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What is a DAO? – Decentralized Autonomous Organizations Explained

What are Decentralized Autonomous Organizations?

Today, we are living in a world that is mostly centralized. Different companies and businesses have boards of people who are in charge, but even boards are centralized. As long as there is a person above the boards that take decisions, we can say that that company is centralized.

Throughout human history, centralized entities were used more than decentralized ones. This may be because it is easier for everything to happen when only a person is in charge. Then comes the financial system, a system that revolves around banks, governments, and very powerful people. Currently, the global financial system is failing. The high inflation rate, unfair distribution of money, and counterfeit money all serve as examples of the ineffectiveness of this system. 

As the world changes, so should the way transactions work. In 2009, Bitcoin made its debut. People were skeptical about this decentralized peer-to-peer payment system at first. Knowing that the founder of Bitcoin, Satoshi Nakamoto, was anonymous, they were not to blame. Fast forward to 2022, Bitcoin’s market capitalization is $1 trillion and the whole cryptocurrency market is worth more than $3 trillion. 

Bitcoin promises to overcome the issues of the global financial system through Peer-to-Peer (P2P), transparent, safe, cheap, and fast transactions. Moreover, Bitcoin’s whitepaper claimed that Bitcoin’s network will always remain decentralized. The concept of decentralization grew with the crypto market and people began creating everything decentralized. We have decentralized WiFi networks, decentralized exchanges, and decentralized games. The most exciting thing, however, is the concept of decentralized autonomous organizations (DAOs) that came after the debut of Ethereum.

What is a DAO?

Decentralization is the next big thing and DAOs are part of it. Decentralized autonomous organizations are organizations, companies, or communities that are decentralized and sometimes even automated. This means that there is no individual whose decisions are absolute. That is not the case in today’s world since the owner of your workplace can fire you without asking anybody. In DAOs, decisions are usually taken through a voting system. Therefore, every member of the DAO gets the right to vote. Sometimes, however, people who own more of a specific cryptocurrency might be prioritized in the voting process. This depends on how that specific DAO was coded and built, though. Check out this video by Whiteboard Crypto for a more detailed explanation.

The best way to explain the potential of DAOs is using the words of the billionaire Mark Cuban. He claims that DAOs are the best fusion of capitalism and progressivism… and he has a point. Having organizations or corporations not affiliated with any country and existing in a decentralized manner could reshape the way the world functions. 

DAOs are Decentralized Organizations
Comparison Between Decentralized Organizations and Centralized Organizations. Source: Dev

The first-ever DAO made its debut in 2016 on the Ethereum blockchain. This idea behind the creation of such an organization was the elimination of human mistakes. So, an automated, decentralized organization would mean that human mistakes were eliminated and the system is perfect. Well, that is not necessarily true. There are several cases where hackers targeted DAOs. Even the first-ever DAO was hacked, leading to a loss of more than 3.5 million ETH.

NFT Collections Interested in DAOs

Therefore, DAOs are still far from being perfect, however, the concept of such organizations is amazing. In the near future, we will see hundreds of new DAOs joining the space. Non-fungible token (NFT) collections have been showing interest in DAOs as well. Therefore, founders of some collections claim that DAOs are the only way to create a truly decentralized collection and give the community the power to decide. As more NFT collections create their own DAOs, the more will people hear about such organizations. In the end, the goal of such collections is to be led by the community, and DAOs make it possible.

How to Create a DAO?

Creating a DAO is not that easy, so we will try to walk you through the process. You can create a DAO all by yourself, but using third-party applications makes the process easier. We suggest you build a DAO without using third parties only if you are certain you know what you are doing. One mistake in the code can lead to losing all the funds of the DAO, as it happened in the past.

Step 1: Build a Community

The first step towards a good decentralized autonomous organization is having a community. Each DAO has its own mission and benefits the community one way or another. For example, numerous NFT collections are working on their DAOs. This is because having a DAO makes it easier for a community to prosper. DAOs are usually transparent to their members. With the funds and transactions being transparent, no one can misuse the funds for personal gains. Moreover, most DAOs are automatic, therefore, even the creators have no power over them.

Step 2: Verify Your Community

After creating your community, you have to verify them one way or the other. For example,  when it comes to NFT collections, you can use Collab Land to verify the holders of your NFTs. Only those that are part of your community can vote in proposals or similar things. Furthermore, NFT Discord servers may have 150,000 members but only 8,000-9,000 of them enjoy the benefits of being part of the community. This is because only 8,000-9,000 of the members are verified holders (HODLers). 

By the way, I am only using NFTs as an example. DAOs are not limited to NFT collections and there are several ways to create communities for a DAO.

Step 3: Create Moralis Account

The next step is to create a Moralis Account. Creating a Moralis account is simple, all you need to provide is your email. After creating a Moralis Account, you are all set to start working on your DAO.

Opening a Moralis Account for DAO Creation
Opening a Moralis Account. Source: Moralis

Step 4: Create Your DAO Using Moralis

Now, you can begin creating your DAO. If you are a blockchain developer and have a team behind you, you can create a DAO without the need for Moralis or any other platform. However, if you are not an expert on blockchain but have basic knowledge, Moralis is a necessity. 

So, all you need to do is get the code from GitHub and begin working on making your DAO unique. For more information, visit Moralis.

How to Join a DAO?

Joining a DAO is easy compared to creating one. To join a DAO, you must first find a DAO that fits you. You can find one using DAOList and DeepDAO. After finding a DAO that you like, you must follow the steps that they provide to join them. 

Biggest DAOs

Currently, there are more than 4,500 active DAOs. Moreover, tens of DAOs have hundreds of millions of dollars in their treasury, with Uniswap, Compound, and BitDAO having more than $1 billion. According to DeepDAO, the 10 biggest DAOs are:

Rank Treasury Governance Token Holders
BitDAO $2.3 billion 20,600 holders
Uniswap $1.9 billion 307,800 holders
Lido $389 million 26,000 holders
Compound $359 million 193,200 holders
Aave $321 million 129,300 holders

Takeaways

  • Today’s organizations and companies are mostly centralized. As a matter of fact, people favored centralization throughout history.
  • Bitcoin, the first-ever cryptocurrency, promises to become the first fully decentralized payment system.
  • Moreover, Bitcoin introduced blockchain technology to the world and this technology is theoretically limitless.
  • Some developers believed that they can create a fully autonomous and decentralized organization through blockchain technology. Therefore, they decided to call it a decentralized autonomous organization (DAO).
  • At the time of writing, there are more than 4,500 DAOs in the market. Uniswap and BitDAO are two of the biggest DAOs right now.
  • DAOs have a lot of potential, however, the concept of such organizations is still young. 

 

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