A decentralised autonomous organisation (DAO) is a software program running on a blockchain that provides users a built-in model for the collective management of its code.
DAOs differ from traditional organizations managed via boards, committees and executives. Rather than being governed via a constrained group, DAOs use a set of policies written down in code and enforced by the network of computers running a shared software.
To become a member of a DAO, customers need to first be a part of the DAO via buying its cryptocurrency. Holding the asset then generally gives users the power to vote on proposals and updates, proportional to the amount they hold.
The first successful example of a DAO was BitShares, a digital e-commerce platform linking retailers and clients barring a central authority. At the time, Bitshares was once labeled as a decentralized autonomous company (DAC), a term coined by its founder, Dan Larimer.
Of note, the first DAO created on the Ethereum blockchain, named The DAO, was marred by controversy, as hackers found a loophole in the code.
How do DAOs Work?
DAOs are supposed to mimic a company structure where policies and guidelines are built using open-source code and enforced via the use of smart contracts.
If you’re unfamiliar, smart contracts are agreements programmed to execute if and when sure prerequisites are met. These regulations are generally determined by the DAO stakeholders.
Unlike regular organizations, there is no hierarchy in DAOs. Rather, to align interests of the corporation with that of its members, DAOs incentivizes a distributed network of customers to obtain their goal.
One of the key features of a DAO is the internal capital that is used to incentivize these actors and make certain that the organization runs smoothly.
Once the original set of policies have been installed and programmed into smart contracts, DAOs normally enter a funding segment that anyone wishing to get right of entry to it can work in.
At the stop of the funding phase, the DAO is considered live and operational, and all key choices surrounding the organization are made by customers reaching a consensus on proposals.
By owning and locking cryptocurrencies into a voting contract, customers gain the ability to vote on proposals, with the voting weight being proportional to the quantity of cryptocurrency locked.
The suggestion is subsequently instated based on the predetermined network consensus rules, and voters are rewarded with additional cryptocurrency for participating.
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