the whole community votes in favor or against;

2) the community chooses representatives to make decisions, leaving all users to reject decisions and re-elect representatives.

At the moment, there is no clear legal and juridical regulation for DAOs, as their structure itself is still at an early stage of development and is being formed as a concept.

Types of DAOs

DAOs can be divided into several groups according to their areas of work and objectives:

Infrastructure DAOs

These projects offer a variety of ready-made templates, frameworks and smart contracts to create DAOs.

Example: Aragon, Colony, DAOhaus are projects that allow you to create your DAO on various blockchains, including Polygon, Ethereum or Harmony.

Investment DAOs

These are funds created to generate profits from investing in decentralized startups or selected tokens.

Metacartel is a DAO that brings together creators of decentralized applications (DApps). They help startups get to the next level with funding and operational support.

the LAO is a group of Ethereum enthusiasts and experts who support Ethereum blockchain startups; a member-driven fund allows them to pool capital, invest in projects and share any investment returns.

Grant DAOs

Similar to investment DAOs, members of grant DAOs pool capital to achieve common goals, but do not aim to maximize profits, but to work for the expansion of the infrastructure.

MolochDAO is where participants contribute capital with the sole intention of giving it all away to fund Ethereum infrastructure as a major digital public good.

Protocol DAOs

In these DAOs, projects issue their tokens after the protocol is launched and distribute them to the members of the organization. In this way, the project delegates control to its members. Communities in such DAOs do not decide 100% of what happens, but they can propose changes, vote to change the mechanics of how the protocol works.

Uniswap is the largest decentralized exchange by trading volume. In order to become a member of the Uniswap DAO, you need to purchase UNI tokens. On the management forum you can find proposals under consideration and take part in voting. There you can also see all previous proposals, talk to the community and put forward your own proposal regarding the operation of the exchange for consideration.

Service DAOs

These DAOs act as a kind of outsourcing platform in the DAO world. They bring together freelancers and job seekers in different areas of activity, ready to offer their services to crypto projects.

LexDAO, Kleros are decentralized communities of lawyers, a kind of arbitration services, whose services can be used if there is a disagreement in one DAO or between two DAOs.

VectorDAO united freelancers who offer their services for crypto projects in different areas of activity (design, development and other services).

Social DAOs

Social DAOs have evolved from forums and communities of interest. The members of these DAOs have come together around a common hobby, a common idea, and work together on them.

PleasrDAO is a group of digital artists who came together to invest together in NFTs.

Krause House is a DAO run by a community of basketball fans. They are united in their goal to create the first NBA team, run and funded by the fan community.

Meta Gamma Delta is a DAO that supports projects created and led by women.

Collector DAOs

Amid the massive development and adoption of NFTs, DAOs have emerged whose goal is to collect non-fungible tokens. Collector DAOs seek to evaluate the prospect of investing in a particular token, NFT work, or collection. Some DAOs have banded together based on interests in specific collections.

APE DAO supports the Bored Ape Yacht Club ecosystem.

herstoryDAO acquires and develops digital works by black women, marginalized populations.

Media DAOs

These DAOs work to create and monetize a variety of content, such as articles, or research.

Mirror DAO is a blogger platform. The project allows authors to publish content and monetize it.

Global Coin Research is a community of authors, analysts and investors of Web3 industry. The native GCR token is both paid to content authors as a reward and serves to pay for access to analytics.

How to make money

DAO is a brand new business model. To make money, you need to find a DAO for your interests, join it (buy a DAO token) and choose an earning model. In DAOs there is no salary in the traditional sense, but there are various ways of rewarding how much a person loves his/her business and invests in it. The way one earns depends on the project and on the type of the DAO.

With the technology that infrastructure DAOs offer, one can make money by creating their own project with the goal of attracting community, investment, and future income.

You can make money from market volatility by buying a community token. Most DAO tokens are traded on cryptocurrency exchanges. Once you see the potential of a DAO, you can invest in the tokens, or you can make money by trading, just like with all other cryptocurrencies. This way of earning is applicable, for example, to protocol, social and collector DAOs.

In investment DAOs, earnings are the distribution of investment returns among the members. It is quite difficult for the average person to enter investment DAOs. They are usually closed communities with a selection of candidates based on personal connections, reputation, high cost of entry or professional skills requirements. You can follow the activities of investment DAOs on their websites or social networks and buy tokens of the projects in which they invest.

You can offer your professional skills in a field in which you are competent by joining a service DAO. You can offer your services as a developer, designer, lawyer in the field of Web3 to the cryptocurrency community. By joining together with a group of professionals, accumulating successful cases and a list of partners, you can establish the DAO in the market.

The philosophy of DAOs is that people who are united by a common idea, whether in investments, business or art, will themselves be interested in the development of their project, and their project will bring them income at the expense of their main activity.

Popular DAOs

Infrastructure DAOs: Aragon, Colony, DAOhaus

Investment DAOs: Metacartel, the LAO, Syndicate DAO

Grant DAOs: MolochDAO

Protocol DAOs: Uniswap, Compound, Synthetix

Service DAOs: LexDAO, Kleros, VectorDAO, Dorg, Deep Work

Social DAOs: PleasrDAO, Krause House, Meta Gamma Delta

Collector DAOs: APE DAO, herstoryDAO

Media DAOs: Mirror DAO, Global Coin Research

A DAO is a blockchain-based form of social organization. A DAO is managed by all its members, who have equal rights and are united by the same idea and purpose. All financial transactions in a DAO are made through smart contracts, which means that anyone can see the history of transactions, and there is no need for intermediaries in decision-making.

Just as blockchain is based on the idea of decentralization, the idea of a DAO is the absence of hierarchy, transparency of transactions, and the absence of a management center. Crypto enthusiasts believe that the system of decentralized finance becomes the next stage of development of the global financial system, and the DAO is the business model of the future. In this case, DAOs can be compared to the new form of doing business that freelancers, individual entrepreneurs, the self-employed and private investors have evolved into. DAOs are moving toward formal recognition. In April 2021, Wyoming passed a law recognizing decentralized autonomous organizations as a new form of company.

Skeptics consider the idea of no hierarchy, no work in corporations, freedom of thought, and redistribution of power from management to each member as utopia. The lack of a legal component, uncertain legislation, and exposure to hacking reinforce this idea.

Despite the fact that DAOs are at an early stage of development, it can be assumed that sooner or later they will fall in line with the traditional management model, because under certain conditions DAOs can be much more effective.