Backed by pre-established code and digital frameworks, DAOs are robust virtual communities operating with minimal coordination and high levels of execution. They provide members unlimited control in the decision making process — bottom to top — and incentivize participation through token ownership. They can accomplish a wide variety of goals such as providing equitable financing opportunities, community building through network participation, and art curation through pooled investments. All while upholding the foundations of blockchain technology — an immutable ledger, transparency in transactions, and anonymity in membership…
If you read all of that and are still confused on what a DAO is? Keep going, we got you
So, what is a DAO?
A DAO, or “Decentralized Autonomous Organization,” is a community-led entity with no central authority. It is fully autonomous and transparent: using smart contracts to lay operational frameworks, execute decisions, host community proposals, and vote on initiatives.
What is the purpose of a DAO?
DAOs are designed to be automated and decentralized. You can think of a DAO similar to a venture capital fund, but one that uses open-source code, discloses investments publicly, and removes typical management structure in favor of a shared community governance. DAOs do not need nor require centralized management to operate.
How does a DAO function?
A DAO is governed entirely by its individual members, who make critical decisions about the future of the project. This includes technical upgrades, treasury allocations, and how to pay contributors. Most DAOs issue tokens in exchange for participation or investments. These tokens allow members to submit proposals and vote on others. Passed proposals are automatically executed by the DAO.
What sorts of problems, if any, arise from DAOs?
The central concerns are those that are similar to blockchain technology and cryptocurrency in general. This includes issues of legality, security, origin of finance, and concentration of ownership sufficient to dictate voting outcomes. For example, in recent news, we witnessed the exploit of Mango Markets which had $100 Million in tokens stolen from the platform. The hacker then used their new voting power to create a proposal to force the protocol to pay back bad debt and not pursue legal action. While this is example would see, crazy in traditional corporate governance, it is all too common in the Web3 space and showcases the need for legal remedies on-chain.
What does the future of DAOs look like?
The future of DAOs is a strong one with analysts and investors expecting decentralized organizations to replace many traditional business structures as Web3 matures. This may be the reason many companies are rapidly moving into the Web3 space, such as Facebook’s Metaverse, Nike RTFKT or McDonald’s accepting $BTC to be ahead of the curve.
Thoughtful DAO Design
Over the past several years we have seen an explosion of new DAOs being formed. Famous examples include OlympusDAO which has built a decentralized reserve currency or FlamingoDAO which created a strong community of investors in the NFT space. A failed, but very notable example is ConstitutionDAO which gained headline recognition for their attempt to purchase a copy of the United States Constitution at auction.
And while DAOs regularly turn into massive investment pools, having large funds is not a barrier. Do your buddies want to form a DAO to manage Fantasy Football winnings? Or use the DAO to go 10-way-split on a sailboat? It’s anchors aweigh, because the possibilities are endless.
Anyone can create a DAO for any purpose and the fundamental principles remain the same — a decentralized platform used to form a virtual community that can build, socialize, invest, or innovate.
Side Note: There is also a wide range of tools and companies that make forming a DAO easy, such as Upstream which created a no-code, full-stack platform. Essentially a DAO in a box.
However, DAOs face the serious trust issues that are prevalent across the Web3 space.
For example, DAOs often need to hire contributors and freelancers just like traditional companies. But decentralization and anonymity create trust issues that can prevent deals from taking place — a freelancer cannot know if they’ll get paid or who is responsible. DAOs usually ask for work up-front and freelancers are hesitant.
And while the current solution is to provide reversible transactions though community courts in the event of scams or lack of payment. We covered last week how such a system is corruptible and slow.
So what is the solution to solve these issues? Jurat.
The Jurat Network supports Layer-1 blockchains and smart contracts that provides access to real courts and compulsory judicial process to ensure all parties are treated fairly. Our services allow traditional commerce to migrate to the blockchain, fully-assured that any disputes can be handled through legitimate court systems. Thus if a contractor’s work is not completed, funds are sent to the wrong address, or god-forbid… private keys are lost, users will still have their legal remedies. Both the client and contractor are protected though on-chain enforcement of legal rights.
And because Jurat eliminates the need for intermediaries to execute the court decision DAOs can stay true to their decentralized ethos while affording legal protections to all participants. Traditional commerce can stop watching hesitantly from the sidelines because Jurat makes blockchain safe for business.