DAO stands for Decentralized Autonomous Organization. If you break the phrase down into its parts, a DAO is an organization meaning that it is an entity that coordinates people and resources. A DAO typically serves a similar role to organizations you are familiar with like corporations, cooperatives, non-profits, etc. Although, DAOs have unique properties that traditional organizations do not have.
No centralized body runs this type of organization. Also, they are not bound or restricted to a physical location and nor are their members. But rather, DAOs exist as smart contracts on the Ethereum blockchain. Their rules for membership and operation are determined by their programming. Members or participants interact in a decentralized manner through one or more smart contracts to coordinate the function of the DAO. Therefore, these smart contract based groups autonomously carry out their task through collective decisions.
What makes DAOs special?
DAOs are experiments in the coordination of people and resources. And moving forward, these groups will continue to play an increasingly larger role in the governance of public and private assets. The rate at which assets and infrastructure are building on the Ethereum blockchain doesn’t appear to be slowing down. As time goes on, expect to see more traditional assets being tokenized as well. And, DAOs can be used to effectively govern these new assets and protocols.
What does a DAO look like?
DAOs come in many shapes and sizes. You won’t find a one size fits all when it comes to DAOs. Accordingly, they don’t all look and act the same way. The earliest example of a DAO on Ethereum was The DAO. If you know anything regarding the matter, you know it didn’t end well. Its smart contract contained a vulnerability which allowed someone to steal most of the Ether held inside. The event resulted in a fork of the Ethereum blockchain and served as a wake up call for the community.
In terms of smart contract security, we’ve come a long way since then. Additionally, you could say the same for DAOs. It’s even possible that you’ve used a product or services owned and operated by one. Let’s explore a few examples of existing DAOs in the community to getting a better sense of their purpose.
Governing shared infrastructure
DAOs are commonly used to govern protocols built on Ethereum. This makes sense when you think about it. Because, how else would you reach a consensus regarding governance decisions without sacrificing the decentralization or security of the underlying protocol.
Arguably, MakerDAO is currently the most successful example of this type of DAO in the Ethereum ecosystem. Over 400 million dollars, or rather ~1.54% of the total supply of Ether, is locked into the MakerDAO credit system. And, its stablecoin Dai has essentially become the de facto currency in decentralized finance. As Maker token holder, you’re eligible to vote on issues which govern the way users borrow and use Dai.
Other notable governance DAOs include: DigixDAO, KyberDAO, dxDAO, and WBTC DAO. These entities operate under the simple premise that you, as a stakeholder, stand to benefit from a properly managed product or service.
Coordinating public goods
MolochDAO
You may have heard of this dark guild of Etherians working to fund Ethereum public infrastructure. Guild members summoned the Moloch in an attempt to harness the power of self-interest to better the Ethereum ecosystem. The group currently focuses on funding grants to accelerate the development of Ethereum 2.0. For more information, we recommend that you check out our deep dive into MolochDAO.
MetaCartel
MetaCartel forked Moloch’s code in order to create a DAO of their own. This group wants to improve your experience with decentralized applications. They won’t settle for anything less than mass adoption. And so, they’re putting their money where there mouth. By funding grants which accelerate the growth of DApps, MetaCartel aspires to create real value on Ethereum’s application layer.
HumanityDAO
HumanityDAO aims to create a registry of humans without central authority on the Ethereum blockchain. Existing members of Humanity, the organization that is, socially verify that you are human. And then, the registry associates your identity with your Ethereum address. The group hopes to solve the issue of fake accounts and experiment with governance concepts like universal basic income.