What Is a Crypto DAO?

Jul 13, 2022
10:07
2 min reading

Choise.com team

What Is a Crypto DAO?
How Do Crypto DAO Projects Work?
How Do Crypto DAOs Differ From Traditional Organizations?
How to Participate In a Crypto DAO?
Examples of Crypto DAOs
Disadvantages of Crypto DAOs
About Choise.com MetaFi Academy

In our journey to fully fledged Choise.com DAO, we launched DAO Forum to support the process of bringing the best ideas to life.м

DAO Forum is the main communication channel where the Choise.com community will have the freedom of speech. It is also the essential part and the first step towards deploying DAO.

Choise.com DAO is a decentralized autonomous organization that will give ALL users an opportunity to vote equal to their ownership of CHO tokens. The DAO is aimed at ensuring the Choise.com mission to provide equal opportunities to every member of the community.

Let us learn more about DAOs

As decentralized technologies are thriving, and blockchain applications are enjoying mainstream adoption, new terminology gets thrown around regularly, making those unfamiliar scratch their heads wondering: what is this?

DAO has become a buzzword nowadays, and it has nothing to do with the Confucian tradition, but with blockchain and cryptocurrencies.

What Is a Crypto DAO ?

The DAO stands for a Decentralized Autonomous Organization, and very broadly, it indicates a community or group of people who rule a specific crypto project or platform.

Such entity has a decentralized nature because there is no central authority to oversee the organization. Instead, the DAO is autonomous and transparent in its essence: smart contracts form the infrastructure for the project and execute the orders.

Intelligent computer programs, smart contracts are auditable thanks to an open-source nature of blockchain. It means that proposals, voting procedures, treasuries, and even the code of the DAO can be reviewed by the public.

Similar to how boards, committees, and executives run usual companies, crypto DAO projects are managed by their participants who are enabled to make key decisions concerning the operation, development, and modifications of the underlying protocol.

The DAO participants can create proposals about the future of the project, and then these proposals are put into voting. Proposals, which receive more voices, are accepted and enforced by the platform’s smart contracts, while the authors of successful proposals get rewards. The DAO members have financial incentive to vote and approve only those proposals that will benefit the project and its community.

Crypto DAO means that a project with a robust, well-performing DAO will enjoy more trust and usage from the world community, ultimately pushing the price of the DAO native token up.

To become a member of such an organization, a user first needs to buy a native cryptocurrency of the project/platform. Holding native tokens grants voting power to a participant, and the voting weight of a user is proportional to the amount of tokens he/she holds.

Participation in the DAOs can be extremely rewarding as members receive a share of the revenues that the given crypto platform generates through different activities (such as fees from trading).

The decentralized internet (Web3) is brimming with different decentralized autonomous organizations because they allow even beginner projects to raise money and secure seamless growth. People eagerly join the DAOs too, expecting that the project will evolve and become more popular.

How Do Crypto DAO Projects Work?

Being a collectively led establishment, the DAO has no central leader. The DAO exists in a blockchain network being supported by smart contracts (software that automatically executes agreements once the specified criteria are met).

Taking part in the DAO is generally not possible without obtaining the project’s governance token that makes participants eligible to decide on the project’s key parameters. The decentralized autonomous organizations comprise people from different corners of the world, and their communication is often organized through the Discord channel.

Smart contracts determine the rules of the DAO functioning. Individuals who stake their governance tokens are granted the ability to influence the platform’s critical characteristics by either participating in voting events or creating new proposals about the project’s improvements.

Ownership of the DAO crypto is often a must-have if you want to join the DAO. This allows the organization to avoid spamming proposals: only if most stakeholders support the proposal, it can be accepted and implemented by the platform. The rules on how proposals are approved and put into effect are described in the smart contracts.

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How Do Crypto DAO Differ From Traditional Organizations?

The purpose of the crypto DAO is to secure and improve the performance of its crypto project, which is similar to how the board of management works in a company. Still, there are some apparent differences between an autonomous decentralized organization and a regular establishment.

A DAO is governed by a community, while a traditional company relies on executives, e.g. a Board of directors. A DAO’s activities are fully transparent and global, and they can be tracked on the blockchain. Operations of a regular company are private and not always global, while only the organization’s leaders know about the efficiency of the company’s operations.
A regular company adheres to a hierarchical leadership model with a centralized leader at its top, such as a CEO. As a rule, vital financial decisions are made by a CFO. This is not a case with the DAO. Here, leadership and decision-making are transferred to a distributed network of autonomous participants. In the DAO, company’s changes are implemented only after a voting event, while in a traditional entity changes can be initiated from a sole party, without any voting among members. In this sense, the DAO is a democratized organization, while the company is always hierarchical.
A regular organization is accountable to a centralized authority. On the flip side, the DAO is decentralized, with no board of directors to be influenced by the central government. The DAO operates on smart contracts, which, in their turn, are controlled by the DAO members. As the DAO rules are described in the code, no managers are required, which eliminates any bureaucracy or hierarchy hurdles.

