Decentralized autonomous organizations (DAOs) have become popular in the cryptocurrency world. With traditional organizations failing to keep up with transparency, a more trusted structure was necessary to overcome these shortcomings.
The organizational structure of DAOs has provided a concept of participation in crypto entities and eliminated hierarchical decision-making without the total involvement of all members.
What is a DAO?
A DAO is an internet-native corporation that is owned and managed by its members. This type of company needs no management crew to oversee its operations. Instead, it is governed by a blockchain.
DAOs work in a decentralized manner. It operates with the aid of smart contracts, a set of code that executes a call whenever its criteria are met. This automated execution eliminates the need for third-party involvement in its day-to-day operations.
Contributing to a DAO is not as rigorous as joining corporate entities. In most cases, it simply involves just purchasing its native token. Owning a stake in DAO’s native cryptocurrency gives you voting rights and allows you to influence the company’s policies. It is also worth noting that the higher your claims in the organization, the more influence you have on the company’s operations and decision-making.
DAO (an investor-oriented capital venture) is the first decentralized automated organization created. Slock.It started a venture capitalist firm on the Ethereum blockchain in 2016. The DAO, however, was hacked, and the attacker made away with 3.6 million ($70 million) ETH, which was not recovered.
Types of DAO
There are many types of DAOs, but these are the main types:
Protocol DAOs: Protocol DAOs are designed to govern decentralized protocols. Protocols such as lending and borrowing, decentralized exchanges and other dApps are controlled by the protocol DAO. Some examples of Protocol DAOs are:
MakerDAO: This DAO uses smart contracts to enable users to borrow and lend cryptocurrencies at a set lending and repayment rate. It has a native stablecoin called DAI, which ensures that the amount of the stablecoin in circulation equals the amount of ETH in its vault.
Uniswap: Uniswap is a decentralized exchange (DEX). It has a native token, UNI, and owners of it have voting rights in the network. Uniswap uses the UNI for governance-oriented decisions in the exchange.
Yearn Finance: Yean Finance issues YFI to users and allows them to lend money to approved DAOs. It built a Coordinape to allocate funds and randomly reward users.
Grant DAOs: These DAOs contribute money for grant pools and nonprofit donations. They also decide how these funds will be distributed and what projects get them. Innovative DeFi projects get their funds from these types of DAOs.
Aave Protocol is one of the well-known Grant DAOs. They regularly give out a designated amount of funding to grow itDefiFi initiatives. With this protocol, those with excess money can give to those with little.
Investment DAOs: They are also known as Venture DAOs. It pools funds and invests in early DeFi and Web3 startups that traditional finance doesn’t provide.
Krause House DAO is an example of an Investment DAOs. Krause House DAO members participate in decision-making involving a National Basketball Association team.
Collector DAOs: This DAO was created for users to contribute funds and invest in acquiring priced NFTs and other collections. Some examples of Collector DAOs are FlamengoDAO and ConstitutionDAO.
FlamengoDAO is known for acquiring expensive NFTs from XCopy, CopyPunks and much more. ConstitutionDAO was created by its members who wanted to buy the U.S. constitution.
Social DAOs: This DAO is also called Creator DAO and is meant for people with like interests. These communities have a specific barrier due to their need for a specified type of individuals. Some examples of social DAOs are DeveloperDAO and Friends With Benefits.
Media DAOs: Media DAO produces content driven by community interests and not influenced by advertisers. It rewards readers and contributors with its native tokens.
An example of Media DAO is BanklesssDAO and DecryptDAO. BanklessDAO push for a bankless money system with its contents. Decrypt allows readers to vote on the type of content they want to see.
Philanthropy DAO: This DAO provides certain services to impact the society positively. It aims to improve social responsibility with its activities.
Big Green DAO and UkraineDAO are two notable philanthropy DAOs. They each helped Ukraine when they were in crisis from the Russian attack.
SubDAO: This is a fragment of DAO members that performs a particular community function. They offer services in operations, treasury, marketing, partnerships, and grants.