How to Participate In a Crypto DAO?

If you wish to join some decentralized autonomous organization, here are tips on how to do it.

Determine Your Goals

Different DAOs have different missions that all of their members are working on. While some organizations exist only to create and maintain hype around the project on popular socials, others offer solid technical expertise to help the crypto company’s team build and expand their platform. Your personal interest and competence should play a key role when you decide on the crypto DAO to join.

Find a DAO that Suits Your Requirements

Since different crypto DAOs are driven by different missions, you should do your homework to find an organization that aligns with your interests. For this, you can use this crypto DAO list to help you detect the most reliable communities.

DAOs will usually come with a statement of their goals and missions as well as methods of participation. By studying this information, you will have a clear idea of how to join, what to expect from membership, and ways to contribute to that DAO.

Join the Community

The easiest way to enter the DAO is through the project’s Discord channel, where you can introduce yourself, join the discussions, and learn how to contribute. Take your time to examine the DAO properly to ensure you are able and willing to contribute to it.

Get Involved

Software developers can benefit from DAOs in lucrative ways, but participants of different skillsets can also be helpful for a particular DAO, including graphical designers, SMM experts, translators, and more. Your contribution will depend on your abilities, as well as the DAO’s needs.

You may join the DAO for free and still get compensated for the work you do for the project. Meanwhile, to have a governance role (and unlock greater earning opportunities) in an organization, you will be required to buy the project’s native token and hold it in your cryptocurrency wallet for a fixed amount of time (it is called staking).

Note. Although participation in a DAO can be highly beneficial, and contributions from members towards the organizational goals can be fairly compensated, there is always a potential risk of losing your stake if the platform shuts down, or its smart contracts fail.

Why Are Crypto DAOs Important?

Although specific functions will vary, the purpose of the DAOs is to help the crypto project evolve. People from the entire world rally around the DAO to provide their contributions and assist the project in achieving its goals, while also expecting a compensation for their commitment.

There are other reasons why crypto DAOs are indispensable nowadays:

Greater flexibility for talents. DAO communities allow the global workforce to join and leave the project without stress, which is often a problem when one wants to engage in a centralized organization. You can take part in multiple DAOs at once. This enables talented people to get hired and work on the internet for any crypto company.
A multitude of use cases. For a crypto project, a DAO can help to solve many problems. For instance, it can be used to raise funds for the project, promote the brand awareness, or establish partnerships with the industry’s giants.
Trust and transparency. A decentralized autonomous organization is all about trust and transparency in achieving collective goals. The AO members do not need to know each other . Since a blockchain is tamperproof, no DAO member can alternate the protocol’s parameters without gaining approval from the majority of participants. This unlocks many new opportunities for global collaboration and coordination.

Examples of Crypto DAOs

DAOHaus is a no-code platform that helps beginner crypto projects to create and manage their own DAOs.
MakerDAO is a decentralized governance community that enables the generation of Dai, the world’s most popular stablecoin.
MolochDAO is a DAO, hosted on Ethereum mainnet. Members work toward helping nascent Ethereum-based projects to raise funds and accelerate the expansion of the Ethereum ecosystem.
BanklessDAO is a decentralized community that coordinates and propagates bank-less media, culture, and education. It is on a mission to promote adoption and awareness of truly bank-less money systems like Ethereum, DeFi, and Bitcoin.

Disadvantages of Crypto DAOs

While there are many positive aspects behind crypto DAOs, these organizations still have some drawbacks as well.

Concentrated Voting Power

Although access to a DAO can be seamless, a specific group of people can accumulate the major portion of DAO tokens, thus, gaining greater influence on the project’s perspectives than other users.

Problems may arise if major token holders continuously approve unreasonable proposals. This means the DAOs are still subject to some kind of hierarchy and can be easily manipulated by a circle of participants who possess more DAO tokens than others.

Time to Enforce New Practices

A community-driven model of DAOs can present a huge disadvantage for a project in some negative scenarios. Since changes in the DAO cannot be implemented without voting formalities, some urgent modifications in the smart contract code cannot be carried out immediately.

Without the agreement of all DAO members, it is impossible to make any additions to the code in a timely manner. This renders the entire platform vulnerable for a while in case of a security breach.

Lack of Accountability

Because of the decentralized character, the DAOs have no central entity to report to, and the decision the particular DAO makes are not accountable to any authority. As there is no legal framework for DAOs, it is difficult for them to implement rules and regulations.

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